Introduction

Introduction to seminar

What do you hope to learn in the next two hours:

Burning issues?Topics of interest?

Opportunity to network

Have fun!

Learning Outcomes

Financing options?

Differences between debt, equity or internal funds

How to choose a debt product

Transactional banking

Section References

Debt, Equity or Internal Funds? Section Nine

Transactional Banking to Suit Your Business NeedsSection Ten

Debt, Equity or Internal Funds?

Debt - financing that is provided from an external source, such as bank

Equity - financing that is provided from an internal source, such as an owner or investor

Internal funds - profits and cash generated by the business

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To fully understand the implications of choosing either debt or equity to fund your business, ask yourself what will happen if something goes wrong

The answers will assist you in making the right choice

Debt, Equity or Internal Funds - Hint

Debt, Equity or Internal Funds?

Definitions and examples

What security is required

Assets$1M

Liabilities$0.6M

Equity$0.4M

cash

How does each party receive income?

Repayment requirement

Level of risk

Financial statement impact

Advantages and disadvantages

Debt, Equity or Internal Funds?

Generally, a business would aim to maximise the use of debt finance to fund its operations – as long as the business can service the level of debt and it has sufficient security to support the funding

The business owner would retain the benefits of ownership in respect of growth and profitability of their business

Debt, Equity or Internal Funds - Tip

Debt Products

Understand the various debt options:

short termlonger term

Evaluate your circumstances

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Debt Products Hint

It is important to review alternative finance products from different lenders and ensure that you are comparing apples with apples

Short Term Debt Product

Overdraft

Line of credit

Credit card

Cashflow lending

Debtor Financing

description

purpose

repayment

interest

fees

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Long Term Debt Products

Fully Drawn Advance

Mortgage Equity Loan

Interest Only Loan

Lease/Hire Purchase

Chattel Mortgage

description

purpose

repayment

interest

fees

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Comparing Debt Products

Interest - variable or fixed

Redraw facility

Early repayment or lump sum repayment

Minimum or maximum limits/sales limits

Term of loan

Percentage of and nature of security

Once off or annual fees

Offset features available

Which is the Right Debt Product?

Evaluating your own circumstances

Impact of selecting the wrong product

Tax implication

Which is the Right Debt Product?

Evaluating your owncircumstances:

How much funds?

What for?

How long for?

Security available?

Risk evaluation?

Which is the Right Debt Product?

Impact of selecting the wrong product:

Trade creditorsBank overdraft

Fully drawn advance

Share capitalProfits retained

Current assets

Fixed

assetsLong term

Debt

Equity

Short term Debt

Debt Products Tip

Ensure that the type of financing undertaken matches the reason for seeking finance

A general rule of thumb is to match the term of the loan with the length of the life of the asset you are funding

Transactional Banking

Transactional facilities

Merchant facilities

Everyday banking requirements.

Two types:

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Transactional Banking Hint

Choosing the most appropriate transactional banking products will assist in managing cash flow and improving profitability

Transactional Facilities

When considering transactional facilities:

What type of business?

Supplier requirements

How cashflow is managed?

Consult your banker for best options

Transactional Facilities

Electronic Desktop/Internet Banking

Credits to accounts – electronically, manually or by direct credit

Debits to Accounts – electronically, by manual cheque, GDES, EFT via Real Time Gross Settlement or overseas transactions

Bpay via credit card

Bpay via debit cardPage 73

Transactional Facilities cont.

Overdraft and other limit facilities

Cheque production facility

Lockbox – the processing of a mailed cheque, money order or credit card payment

Payroll processing arrangements

Other services – cheque encashment facilities

Transactional Banking Tip

Your banker can assist you in choosing the most appropriate transactional banking products for your business

Merchant Facilities

Provide various ways for your customer to pay:

Direct debitCredit card

Processedmanually orelectronically

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Merchant Facilities Tip

Merchant facilities provide a real benefit to your business cashflow. Your customers do not necessarily need to have cash in the bank to pay for your goods or services

Merchant Facilities

Benefits of Merchant Facilities:

Guaranteed a payment within 48 hours of purchase

Immediate credit check of payment

Improve your cashflow

Reduced exposure – holding less cash

Reduced administration costs

Can be used for one-off or infrequent transactions

Protect the environmentPage 73

Merchant Facilities

Checklist for using merchant facilities:

Do you have a retail store where your customers walk in and pay for goods with a card?

Do you take the majority of your orders over the mail/phone/fax/internet?

Do you have a requirement for a combination of both options above?

Volume of credit card transactions versus cash?

Merchant Facilities Hint

By introducing merchant facilities it is possible that your business will benefit from quicker payment, significant reduction in invoice queries and credit control calls and of course, improved cash flow

Transactional Fees

Most small businesses do not know how much they are paying because:

they do not review regularly

banks do not make fees transparent

Transactional Fees Hint

Regular review of your transactional banking services will guarantee that you know how much you are paying for these services and ensure that you are using transactional services that best suit your business

Transactional Fees

Various forms of fees:

Free transactions

Annual fees

Transaction fees

Limited free fees

Etc.

Transactional Fees Tip

By allocating all bank fees in a separate account, you will be able to clearly identify any increases in fees that could be impacting your profitability

List 3 actions you will follow through with as a result of this

workshop

Then

List 3 things that you’ve learned in this seminar

List 3 actions you will follow through with as a result of this

seminar

List 3 things that you’ve learned in this seminar

Business mentors help you to identify a clear direction for you and your business.Business mentors can also advise you on how to:

conduct market researchwork out your break-even pointprice and/or cost your products or servicesdevelop an effective marketing strategyuse other business management tools

To arrange a session with a business mentor go to:

www.sbms.org.au/OurPrograms/SpecialistVouchers.aspx

and type in AFS as your code

Using your SBMS voucher

Questions?

Thank you for attending

Check outbusiness.vic.gov.au/workshops

for more workshop information