Why Growth Is The Most Vulnerable Stage
We recently invited Joanna Oakey, Director of Aspect Legal to a webinar on the topic, ‘The Legal Challenges of a Growing Business’
Here’s what she said –
Why is growth the most vulnerable stage?
Growth is the most vulnerable phase for a business and many people think that the most vulnerable phase of a business is in startup, but that is a vulnerable phase generally in relation to working out whether or not the business has legs. The vulnerability in growth comes from the fact that you have something that you don’t want to lose and that has value that you need to ensure that you’re protecting. It is so devastating when we see businesses in growth suffer issues that either take their eye off the ball or entirely blow them up.
So, what are the characteristics that we see of growing businesses?
Quite often, they have a lack of structure and appropriate legal foundations. This is often because when the businesses start up and they are in the startup phase, the legal documents have come into place often from being borrowed or stolen. When you are in this period of growth and you are building yourself and your business up to withstand periods of growth, and the bigger entity that you are growing it into, it’s in a completely different situation when you set it up and put those documents in place in the beginning.
The other characteristic of growth is that fires start appearing in the business that leach time, attention and money. So at best, this can cause ongoing disputes and issues that start off as little niggles but then can grow into big niggles that take you off-course of growth and can create an unsaleable business.
We see a lot of those unsaleable businesses when the business owners have gotten weary of all of the issues that have happened in their business as part of growth and they just want to offload it. But that is the worst time to try and offload your business because it is almost unsalable at that point, and you will get a very low sale value. But at worst, it can destroy the whole business.
Watch the full webinar, ‘The Legal Challenges of a Growing Business’ at https://learning.benwalker.com/courses/legalbusinessgrowth
Will Banks Loan 100% Of The Purchase Price?
We recently invited Scott McGregor, Commercial Broker at Mortar Finance to a webinar and we asked the question, “Will the banks loan 100% of the purchase price? Or do they still look for that particular?”
Here’s what he said –
In general, a bank won’t go to 100%. However, if you had security outside of that, a residential property that was free of any debt and you put that property in as a security, then the bank would entertain that transaction up to 100%.
If it was just buying a business with security over the business and a director’s guarantee without any sort of other property or security behind it, it would be very hard to get a hundred percent finance for a business, even a residential property, bank’s going to look for a 20% deposit and that is a bricks and mortar asset. As a general rule, you will need to have some contribution there.
The other issue with funding 100% of the business is the amount of debt the business is carrying. The more debt that you are carrying in the business, the more the cashflow is going to be tested, or required to cover a loan repayment. Putting some cash in also gives you equity in that business. It also reduces the debt level and reduces the stress on a cash flow especially as a new owner, you might be sort of trading up or building up the business. 100% finance on day one can’t test the cash flow so there are a number of things to think about when we look at how much the business is going to borrow.
Watch the full webinar, ‘Funding Your Next Business Acquisition’ at https://learning.benwalker.com/courses/fundingbusinessacquisition
The 1st Thing Banks Look At When You Apply For Funding
We recently invited Scott McGregor, Commercial Broker at Mortar Finance to a webinar on the topic, ‘Funding Your Next Business Acquisition.’
Here’s what he said –
It comes down to the management experience and their skills, the industry that they are operating their business within and who are the key people in that business. I suppose when you break that down to an acquisition, if you’re buying a business that you don’t have any experience in, that’s going to be something the bank’s going to want to understand, how that’s going to work. There may be some key people within that existing business that you’re going to retain through the acquisition and it’s important to understand who those people are.
If the business you’re buying is very reliant on the previous owner, or a sales manager, if you can’t secure their services in the acquisition process, then it may have an impact on how that business is going to trade going forward. The all up understanding of the character and the ability of the applicants to buy and operate that business is going to be fundamental to the bank getting comfortable with you as an applicant for finance.
Some of the things that people do there are conditions within a contract that the previous owner will stay on for 12 months or something to help with training and upscaling to get into that business and help with the transition process. Sometimes under franchise arrangements, the franchise group will provide ongoing training and support to the new business owners to help them get comfortable with what that business is going to run once that franchise person steps away.
Watch the full webinar, ‘Funding Your Next Business Acquisition’ at https://learning.benwalker.com/courses/fundingbusinessacquisition
The #1 Issue With Structure & Asset Protection
We recently invited Joanna Oakey, Director of Aspect Legal to a webinar on the topic, ‘The Legal Challenges of a Growing Business’
Here’s what she said –
The number one common issue isn’t necessarily the one that I see most often, but it is the one that I see when it comes in and can have the most massive impacts, and that’s personal liability. Personal liability, either through your role as a director or through personal guarantees that you have given as a director. It can be a real trap and many businesses aren’t aware of the fact that when some of your suppliers ask you to sign personal guarantees, you don’t have to sign them necessarily.
Often, personal guarantees will come up in leases, in copier arrangements, and in lots of different areas. But the problem is by signing personal guarantees, you are linking that liability to you personally, through the business. You are sort of breaking that corporate veil that protects you. So be very careful about signing personal guarantees and there is always another way, and we almost always find alternative ways for our clients, other than personal guarantees. Finance is something completely different, and there may or may not be alternatives for that. But we are talking about the commercial agreements that you might be entering into.
We had this period of time through the first lockdowns last year, where we had some of the protection of some changes that had come into place temporarily to protect directors, who may have had this risk of insolvency in the business but they are gone now and we don’t have those protections in place anymore. Over the last few years, we’ve had a few clients, who’ve been in this situation, and it’s horrendous when clients, business owners, and directors are threatened with insolvent trading personal liability. It is a very emotional process so you just have to be super careful about that. And that is where a constant relationship with your accountant and insight into financials are very important.
Watch the full webinar, ‘The Legal Challenges of a Growing Business’ at https://learning.benwalker.com/courses/legalbusinessgrowth
What Do Banks Think About Vendor Finance Agreements?
We recently invited Scott McGregor, Commercial Broker at Mortar Finance to a webinar on the topic, ‘Funding Your Next Business Acquisition.’
Here’s what he said –
We see a lot of business acquisitions where the vendor was quite happy to provide some finance to the buyer on that business. It is accepted by the banks, but it is probably lower on their appetite scale than having genuine cash or property equity into the transaction. But, as long as the bank can understand the vendor finance agreement, have that provided to them and potentially have their lawyers read through it to understand how it may impact on the bank debt, some vendors will want security over the business. So if the vendor’s got security over the business, the bank will want to know that they can have a preferential security position over that business.
The Vendor Finance Agreement may include terms around how any enforcement action from the vendor could be triggered. I have seen some vendor finance agreements whereby one missed payment under that vendor finance arrangement, can trigger enforcement action by the vendor.
If they have a general security agreement over your business and they enforce against the business, the bank really has two options, they can either pay out the vendor to stop the action, or they end up joining the action with the vendor. And that is where the bank then obviously wants to be very comfortable around that agreement before they get into that position. Because it can leave the bank with really limited options in terms of what they do, which is why it’s important for the bank to understand what that vendor finance arrangement is.
It is certainly something that is able to be done as long as all the parties can understand how it works and be comfortable with it, then it is a valid option to have some additional support or finance around the business. If you have got a repayment to the vendor and to the bank, they will want to understand that the business can still make, or afford all of those repayments and not just the payments to the bank.
Watch the full webinar, ‘Funding Your Next Business Acquisition’ at https://learning.benwalker.com/courses/fundingbusinessacquisition
The 3-Step Process In A 482 Visa
We recently invited Michel Sulzbach and Erica Carino, directors of Bravo Migration to a webinar on the topic, ‘Hiring Temporary Residents on a Visa’
Here’s what they said –
The most common visas today are starting with the 482 TSS. This is the new 457 visa which really is just the same with a different name and a little bit of tweaking in the requirements. This is a visa that takes 3 steps. A business needs to be approved as a sponsor to be able to sponsor workers in this visa. Then there is a nomination which is the approval of the position being offered to that worker in particular and a visa approval as well.
The SBS, or the Business Sponsorship Approval is a blanket approval that will be valid for five years and enable businesses to sponsor people over that period. However, every time there’s a new candidate, every business, approved or not, needs to go for step 2 and 3, specifically for that person. Now that SBS approval is also valid for the regional sponsor visa.
Regional for migration purposes is any position located outside of Sydney, Brisbane, and Melbourne metropolitan areas. Gold Coast, Cairns, Newcastle, South Australia are regional areas for migration purposes and you could benefit from that because the government wants to make things easier for regional employers. So that approval is valid for the 482 TSS visa or a regional-sponsored visa as well.
Watch the full webinar, ‘Hiring Temporary Residents on a Visa’ at https://learning.benwalker.com/courses/hiretempvisas
How Do Finance Providers Approach Pre-Purchase Structuring?
We recently invited Scott McGregor, Commercial Broker at Mortar Finance to a webinar on the topic, ‘Funding Your Next Business Acquisition.’
We asked him this question –
How Do Finance Providers Approach Pre-Purchase Structuring? For example, if the business has high cash reserves and retained earnings, declaring dividends prior to purchase, and let’s say a business has half a million of goodwill that the buyer wants to buy, but the company it’s in has a million dollars worth of retained earnings – how would banks like that approach?
Here’s what he said –
The banks always want to understand any sort of dividend strategy around a business. If there are dividends coming out of the business, and where that might be going will reduce a business’s ability to repay the debt. So if there’s a dividend strategy that 100% of profits are syphoned out of the business every year, then a bank may want to understand what that is, and they may actually covenant around not taking that much money out of the business.
If it’s a growth strategy, whereby a business might declare a dividend to then release the cash and then put it towards another business, then that would be acceptable as long as the bank understood how that was transpiring and the benefits of doing that.
It really comes down to explaining what’s happening and having the bank be comfortable with that explanation and being comfortable that there’s not going to be any future impact to an ability to service the loan or impacting on the business’s balance sheet position that may then impact on asset values. So it really comes down to an understanding exactly the purpose behind that transaction and how that’s going to impact on the future of that business.
Watch the full webinar, ‘Funding Your Next Business Acquisition’ at https://learning.benwalker.com/courses/fundingbusinessacquisition
Which Industries Have High Funding Potential?
We recently invited Scott McGregor, Commercial Broker at Mortar Finance to a webinar on the topic, ‘Funding Your Next Business Acquisition.’
Here’s what he said –
These industries are by no means exhaustive. It just highlights a few of the industries where a lot of banks have specific policies around lending to these industries. So, accounting, insurance, legal, etc. that the banks have enough exposure and comfort across these industries to design specific policies. I suppose provide a lot more guidance around how they are going to be structured, but it potentially gives us access to a higher level of funding because the bank has a certain comfort and a certain policy around these types of industries.
Anything that sort of falls outside of this, doesn’t make it any easier or harder to fund, but it falls back to standard business assessment criteria, as opposed to a specific policy around these sorts of things.
Each bank we deal with has a different policy that relates to accounting industries but they all have a particular policy around how we might lend to an accounting business or a financial planner, or a doctor. They will look at those sorts of things. There are specific industries that will have certain policies. As long as we can understand the business, the repayment, and the security, then we can still put a good application together and have a good conversation with a funder around putting some facilities in place.
Watch the full webinar, ‘Funding Your Next Business Acquisition’ at https://learning.benwalker.com/courses/fundingbusinessacquisition
5 Types Of Employer Sponsored Visas
We recently invited Michel Sulzbach and Erica Carino, directors of Bravo Migration to a webinar on the topic, ‘Hiring Temporary Residents on a Visa’
Here’s what they said –
The options under temporary visas would be the 482 TSS Sponsorship Visa, which is the old 457.
In 2017, the Government woke up and said, “We’re abolishing the 457. No one else can be sponsored. But we’re implementing the 482.” Which is pretty much the same thing with a few tweaks. The 457 was on the news all the time. So what the government did is, “Let’s scrap that out and start with a new number. And people will think that that’s something completely new,” which wasn’t the case.
Then we have the 407 training visa which is also a sponsorship visa and this is important especially to those in the health industry. When you bring someone from overseas, a lot of the health professionals have to obtain registration in Australia before being able to work autonomously in their position.
Instead of going for the 482, we go for the 407 which is being sponsored by the company. But during that time for a maximum of two years, they were working and going through the process of obtaining their full registration to work in Australia. And then once they get the full registration, we either go for the 482 or the 186.
Then we have the 494, which is a regional visa and very similar to 482 as well. And we have the 400, which is a short stay business visa, usually for up to three months and it’s only granted from offshore.
And the permanent visa option is the subclass 186.
Watch the full webinar, ‘Hiring Temporary Residents on a Visa’ at https://learning.benwalker.com/courses/hiretempvisas
Can You Get A Loan For A 6-Month Old Business?
We recently invited Scott McGregor, Commercial Broker at Mortar Finance to a webinar on the topic, ‘Funding Your Next Business Acquisition.’
Here’s what he said –
6 months trading is not a huge amount from a bank’s point of view, but certainly you would need information up to date and a very comprehensive and rigorous forecast on where that business is going and the assumptions behind that. So that might be a new contract has been won for the business, which is going to generate X amount of cash flow that the bank can then rely on.
But, it will also be a thorough understanding of the current business and the new business and how they might be working together. So, there would be a lot of research around both businesses and the ability to repay. Certainly not impossible to ask, but 6 months trading is not a lot for the bank to work on so it’s going to be really around how we can understand the story and convey that message to the bank for them to be comfortable.
Watch the full webinar, ‘Funding Your Next Business Acquisition’ at https://learning.benwalker.com/courses/fundingbusinessacquisition
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