I need money to fund my company
1) Borrow money from the Bank: You will need to repay the money plus interest over a set period of time.
2) Issue bonds: You borrow money from the public. You will need to repay the money plus interest over a period of time
3) Issue shares: You sell some ownership of your company to shareholders. You won’t need to repay the money as your investors are co-owners of your company. There is no time limit to reward the shareholders. You will need to keep your shareholders informed of your company progress, share your profit by paying your shareholders dividends. Shareholders take the risk of investing in your company because of the potential increase in the value of your company shares as it becomes successful.
|PRIVATE SHARE ISSUE
|PUBLIC SHARE ISSUE
|Method:You sell shares privately by approaching your friends and family for example, or some private equity firm.You then update your share register.
|Method:You carry out a three to six months due diligence activity that leads to the production of a document to be used for Initial Public Offerings or Placement or Offer for Subscription.Your shares are offered on the market.You will need to appoint a Share Registrar to look after your share register.
|Advantage:No public scrutiny, your company remains private under your existing management structure.
|Advantage:Your company now has a valuation placed on it. Your shares now have value and can be used as a currency if required.There can be liquidity for your shares as they are listed on the stock market
You offer your shareholders the possibility to trade their shares and thus create liquidity.
|Drawback:Your shares are illiquid: they cannot be traded readily.You may end up with unwanted controlling shareholders.
|Drawback:The cost.The public scrutiny as your accounts are made public, and you have regular and ongoing reporting obligations to your shareholders.
|Cost:None as you do all the fundraising work and the share issues and share register maintenance.
|Cost:Around 10% of money raised split between the corporate finance adviser, independent lawyers, and independent accountants.Abort fees payable by you if the company fails to raise the funds.
There are many ways of valuing a company, which includes sentiment valuation.
The following are three basic methods that should give you a rough idea of the value of your company based on your accounts.
1) Valuation per peer group: As your company shares are not listed on the stock market, look for similar businesses to yours based on company size, sales volumes or balance sheet. Note their PE or Price to Earnings ratio. Then multiply your profit with this PE figure. That should give you a rough benchmark valuation of your company.
2) On your spreadsheet, or ask your financial person to do this, forecast your income for the next five years. Then apply the discounted cash flow calculation to look at your company’s present value.
3) Use your net asset value (NAV): from your balance sheet, subtract your liabilities from your assets to get your net assets. Then divide your net assets with the number of shares in your company. This will give you the NAVper share.