Business Angels are not lenders of last resort

Christine Kaine, founder of Business Angels Pty Ltd, based in Victoria, observes some of the lessons for accountants in facilitating small business funding.

How many accountants witness the following:
 "Our turnover sits on the $800,000 mark and we never seem to be able to mount that hurdle".

These are the words of many small firms who have been in business for 15 or 20 years. They do want to grow despite surveys suggesting the majority at this size don't want to grow beyond their comfort level.

Ernst & Young is on the record in 1999 saying that their research shows that small firms do not want hands-on investors. This just seals the fact that researchable data belongs to the upper echelon and what small business does on the street is only known to them.

Clearly, the emerging facility of business angel capital has excited many companies that are actually struggling with management and growth problems, and losing money because of those problems.

Barry Cooper, Director - Business Development, BSX: Australia's Alternative Equity Market says that whilst there are those in the business angels community who do offer last resort financial support, they are invariably bargain hunters capitalising on distress.

"They will cover the risk of the situation by exacting a high price for their capital," Cooper observes.

Accountants would understand that positioning a business angel investor in their client's firm could make that firm a more attractive bank loan proposition. The mix of debt and equity may be more appropriate for some growing firms, particularly because business angels' funds do not usually require a monthly repayment. The presence of an appropriately skilled angel investor will also sure up the management team.

Where a small business is having cash flow problems, accountants will often suggest restraints like cost cutting rather than expansive solutions like looking for a private investor. Cost cutting will not enable smart firms to capture the growth possibilities on offer today.

"Accountants are often wary of identifying an investor, you don't want to take the responsibility of matching within your own client base. Perception in the past was to keep funding solutions in house, many of us now realise that is a bad tactic - cost of technology blows them out of the water. They need extra funds and a private investor is an excellent solution." Jenny Wyatt, CPA Wyatt Alexander & Co.

Murray Rowett, Accountant and founder of NetEquity.com.au adds, "But the suburban accountant is often best positioned to assist with a successful match. The typical suburban accountant services a relatively small and defined territory of a number of suburbs and they know the personalities of their individual clients.

Given that a typical angel investment is less than $250,000 the business angel prefers the business investment to be nearby so that the costs of being involved in the business are kept to a minimum."

A firm's accountant should be able to assess the capability of the client and be able to suggest what other skills will be required to manage the growth. A skills audit or investment ready analysis could target the areas of weakness which can be filled with a business angel's skills, manpower, contacts and capital.

The other serious issue to be considered here is succession planning. As forty percent of people will never marry the "family business" will quickly be just part of a multifaceted business landscape.

Article number 3 discusses the many ways a business angel investment can be the solution to the succession issues faced by so many Australian firms.

"Who said your daughter or your son was the best person to take over your business!"

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