5 Solutions to Securing Financing and Raising Capital
Yes, it is true in today’s global economy that common bank-backed credit is as reliable as a successful Tom Green television show. Don’t hit the panic button, though. The credit market ebbs and flows like Mike Myers’ popularity.
However, until the cash starts flowing again, your company may be forced to seek alternative sources of financing. Getting creative in today’s economic climate is the best way to raise capital.
Often times, securing capital absent the thorough evaluation process and agonizing bureaucratic hurdles lends the responsiveness and flexibility enterprise needs to stay competitive.
Whether your company needs a one-time cash infusion or a new line of credit, alternatives to the TD Bank Norths and the Bank of Montreals of the world exist. You may know of the periphery lenders; but do you know the benefits and risks associated with doing business with them? Here’s the good, the bad and the ugly:
Venture Capital Firms
The Good: New companies with little to no operating history lack the ability to raise capital publically or through loans. Thus, venture capitalist firms present these high-growth potential companies an option—sometimes the only option—to transform a drawing board concept to a boardroom cash cow.
The Bad: The risk/reward dynamic for venture capital firms can’t be ignored. In exchange for assuming such grave financial risk, venture capital firms require and wield not only undeniable influence but also a own a significant stake.
The Ugly: The nature between venture capital firms and CEOs is precarious to say the least. CEOs simply want to advance the business. Venture capitalists want a fast, lucrative return. Both sides think they can do it better, and often the CEO is replaced—justly or not.
The Good: Just as one would infer, and angel investor is usually an individual investor who ponies up their own capital to back a company. Angel investors typically are more connected to the process as a direct relationship exists. Statistically, angle investor-backed companies fair better than their venture capital counterparts.
The Bad: Like venture capital firms, the angel investor is exposed to tremendous risk and, to a certain extent, anticipates failure. As such, angel investors see a five-year window before exit strategy deployment.
The Ugly: Many angel investors aren’t in it for the money. The motivations and objectives must align between investors and CEO; if not, conflict will derail the project.
The Good: Asset-based lending is the most widely available and most utilised method of capital procurement. Nearly every commercial lender is in the asset-based lending business. Asset-based loans are backed by collateral.
The Bad: A commercial lender typically charges exorbitant interest rates because, well, because they can. And should a company default of an asset-based loan, the asset offered up is forfeited. Lenders know the value in asset-based lending and, as such, are relying on this financial arm to generate huge windfalls.
The Ugly: Asset-based lending has become synonymous with subprime lending. Typically, companies facing financial hardship have been rejected by banks and are turning to commercial lenders as a last resort. Commercial lenders are loaning to business that otherwise wouldn’t qualify for a business loan.
Initial Public Offering
The Good: An IPO is a most effective way for a company to reach the deepest pool of investors to raise massive amounts of capital instantaneously. The raised capital isn’t subject to interest. The financing goes directly into company coffers.
The Bad: IPOs are subject to complex legal requirements that vary jurisdictionally. For a company to go ‘public,’ they must work with multiple parties—underwriters, lawyers and government bodies.
The Ugly: While an IPO is often a celebratory time in a company’s lifecycle, the demands compile, like in the millions. A public company has millions of owners and all have a vested interested, which means serious consequences in the event the share price tanks.
The Good: While similar to common debt financing, mezzanine financing combines debt and equity into an attractive package to both borrower and lender. The borrower can obtain financing and retain full ownership if the loan is paid in full by a set date.
The Bad: The flip side is that if a loan is not paid in full on time, the lender obtains the rights to convert the outstanding debt to equity.
The Ugly: Mezzanine financing appears as equity on a balance sheet is generally used to obtain supplemental capital from commercial lenders or banks. If a borrower defaults on a mezzanine loan, odds are not in favor of a company’s ability to repay other debt.
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.