Tag: FINANCIAL BASICS

 

WE ALREADY LEARNT IN LESSON 2, NAMELY THE VALUE OF THE SHARES ISSUED BY A COMPANY; AND AS YOU USUALLY WON’T ISSUE ANY SHARES FOR YOUR SMALL OR MICRO BUSINESS, YOUR BUSINESS IT SELF IS EQUITY. THAT SAID, IF SOMEBODY INTENDS TO GIVE YOU MONEY IN THE FRAME OF EQUITY FINANCING, HE OR SHE WANTS “A SHARE” IN YOUR BUSINESS. “A SHARE” IN THIS CONNECTION MEANS NOT ONLY ONE SHARE (BECAUSE YOU DON’T ISSUE ANY SHARES OF YOUR BUSINESS), BUT IT MEANS “PART” OF YOUR BUSINESS.

HOW BIG THIS PART IS MAINLY DEPENDS ON THE AMOUNT OF MONEY THE FUTURE PARTNER WANTS TO PUT INTO YOUR BUSINESS, AND OF THE KIND OF BUSINESS YOU WANT TO ESTABLISH. USUALLY IT WILL BE AROUND 25% OF IT, BUT IT SHOULD ALWAYS BE LESS THAN 50%. THAT’S BECAUSE IF IF THE PERCENTAGE IS 50 OR MORE, YOU WILL LOSE CONTROL IF YOUR BUSINESS, AND THAT IS SURELY NOT IN YOUR INTEREST.

A PERSON WHO PUTS SEED MONEY INTO A START-UP BUSINESS IS CALLED AN “ANGEL INVESTOR”. ANGEL INVESTORS ARE EITHER PROFESSIONAL INVESTORS, OR THEY ARE FOUND AMONG FAMILY AND FRIENDS. THERE ARE TWO TYPES OF SUCH INVESTORS: EITHER THOSE WHO JUST PUT MONEY TO START A BUSINESS (OR, NOT LIMITED TO A START-UP BUSINESS, INTO AN ESTABLISHED BUSINESS), OR THOSE WHO ENGAGE THEMSELVES ACTIVELY IN THE BUSINESS BY GIVING ADVICE OR EVEN RUN A SECTION OF THE BUSINESS, LIKE, E.G., MARKETING.

AN EQUITY FINANCING AGREEMENT – JUST LIKE A LOAN AGREEMENT – IS WRITTEN IN FOUR PARTS:

• IDENTIFYING THE PARTNERS TO THE AGREEMENT

WHO IS THE INVESTOR (NAME AND ADDRESS, CONTACT INFORMATION);

WHO IS THE BUSINESS OWNER (NAME AND ADDRESS, CONTACT INFORMATION);

• MAIN PART

WHAT IS THE BUSINESS TO BE INVESTED IN?

WHAT IS THE AMOUNT TO BE INVESTED?

WHAT IS THE PERCENTAGE OF THE BUSINESS TO BE GIVEN TO THE INVESTOR?

IS THE PERCENTAGE OF THE BUSINESS TO BE GIVEN TO THE INVESTOR LEGITIME AND FREE OF OBLIGATIONS (PAYABLE TAXES, ETC.);

DATE AND LOCATION OF THE ACQUISITION OF THE PERCENTAGE OF THE BUSINESS;

• ADDITIONAL TERMS

DISTRIBUTION OF LEGAL FEES;

TERMS FOR TERMINATION OF THE AGREEMENT?

ANY OTHER TERMS THE PARTIES TO THE AGREEMENT CONSIDER IMPORTANT;

 

 

• FINAL PART

SEEK LEGAL ADVICE TO FINALISE THE AGREEMENT (FEES SHOULD BE PAID BY THE INVESTOR, AS THE BUSINESS OWNER IS THE ONE WHO SEEKS FINANCIAL ASSISTANCE);

CHECK THE DRAFT OF THE AGREEMENT THOROUGHLY BEFORE SIGNING IT.

 

THE CHARACTERISTICS OF EQUITY FINANCING SHOW ITS ADVANTAGES AND DISADVANTAGES:

EQUITY FINANCINGIVES THE INVESTOR PART OWNERSHIP IN THE BUSINESS.

CAPITAL INVESTED IN THE BUSINESS IS PERMANENT; IT DOES NOT NEED ANY PAYBACK.

NO INTEREST MUST BE PAID ON THE CAPITAL INVESTED; HOWEVER, IF THE BUSINESS RUNS WELL, A DIVIDEND MUST BE PAID.

IN CASE OF THE BUSINESS GOING BANKRUPT, THE INVESTED CAPITAL IS THE LAST TO BE REPAID (AFTER ALL DEBTS).

AS THE INVESTOR OWNS PART OF THE BUSINESS, EQUITY FINANCING IS AT THE LONG RUN USUALLY MORE EXPENSIVE THAN DEBT FINANCING.

IF THE INVESTOR HAS EXPERIENCE IN THE BUSINESS HE OR SHE INVESTS IN, THERE CAN BE ASSISTANCE IN BUSINESS MANAGEMENT.

 

AS WE HAVE NOW LEARNT THE BASIC STRUCTURE OF EQUITY FINANCING, WE CAN COME TO THE QUESTIONS:

 

QUESTIONS

 

• IN YOUR OWN WORDS; WHAT IS EQUITY?
• WHAT SHOULD BE THE CONTENTS OF THE MAIN PART OF THE EQUITY FINANCING AGREEMENT?
• WHO SHOULD PAY FOR THE LEGAL FEES OF AN EQUITY FINANCING AGREEMENT, AND WHY?
• WHAT ARE THE CHARACTERISTICS OF EQUITY FINANCING?
• WHAT ARE FOR YOU THE ADVANTAGES OF EQUITY FINANCING, AND WHAT ARE ITS DISADVANTAGES?

 

THE NEXT LESSON WILL FOLLOW AT THE BEGINNING OF NEXT WEEK.

 

IN THE LAST TWO LESSONS WE HAVE LEARNT ABOUT DEBT FINANCING ABD EQUITY FINANCING. NOW IT IS TIME TO CHECK SOME OPPORTUNITIES FOR START-UP AND MICRO, SMALL AND MEDIUM ENTERPRISES IN GHANA WHETHER THEY CAN BE OF BENEFIT FOR YOUR BUSINESS.

FIRST OF ALL, YOU CAN GO TO THE BUSINESS ADVISORY CENTER (BAC) IN YOUR DISTRICT. THEY CAN GIVE YOU ADVICE, AND IF THERE IS MONEY IN THE BUDGET, THEY MIGHT EVEB GIVE YOU SOME FINANCIAL ASSISTANCE.

THEN THERE ARE SOME INSTITUTIONS WHICH OFFER ASSISTANCE, BUT SOMETIMES WITH CONDITIONS WHICH FOR SOME BUSINESSES – ESPECIALLY THE MICRO ONES – ARE DIFFICULT TO FULFIL:

• GHANA ENTERPRISE AGENCY (GEA, WEBSITE: https://gea.gov.gh)

GEA CAN ASSIST IN FUNDING, DEVELOPMENT OF MICRO, SMALL AND MEDIUM ENTERPRISES, ETC.

• 2) SME GROWTH & OPPOREUNITY PROGRAMME (WEBSITE:
  https://sme-go.mofep.gov.gh/guidelines/gea

FOR MICRO AND MANY SMALL ENTERPRISES, THE GUIDELINES ARE NOT EASY TO FULFIL. NEVERTHELESS, THEY SKOULD BE MENTIONED HERE:

 

Minimum requirements for the G&O Programme

• SMEs must have majority Ghanaian shareholding (51% or more)
• SMEs must be considered as an SME as per the legal definition
• SMEs must be registered under Ghanaian law as a limited liability company, a partnership, or sole trader
• SMEs must meet the eligibility criteria for the product they apply to
• SMEs must comply with the Programme monitoring requirements
• SME must have been operating for 2 years or more

HOWEVER, THERE ARE SEVERAL PROGRAMMES OFFERED BY THE GEA; THEREFORE, IT MIGHT BE OF BENEFIT FOR OWNERS OF MICRO, SMALL, AND MEDIUM ENTERPRISES TO LOOK INTO THESE PROGRAMMES. THE BUSINESS ADVISORY CENTER (BAC) IN YOUR DISTRICT CAN SURELY CAN SURELY HELP YOU WITH YOUR RESEARCH.

THERE ARE ALSO SEVERAL APPS TO DOWNLOAD ON THE INTERNET, WHICH OFFER LOANS FOR BUSINESSES. YOU SHOULD, HOWEVER, BE VERY CAUTIOUS WITH THESE OFFERS. MORE OFTEN THAN NOT, THERE WILL EITHER BE PROBLEMS WITH EXTREMELY HIGH INTEREST RATES OR WITH PRESSURE THEY MIGHT EXECUTE ON YOU, IF YOU GET PROBLEMS WITH THE REPAYMENT.

FURTHERMORE, THERE ARE GOVERNMENT-BACKED PROGRAMMES WHICH ARE OFFERED THROUGH COMMERCIAL AND RURAL AND COMMUNITY BANKS. IF YOU ARE LOOKING FOR A LOAN TO HELP FINANCING YOUR BUSINESS, THEY SHOULD VE PREFERRED COMPARED WITH THE ONLINE LOANS, BECAUSE

— THE INTEREST RATES ARE USUALLY LOWER, AND

— IN CASE YOU HAVE PROBLEMS WITH REPAYMENT, YOU CAN ALWAYS TALK WITH THE LOAN OFFICER IN YOUR FINANCIAL INSTITUTION TO FIND A SOLUTION.

OFTEN, THESE PROGRAMMES ARE TARGETED FOR LOCAL COOPERATIVES; SO, IT IS ADVISABLE FOR A YOUNG E ENTREPRENEUR TO JOIN SUCH A COOPERATIVE.

YOU MUST GENERALLY BE VERY CAREFUL WITH FINANCING YOUR BUSINESS THROUGH A LOAN. THE AMOUNT OF LOAN YOU TAKE SHOULD NEVER BE MORE THAN 60% OF THE CAPITAL YOU ALREADY HAVE. IF YOU DON’T KEEP TO THAT RULE, YOUR BUSINESS IS SURELY CONDEMNED TO FAILURE.

AS ALREADY MENTIONED IN AN EARLIER LESSON, IF TAKING A LOAN FOR DEVELOPING YOUR BUSINESS IS TOO MUCH OF A RISK FOR YOU, YOU CAN LOOK OUT FOR AN “ANGEL INVESTOR”.

THE GHANA ANGEL INVESTOR NETWORK (CHECK THEIR WEBSITE UNDER Gain – Ghana Angel Investor Network )

COULD BE THE ORGANISATION YOU ARE LOOKING FOR. YOU CAN FIND A LINK FOR FUNDING APPLICATION THROUGH TIS LINK”:

Funding application – Gain

YOU CAN ALSO CHECK THEIR PROGRAMMES FOLLOWING THIS LINK:

Ghana Angel Investors Network (GAIN) – Impact Investing (impactinvestinggh.org)

 

AND A PERSONAL HINT TOO: FROM FEBRUARY, 2025 ON RECKLING ENTERPRISE THROUGH ITSINVESTMENT COMPANY C.K.J. RECKLING STAR WILL OFFER TWO FINANCIAL ASSISTANCE OF GHC 3,000 EACH TO MICRO BUSINESS START-UPS FOR A 25% SHARE IN THE BUSINESS. INTERESTED ENTREPRENEURS-TO-BE SHOULD COnTACT US THROUGH THE EMAIL ADDRESS recklingenterprises@hotmail.com FROM BEGINNING OF JANUARY, 2025 ON. FURTHER CONDITIONS WILL THEN BE DISCUSSED WILL THEN BE DISCUSSED WITH THE APPLICANTS.

 

AND NOW TO THE QUESTIONS:

 

• WHAT ARE THE CONDITIONS OF THE GHANA ENTERPRISE AGENCY (GEA) FOR PARTICIPANTS-TO-BE IN THEIR PROGRAMMES?
• WHY IS IT DIFFICULT FOR OWNERS OF MICRO AND SMALL ENTERPRISES TO FULFIL THE CONDITIONS OF THEIR PROGRAMMES?
• WHAT INFORMATION DOES THE GHANA ANGEL INVESTOR NETWORK WANT TO HAVE FROM AN APPLICANT?
• IS THERE AN ANGEL INVESTOR IN YOUR DISTRICT?
• ARE YOU GENERALLY INTERESTED IN THE OFFER MADE BY RECKLING ENTERPRISE?

THE NEXT LESSON WILL FOLLOW AT THE BEGINNING OF NEXT WEEK.