The Experts

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Steve Torso
Capital Raising Expert
+ About Steve Torso

Steve Torso is the Managing Director of wholesale Investor <http://www.wholesaleinvestor.com.au/> which is Australia's largest private investment platform, and has showcased over $500m in private opportunities. Through a high quality magazine, CEO interviews, live investor events and online distribution, Wholesale Investor provides investors with direct access to companies seeking to raise capital.

Investors seeking tax-effective opportunities look to Indian Sandalwood

Thursday, May 15, 2014

by Steve Torso

As we run into Q4 of the financial year investors countrywide begin looking at tax-effective investments to reduce their tax burden. Although benefits of tax-effective investment vary based on the individual, benefits can include immediate tax relief through a tax refund or tax minimisation at the time of investment, throughout the investment term or at maturity. But as the advertising increases at the end of the financial year, what are the key factors an investor should consider?

Prime assets, high demand, restricted supply

Many investors typically look at the headline tax benefits but don’t pay too close attention to underlying assets. The underlying asset is critical to receiving the expected tax benefit and also provides stability of investment over the course of its term. Agri-investments for instance are not all the same. Some suffer from volatile demand or from oversupply. A commodity to shine the light on as a prime example is Sandalwood.

Sandalwood has been an integral part of Asian culture and religion for thousands of years, and remains a key ingredient in the fragrance, cosmetic, pharmaceutical and religious products markets. Sandalwood features in perfumes, cosmetics and toiletries, medicines, medicinal skin care products, carvings, fashion, furnishings, incense and religious ceremonies around the globe. It is a high demand product in the largest consumer markets in the world.

The Indian species of Sandalwood (Santalum album) commands the highest price at auction due to its superior oil yields and long-term market acceptance. The price of wild Indian Sandalwood sold at auctions in India has continued to increase at a compounded rate of approximately 15% over the last 22 years with the price for Indian Sandalwood logs averaging over A$100,000 per tonne. These price rises have occurred predominately due to the low supply of consistent Sandalwood.  Experts predict a long term increase in price due to the increasing supply/demand imbalance of Indian Sandalwood. 

TFS Corporation (ASX:TFC)

TFS Corporation is a Western Australian company listed on the ASX (ASX Code - TFC) with over 15 years of experience in both the cultivation of Indian Sandalwood and the distillation of Sandalwood oil.

TFS controls the world’s largest source of sustainable Indian Sandalwood supply with direct and indirect ownership of over 2,400 hectares of plantations.  This scale provides real asset value in the balance sheet. TFS share price growth exceeded 200% in the past 12 months ($0.57 in March ’13 to $1.71 in March ’14) with one research house forecasting Target Price of $3.34. The company has just been added to the ASX300 index. 

The company has been listed with Wholesale Investor and has presented to sophisticated and professional investors with considerable attention of late. This provides access to the underlying company but what about a tax effective investment?

TFS Tax Effective Investment for Individuals and SMSF

TFS has planted over 6,000 hectares of commercial Indian Sandalwood plantations on behalf of over 3,400 individual growers and a range of institutional investors.  Investors can participate in The TFS Sandalwood Project 2014 - the company’s sixteenth annual Indian Sandalwood Project.

The Indian Sandalwood project is useful as it can be used to address a wide range of tax events from upfront tax deductions for both individuals and SMSFs. It has been common to invest initially in one’s own name  to receive the personal tax benefits.  After a minimum 4 year period, the investment can then be transferred to a SMSF.  When the investment matures the income is only taxed at the Super rate of 15%. The transfer from the personal name to a SMSF is highly likely to trigger a tax event so an investor needs to check the implications of this with their personal tax adviser.

By capturing an early ROI investors are not exposed to the potential volatility of specific end markets, but the demand of these end markets drive the log price and create stability at the earlier stage. Investor returns are based on the value and sale of the Indian Sandalwood log at harvest. 

With prime assets, high demand, restricted supply plus a solid underlying company, this is the essence of choosing the right criteria for a tax effective investment.  Remember, do your own research, choose wisely and receive the tax benefits you are entitled to.

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Bridging the working capital and commercial funding gap for SMEs

Thursday, March 27, 2014

by Steve Torso

It is estimated that the commercial lending market is valued at $9 billion per year. However, the SME market is severely underserviced representing under 10% of this figure. Banks that spend millions on capturing new business customers are failing existing customers by not approving lending. 

An East & Partners survey of SMEs has revealed what every small to medium business owner suspected – 44% of SMEs that applied for new credit were unsuccessful, and the 6 out of 10 that were the lucky ones suffered interest-rate increases while personal home loan rates dropped to the floor.

Lindsay Kirschberg, Director at NTA Securities highlights the growing customer problem “Business owners I’m in direct contact with complain of risk-adverse lenders with inexperienced staff who only know how to check boxes. As the banks have centralised their systems they find they have no direct relationship with the business owner, and it is the businesses that suffer as a consequence”.

Capitalising on SME credit demand

NTA Securities provides specialist working capital and debt finance to Australian small-to-medium enterprises. Head of Investments, Anthony Simpson is bullish about opportunities in the Australian commercial lending environment “NTA Securities is a startup ready to exploit the funding gap between banks and business.  The main aim to sufficiently capitalise the company for significant growth. We launched a $5M debenture as there is pent-up demand in the SME market for lending. Feedback we have received from our broker network is that this could be placed very quickly with high quality borrowers at low risk”

A Modern Approach to Credit Management

Through providing working capital to companies who need it NTA Securities can help where banks refuse, offering unique opportunities for small and medium sized businesses to grow. Mr Simpson continued “Our rigorous risk management policies ensure the funds distributed are to suitable candidates who meet our lending criteria and the money is used and distributed effectively by way of monitoring the borrowers bank accounts. All debt is secured as a first ranking security registered under the Personal Property Securities Register mitigating any default risk.”

Market and investor demand

The demand for income producing assets in business has never diminished but the opportunities for borrowers have. IBISWorld anticipates that capital expenditure is expected to increase in 2014 through to 2017, representing an opportunity for lenders like NTA Securities.

This has been supported by strong interest received from around the country since listing its capital raising offer on Wholesale Investor. Interest has been received from investors locally as well as China, Malaysia and the Middle East. “The demand for this kind of product is self-evident. With a three year term paying 11.75% per annum in quarterly instalments investors want exposure to a secure investment that is asset backed." 

“In addition, to the current $5M initial funding round, we are planning to raise another debenture in June bring our funds under management to $10M. The aim is to reach $25M by end of 2015 and there is demand to sustain this investment.” The outlook for 2014 is that SMEs now have the opportunity to capitalise on these new funding lines and contribute to the engine room of society.

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Six tips on how to raise capital to fund the growth of your business

Thursday, March 08, 2012

Many growth companies will often require funding at some stage. But for SMEs, where do you go to access the capital you require to fund the growth of your business?

In the past it would be commonplace for you to prepare your accounts and head to your local business banker, where you start the begging process. Your business banker while looking through your business plans, projected cash flows and existing cash flows, will often have two questions. How much do you want to loan? And do you have enough equity in your home/s to secure it against?

As most SMEs will know, getting a loan from your bank for a new business is not easy and has become a lot more expensive. Combine that with global economic uncertainty and the number of funding options available for early stage and growth companies.

Make no mistake – there is money available and it’s with sophisticated and professional investors. These investors are generally ex-CEOs, MDs, high-level executives and even practising accountants and lawyers, who are always on the lookout for new and exciting opportunities which they can invest in, and add their skills and introduce their networks to.

If you are one of the companies who seek capital, here are some proven tips that will improve your likelihood of success for raising capital from investors:

1) Allow sufficient time

The time taken to raise capital has increased significantly. Often when people begin a capital raising, they expect that they will easily find an investor who will love their business as much as they do and have the money raised within three months.

This is highly unlikely and you should expect that it might take between six to 12 months to raise the money… so make sure you plan ahead.

2) Allocate a budget

Raising capital is not free for the company seeking the capital, as many people seem to assume.

You need to budget for advisory, legal, accounting fees, creation of your Information Memorandum and also the promotion of your Capital Raising Offer.

It is very important that the people you involve have deep experience in raising capital and it is what they specialise in. By doing this, you can be assured they will be aware of some of the pitfalls which companies can fall into. Your local accountant for example, may not be the best person for creating cash flow projections or developing a valuation for the business.

3) Prepare an Information Memorandum

A well-prepared Information Memorandum clearly explaining how the business will generate income and profits is of utmost important. It is also important that you highlight information about the management team involved with the company.

For many investors, this is an important signal as to the potential of the business. In future articles, I will talk about how you can build a high quality board without paying fees.

It would also be wise to develop what is called an Executive Summary. This provides a one to two-page snapshot of the business and its potential. When you have investor enquiries, this is often the document which people want to see first.

4) Promoting your capital raising

Distribution is a vital component. You need to place your business in front of investors who are specifically looking for these types of opportunities.

You may also find that existing suppliers or even customers may seek to be investors, as there are strategic benefits for them in having a shareholding in your business.

It is vitally important that in promoting your capital raising that you do not break any laws, and that you abide by Section 708 of the Corporations Act.

5) Seek smart money

Smart money is defined as “Investors who can add value beyond the financial aspects”, that is, they can substantially add value to your business. Smart money often has 15 to 20 years’ experience, IP and networks, which you can leverage off. They also have knowledge of pitfalls to avoid. 

One good example is a client of Wholesale Investor who was a web application-based business generating approximately $10k to $12k per month. They attracted smart money from our investor network, which rolled their sleeves up and became active with the business. That company, 18 months later, is now generating up to $100k per month.

While the money was important, the knowledge they brought to the deal was invaluable.

6) Be persistent

You need to persist until the money is raised, or you need to modify your offer. The truth is, there will be more investors watching and observing your progress than what you think. You need to be sure that you are consistently providing updates on your progress and the milestones you hit.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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