Let's look at the investors return next. And finally, then this section should be used to describe the financial return that an investor or lender would get or realize if they were to either lend you money or where to invest in your business. Firstly, if your chosen funding source is an organization like a bank and your funding is received in the form of a loan, the return on investment for the lender is fairly straightforward and this is indicated by an amount of interest payable on the loan expressed as an annual percentage the same as you do for a personal loan, a car loan or a mortgage. And this interest rate is generally set by the banks and not that negotiable. So you may also be considering private lenders. So rather than investors as a funding source, and in this instance, you could mutually agree a rate of interest, it would need to be attractive enough to a lender because of the high level was a risk for the investor.

So for instance, versus them investing in unit trusts or placing the money on deposit somewhere. The proposition for an investor can be attractive, especially where you have full cost forecasting profitability early on in the business. The return on investment in this case is easily calculated by considering the forecast net profit. The investor's investments amount and the percentage of ownership that you're offering a potential investor. So, for example, should your net profit be 50,000 pounds for the year and you plan to distribute this as dividends to the shareholders with a 25,000 pound investment and a 10,000 sorry, a 10% ownership, the investor would earn 5000 pounds of that net profit and this is not taking into account any taxes. This is a very basic example.

This then means that the return on investment would be 20% for that year, which is 5000 pounds divided by the 25,000 pounds multiplied by 100 at this time, It would take the investor five years to earn the investment back. potential investors will have their own views on what is a good return on investment and what is a good payback period. And ideally, your offering should be attractive, while remaining realistic and in no way jeopardizing your overall interest in the business. As discussed earlier, in the offering section, there can be a combination of approaches taken to attract funding. And the way in which return on investment is reflected will largely be driven by these type of funding mechanisms. Investors exit strategy, why is this important?

Why do you need to propose an exit strategy? Well, there are two key reasons here. Firstly, potential investors will need to have an idea on how they might exit your business in the future should they invest now, and this is generally less of a concern for investors who are lending the money on terms as the loan will attract interest and this should be payable over a certain term. However, investors who are making investments in return for an equity share an equity stake of the business will need to understand how that equity shake can be translated back into money in the future, ideally with a good return on investment. And this is typically when the business gets sold or they managed to settle for shares and they gain that value back. Secondly, entrepreneurs love The Art of the Start and will often look to repeat what they've just achieved in their current business.

There are a number of options when it comes to exit strategies. And in many ways, these future options are dependent on the intrapreneur in the individual, in this case, yourself, and his or her plans to grow the business. These need to align with provide options to the largely investor in order for them to realize the return on investment. So many investors plan the exit strategy around the company eventually going public and this will allow them to sell their equity stake or their shares on the open market. Should the company remain a private one, this becomes a little more difficult as a investors need to sell the equity stake privately. While the other shareholders and or founders are candidates to buy the stake back at motto is be possible or affordable, and the investor will need to look elsewhere for potential buyers.

This might not be attractive for them or to the existing shareholders. And this could lead to a difficult situation. Often investors will agree to reduce their shareholding over time once their initial investment has been paid back, leaving them with a small equity share to help to sell which becomes a little bit easier. So there's also some other options that are available. And what are these? Well, firstly, they can reduce their shareholding over time, as we've said, they can slowly sell off portions of their shareholding either to other shareholders or to other private parties.

They can consider a merger or acquisition and this means merging with a similar sized company or being bought by another large company. It's important to note here that this is not a short term option. And key personnel will often need to stay around for a number of years to ensure that they receive the full value of the agreed acquisition process. provided of course targets, targets are met in terms of company performance, the business can be sold to an individual or group of individuals that have an interest in their business operations and have aspirations to run the business on a day to day basis. And in this way, the investors can be paid out and you can be rewarded with your share of the payoff. Next, the business can be closed down by selling off all the assets and paying off all the debts and hopefully walking away with a nonprofit.

And while this may sometimes be an option that won't suit all business models, so for instance, a consulting business where the assets are really in the people and the customers rather than any kind of fixed asset, like a factory or or a fleet of vehicles. Next, you can turn the business into a cash generating source and as the founder you remain the owner of the business, but you put a management team in place that can run the business without your involvement. If this is done correctly, you can benefit from the annuity income. an exit plan can be triggered in both good and bad situations and including the strategy in your business plan shows investors that you're not just starting a hobby business and you are indeed thinking of the bigger picture and the longer game. So we've covered off quite a bit in this section, and it's quite important that you carefully consider what you're going to lay out in the proposed company offering if indeed you are looking to attract investment for your business or in track, attract shareholders.

And in doing so, this is what you need to do. As we described in this module, you need to describe exactly what you need from a lender or investment. So what is it that you're asking them for? Are you asking them for a certain amount of money? Or are you asking them for both that and some kind of advisory top of service, you need to describe what the lender or investor will get in return? So are they going to get a share of the company?

What is That portion going to be all they're going to be able to sell that chair for more value in future, you need to explain very carefully how you will be using this funding. You need to understand how to value your company and be able to do this properly and realistically. And then finally, you need to be able to provide and explain an exit strategy for potential investors or in fact for for yourself as you see the business maturing and you finally moving on to bigger and better things.