This report identifies six capital raising strategic options and five revenue generating strategic options designed to ensure ongoing sustainability and increase the likelihood of raising capital.
A strong revenue base over expenses will make Homestead for Youth (H4Y) sustainable and more prepared for investment loans and grants.
The basis of the overall strategy is to attract capital quickly by demonstrating a sustainable business model. There are significant risks identified with this strategy most notably the reliance on vendor finance and Lotterywest funding. In the case that vendor finance or Lotterywest funding is not achieved loans and investments/ equity crowdfunding will need to be increased. This will make the strategy highly unlikely to be executed.
The report assumes that previous revenue streams will continue into the next financial year. All assumptions are in addition to existing revenue.
In order to increase management capability, the report recommends the use of partnerships. This approach reduces risk by increasing likelihood and success and reducing the consequences of negative events.
For ease of reading, the report refrains from providing background analysis and instead presents the findings and recommendations from the analysis.
The H4Y strategic model below demonstrates how capital underpins the organisation and revenue supports capital needs and operations. It is important to appreciate how revenue streams are linked to capital raising efforts. The model also does not include equity crowdfunding as this needs further discussion.
H4Y Strategic Model
Social Impact Investment:
Traditional/ Nontraditional Loans:
Captital from Operating Profits:
Profits reinvested - $20,000 p/a
Profits Paydown Loans - $50,000 p/a
Grow the private psychology practice
Grow the equine agistment business
Grow the youth housing and residential care services
Grow revenue from outreach services
Fundraising events and activities
Wages and Operating Expenses
Total Capital: $2,330,000.00
The following is a summary of the recommendations found in this report.
1. Employ a business manager to coordinate capital raising and revenue generating approaches.
2. Engage Social Venutures Australia to support H4Y raise $180,000 in social impact investment and $500,000 in loans.
3. Negotiate a vendor finance agreement for up to $800,000.
4. Seek Lotterywest funding for $800,000 (not to exceed $900,000).
5. Increase revenue by increasing the psychology practice expanding into highly affluent suburbs close to Perth.
6. Engage partners to grow the agistment service and housing and residential services.
7. Develop a large fundraising event in the form of a yearly Gala.
8. Develop and execute a schedule thought leadership events.
9. Work with Inspired Adventures to host an annual adventure fundraising activity.
10. Develop and execute an outreach program and link the program to all other activities to generate sponsorship revenue.
11. Develop a calendar of highly inclusive events to increase funding opportunities and increase the likelihood of receiving Lotterywest funding.
12. Identify opportunities for crowdfunding including reviewing the current crowdfunding approach and equity crowdfunding.
13. Engage VUCAP on a pro bono consulting basis.
14. Engage VUCAP in a partnership role to increase the psychology practice and manage specified events.
The following actions are pending completion:
1. Review initial financial projections underpinning this report.
2. Review risks and controls prior to this report being accepted and moved as the H4Y strategy.
3. Review next actions list.
4. Review Lotterywest grant application requirements and make recommendations.
The following report seeks to present a coherent strategy designed to raise $1.8m. The purpose being that the $1.8m will be used to acquire the current property and ensure the future sustainability of the project.
The following section identifies six options that should be used in conjunction with one another in order to raise the $1.8m capital needed to purchase the farm.
The five capital raising options are;
1. Social Impact Investment;
2. Traditional and Non-traditional Loan Products;
3. Vendor Finance;
4. Lotterywest Grant;
5. Equity Crowd Funding; and
6. Capital from Operating Profits.
This report recommends blending multiple funding approaches together. This will reduce the risk associated with raising capital by increasing the likelihood of being successful.
4.1. Social Impact Investment
Social Ventures Australia (SVA) has been identified as a possible resource to assist in raising capital through their Impact Investing team.
SVA invests in organisations with the capacity to generate both positive social outcomes and financial returns. H4Y has a healthy P&L and Balance Sheet whilst showing a clear social output and is therefore well placed to attract investment.
Our SVA contact person is Alex Oppes, Director, Impact Investing. Whilst based in Melbourne he has expressed interest in working with H4Y to raise capital.
In addition to SVA contact has been made with Impact Seed (IS) IS assists organisations like H4Y raise capital that generates a return for investors whilst having a socially good impact. They do this specifically through their Impact Fund.
Our IS contact person is Sven Stenvers, Founding Director.
On speaking with Mr Stenvers he expressed difficulties with impacting investing here in Western Australia. He further writes about this in a recent article accessible here.
There appears to be a difference in the views between the SVA contact and the IS contact, this may be because legislation and the maturity of the social impact investment market is more advanced in Victoria.
This will become clearer once H4Y has prepared the business plan and IM and begun investigated our options deeper.
This report recommends that H4Y aim to raise approximately 10% ($180,000) of the total funds needed. This is conservatively estimated based on the current cash flow and ability to deliver a 20% return on investment for investors.
4.2. Traditional and Non-traditional Loan Products
In addition to the social impact investment approach, SVA is able to assist with loans to purchase the asset. Their lending facility is designed specifically for social ventures and by working with SVA for both investment and lending H4Y may be able to develop and more streamlined funding agreement.
The rate and terms of the SVA loan will be linked to the level of risk. It will be prudent to compare terms and conditions with other high street commercial loans offered by major Australian banks.
This report recommends borrowings of no more than $500,000. This is based on the organisation's current turn over and margins and therefore the ability to service a loan over the short term (five years). Five years has been suggested based on the level of uncertainty beyond that time period.
Between these first two approaches, H4Y will have raised $680,000.
4.3 Vendor Finance
Vendor finance sees the vendor of the property lend the purchaser an agreed amount. The benefit for the vendor is they can often achieve a higher sale price than the market will offer whilst also receiving the benefits of interest payments over time.
The benefit for the purchaser is that the purchaser can use the agreement as evidence of funds being raised by other sources. This will assist with Lotterywest grants as an example. Furthermore, the agreement can be made relatively easily.
This report recommends capping vendor finance to $800,000 of the total $1.8m needed. This is designed to make the offer favourable for the vendor whilst also keeping the overall cost of capital low. This assumes that vendor finance is a more costly way to raise capital than bank finance.
4.4 Lotterywest Grant
Lotterywest offers funding to organisations looking to purchase a building or, for construction, fit-out and/or renovations to a building. This fits well with the H4Y aims.
Whilst it may be difficult to raise 100% of the total funds needed via Lotterywest combining other funding options such as vendor finance, social impact investment, and loans, Lotterywest can confidently see that there are other organisations or individuals invested in the success of the venture.
It will be favourable to the application if there are multiple uses for the facility which include access to the public and other organisations. This will be further highlighted in this report under section 5 Revenue Generation.
This report recommends aiming for no more than 50% ($900,000) of the total funds needed.
Whilst there are some difficulties currently with the Lotterywest application, VUCAP will conduct an assessment and add this work to the current scope of work so as not to charge H4Y any extra consulting fees. This assessment will give H4Y a clear understanding of what amendments need to be made to complete a successful application.
4.5. Equity Crowd Funding
There are strict regulations around seeking advertising for private investment. This has meant crowdfunding has not been legal in Australia unlike as it has been in other countries. This has recently changed and therefore is another option for H4Y.
Unlike publicly listed shares, there is no easy, secondary market for the share holder to trade on (they can't easily sell their share can get their money back). The investor must be presented with a clear business opportunity that they can invest in that will have a clear exit point in the future. This leaves the organisation having to make a decision about what the crowdfunding could be used for.
Some possible options are to use the equity crowdfunding to establish short-term accommodation business and refurbish vehicles. These options will be included in section 5 Revenue Generation.
This report recommends equity crowdfunding to fund revenue generating activities that provide a surplus. The surplus can be used to service loans or pay down debt. Another option is that H4Y uses equity crowdfunding to raise capital and makes dividend payments to shareholders with the aim to buy back shares over a set period.
The following section identifies five revenue generating strategic options. The aim is to generate a sustainable profit that can be used to service and pay debt as well as reinvest for future growth.
The five revenue generating options are,
1. Grow the private psychology practice,
2. Grow the equine agistment business,
3. Grow the youth housing and residential care services,
4. Grow revenue from outreach services, and
5. Fundraising events and activities.
5.1. Grow the private psychology practice
Growing the psychology practice will offer very quick returns for low risk investment. At the same time, the organisation does not need to deviate from its core focus.
VUCAP has identified opportunities in Subiaco, Clearmont, West and East Perth as locations to expand services. These locations have been identified with the aim to 1, generate the highest fee per client, 2, achieve the highest lifetime value (LTV) per client and 3, reduce the difficulties of recruiting and managing psychologists.
The risk is that there are existing established practices that are already competing in the market. This is somewhat countered by the industry's growth rate which is estimated at approximately 4% per annum.
Barriers to entry are low. this allows for increased competition but also low levels of capital needed to generate returns.
A significant point of difference for H4Y services should be the use of ongoing action plans and strategies for clients, a whole family approach and group therapy options and a compassion-focused approach to therapy. Compassion focused therapy will also fit well when recruiting psychologist from Christian traditions. This will help develop an internal human resource (HR) culture that assists to manage employees and offer a strong employee value proposition (EVP).
Based on an hourly charge rate of $200 (ref) and an average yearly salary of $70,584 (ref) VUCAP calculates an approximate EBITDA of $10,000 p/a per psychologist for the first five psychologists. This increases as the number of psychologists increases as fixed costs remain steady.
Attracting new business will be done by referral partners, events and organic online searches.
Further revenue may be achieved by establishing an employee assistance service. For further information download the macro environment study for Australia.
VUCAP is able to assist establish this business ready to go to market. All profits will go to H4Y. This will reduce the risk of employing a business manager to grow this service.
Successfully growing this service under a different trading name will also create a highly valuable sellable asset.
This report recommends developing the psychology practice in its current form as well as expanding into CBD markets, closer to Perth. Profits from these operations can be returned to H4Y, and VUCAP will assist in the development and management of these services in a partnership agreement.
As the business grows, portions of the business can be divested to generate capital for further growth. To achieve this it is imperative that the business is developed with robust management systems that are easily transferred in the sale.
5.2. Grow the equine agistment business
The equine agistment business offers a source of revenue, makes the Lotterywest grant application stronger and supports the H4Y brand image.
The difficulty with this business is the time and resources needed to manage and grow the business. VUCAP has identified a potential candidate who could partner with H4Y and grow the business. An agreement would need to be made on how the business profits and expenses would be shared, however doing so would demonstrate to Lotterwest that there are multiple community uses for the property. Furthermore, The risk of managing the business would be transferred to the partner.
As a revenue generating option, this choice is exposed to significant risk. As a stand alone business model, this early assessment does not find it to be profitable. The benefits would be in the brand image and community engagement.
VUCAP will assist to manage this relationship on a pro bono consulting basis should assistance be required.
This report recommends outsourcing the development of the equine agistment business. Should the identified person not be suitable VUCAP will assist to identify other options and structure the deal.
This gives the Lotterywest grant application more likelihood of success as it demonstrates greater community participation, whilst also developing further revenue streams all be it slight.
Further analysis must be done in conjunction with the partner to forecast potential profits.
5.3. Grow the youth housing and residential care service
Youth housing and residential care will provide a strong justification for Loterywest funding as well as community support for the purchase of the farm. VUCAP is currently putting together a business case to be presented to government making the case for housing and work programs specifically tailored to reduce prisoner recidivism. Using this report and H4Y's past performance on managing housing and residential care there are multiple opportunities to use the asset for maximum value.
Whilst further analysis is needed to confirm the business case VUCAp has identified a potential partner to assist grow this revenue stream. The potential candidate is currently working with youth and prisoners on a range of youth issues including drugs, alcohol, violence etc.
The benefit of a partnership in this respect would ensure that focus can be given to growing this revenue stream and achieving the social impact mission without putting extra pressure on the existing management group.
This report recommends developing the business plan in conjunction with a suitable management partner. This will reduce the management burden whilst increasing management capability.
VUCAP will assist to manage this relationship on a pro bono consulting basis should assistance be required. This will ensure that a suitable partner is identified, a business plan is developed and reviewed and submitted to the Board.
5.4. Grow revenue from outreach services
The use of outreach services provides an opportunity to market H4Y services, build ongoing relationships and develop the competative advantage.
These services would include speaking at schools and community events as well as hosting interactive events with external organisations. A decision could be made to charge the host organisations a small fee. The problem with this would be the cost may act as a deterrent. Another revenue model would be for businesses to sponsor the outreach program directly.
VUCAP has identified a range of public relations (PR) and marketing firms that can be approached to to assist with reaching the market to offer sponsorship packages. An example sponsorship package would be,
1. the company featured on the H4Y website,
2. a video interview with a senior manager talking about why the company chose to sponsor H4Y outreach program,
3. the company featured at all outreach events,
4. the company promoted on social media channels cush as LinkedIn and Facebook,
5. a full page advert with other sponsors in the West Australian newspaper,
6. two tickets to the H4Y Gala dinner (discussed later in this report).
The price of this package would be $7,000 for one year. The cost of the West Australian ad is approximately $10,000. It is estimated that the total costs to manage this outreach program including staff would be $70,000. The breakeven point would be 10 sponsors. H4Y should aim to attract no more than 20 sponsors, netting a profit before tax of $70,000 p/a.
This report recommends developing an outreach program offered to community organisations.
The program would be funding by sponsors acquired through relationships with PR and marketing firms throughout WA. The outreach program would be supported by 0.5 FTE at a cost of circa $50,000 p/a in wages and wage related cost. $20,000 p/a in administration and marketing expenses. Profits from this program are expected to be between $10,000 and $70,000 p/a.
VUCAP is available to provide recommendations and advice to the board on growing the outreach program revenue streams. A suitable manager is still needed to run and administer the business. VUCAP can provide a resource to achieve this should assistance be required.
5.5. Fundraising events and activities
Using fundraising events and activities will assist in promoting the organisation as well as generating revenue. By using the farm for fundraising community events H4Y is able to increase the possibilities of a successful Lotterywest grant application.
H4Y should plan a 12 month event calendar. This should include events and celebrations linked to community recognised days that are promoted by government departments.
12 month event calendar
Days such as Harmony Day, Mother and Fathers Days and possibly cultural celebrations. This shows that the community is benefiting from the use of the farm, it also opens up opportunities for grants from government departments. By showing a clear benefit to multicultural interests there is the possibility of grants for $5,000, $30,000 and $50,000 from the Department of Local Government, Sport and Cultural Industries.
Included in the events calendar should be a gala dinner. This recommendation would act as the pinnacle event each year with the aim to raise $50,000 each time. Ticket prices for the dinner event would be $120 per person with a three course meal included.
The event would be sponsored in the same way that the outreach program would be sponsored and with similar sponsorship packages. The aim would be to attract 100 people to the event and generate press coverage for H4Y and sponsors.
To help attract more press and general attendance the event could be offered as an opportunity for other organisations that have an overlapping mission to be featured. This would encourage those organisations to distribute invitations through their networks and go towards H4Y supporting other not for profit organisations.
The event would be best hosted at either Governor House or a Perth City hotel such as the Westin or Duxton etc.
The event could also be used to recognise and award practitioners and members of the public who are working with at risk youth. This approach further integrates the H4Y brand as a leading practice and community orientated service, whilst also increasing the number of people actively marketing the event (viral marketing). This would be due to the awarded winners, nominees and their organisations wanting to promote their own achievements.
Thought Leadership Events
Ongoing events throughout the year that position H4Y as a leading and credible organisation will help position the brand and develop networks. These events would promote all H4Y services and achievements.
The events would take the form of panel discussions, talks, and presentations by guest speakers etc. These events would be held at university campuses and other such venues and in conjunction with leading institutions such as hospitals and government departments. An example event invitation can be found here. (Future of Psychology: Compassion Focused Outcomes)
These Thought Leadership Events may not generate direct profits as revenue would cover expenses in most cases. However, they would go to support marketing efforts and increase the value of sponsorship packages.
Inspired Adventures organises adventure trips around the world for organisations to raise funds (ref). They support participants with their fundraising efforts, helping each participant to raise a set amount per adventure.
With only 10 participants this would generate revenue of $40,000 per adventure, less Inspired Adventures fees. The service is completely outsourced reducing the impact on the organisation. Attracting participants could be achieved via Church and other community connections.
VUCAP is available to provide recommendations and advice to the board on growing the developing this revenue stream. A suitable manager is still needed to run and administer the business. VUCAP can provide a resource to achieve this should assistance be required.
VUCAP is able to partner with H4Y and host multiple thought leadership events and the Gala Dinner. This will take away the management and planning burden. However, a suitable resource is needed to manage and coordinate other events and activities.
This report recommends engaging a business manager for 4 days per week at a cost of $70,000 p/a, to grow revenue from outreach services (point 5.3) and to manage the above mentioned events and activities.
The register lists risks and their controls. It is recommended that this register is further reviewed by the board prior to adopting the recommendations. VUCAP will assist the board conduct this risk review as part of the original scope of work.
1. One or more capital raising options fail.
In the event that capital raising options fail, other options will need to be increased to compensate. If the funds cannot be sourced then seeking support from the local council should be considered an option. If this is not an option the situation is deemed critical and the board will need to review next actions.
2. One or more revenue generating options fail.
In the event that revenue generating options fail, other options will need to increase to compensate, and or new revenue generating options will be needed. If the revenue generating options fail to the extent that the organisation suffers financial loss, the scenario should be deemed critical and the board will need to review next actions.
3. Unable to source adequately skilled and capable staff.
Staff should be sourced and managed using best practice HR approaches. VUCAP should be engaged either on a pro bono or partnership basis to manage specified HR risks.
4. Unable to source adequately skilled and capable partners.
Engage VUCAP in a partnership or pro bono capacity to reduce the risk of engaging partners.
H4Y faces significant risk in raising substantial capital to purchase the facilities it is currently operating from. However, by implementing a coherent strategy designed to increase revenue and support grant applications, loans and investment this reports conservatively estimates that it will raise over $2.3m dollars before December 2019, whilst increasing surplus cash flow by $70,000 p/a.
In order to address risk, the report recommends approaches that can be scaled up or down depending on the need and success of other approaches.
VUCAP is committed to supporting H4Y in various forms of pro bono services and partnerships. The report also seeks to identify key opportunities to engage other organisations and individuals to increase management capacity and distribute risk.
Ultimately VUCAP recommends executing the strategy with the only minor need for further review and possible adjustment.
In order for the strategy to be executed the next steps are to developing clear action plans that include the development of business plans and financial forecasts and recruitment of a business manager.