Participatory financing is the best financing option for the expansion of companies

Financing is a need for companies, whether they are emerging or existing and want to expand, and the fundamental difference between co-financing and borrowing financing is not a nominal difference, but a very fundamental difference is how the profitability of funds is calculated, if profitability is calculated relative to capital, it remains a borrowing, and if profitability is calculated based on business results of profit or loss, this is co-financing.

Participation financing depends on the existence of an income statement issued by the financial department for the purposes of knowing the net profit or loss, god forbid, and the absence of this list or the delay in issuing it will mean a return to the worse paths as already mentioned, so any company that does not have a strong financial management working on advanced accounting systems is a company resort to mass promotion through promotional tracks to get small and medium-sized investors in large numbers leading To obtain the required funding gradually in the light of a business plan that explains how to deal with these amounts first until the required amount of funding is met and without drifting to worse alternatives, and we have many success stories in this, whether in the industrial sectors or other sectors, and the fact that this alternative also has disadvantages, but it is distinguished from the worse alternatives that it has fundamental advantages, which I separate as follows: -

1-engaging in this financing path without consulting experts in matters

a.Finance and taxation

b. Operational

c. Administrative and legal

"It will destroy the life of the enterprise and lead the board of directors to serious consequences!!"

In detail, the financial expert is the cornerstone to answer a fundamental question, which is, does the entity have an accurate real-time accounting system Are the net profits derived from it real or is it ink on paper Do the analytical ratios of these profits compared to the invested capital achieve an acceptable return at the business level in the country Does the company have the ability to distribute these profits according to a policy acceptable to investors Is the future plan, in light of which the investor carries the risk and decides to enter the facility, a realistic and feasible future plan Are they compatible with the production, sales and storage capacities of the facility or are they dreams sent In addition to the above, the role of a tax expert is necessary Verifying that the tax liabilities that will arise from the business volume inflation with newly invested funds will be their tax burdens within a reasonable framework that the investor can be convinced of and does not seem to him as a detraction from the returns of his capital that he was waiting for, which requires a great deal of experience in managing tax relations between the state on one side and investors on the other.

As for the operational expert, he is the expert who will be responsible for making sure that the operating capacities of the enterprise allow absorbing new investments and collecting a return on them equal to or higher than that committed by the financial expert in front of investors.

As for the legal department, it is responsible for the integrity of the inclusion of the contractual formula from the moment of its birth in a sound legal framework that ensures the preservation of the rights of all parties now and in the future in light of the success of the partnership and in light of God forbid its failure

As for the administrative part, those who accept the inclusion of new investors may not imagine that it may be the reason for the collapse of this partnership ! The fact is that the administrative part may be the cause of the leakage of the assets of the enterprise and the subsequent destruction of future plans, the lack of written policies for each procedure within the enterprise may be the main reason for the collapse of the enterprise despite all expansion efforts, the lack of documents and registration of personnel movements, assets or inventory in a scientifically systematic way will lead the enterprise to failure despite obtaining the necessary funding for its expansion plans

2- another of the fundamental flaws in this financing is that the law sometimes gives the right to shareholders to intervene in the management, and this is a legitimate right of the owner of the money, but it must be noted that the role of legal counsel is increasing in the treatment of such gaps by restricting this right in frameworks that allow the shareholder to use it without interference that may harm the management of the company as a whole and the rights of other shareholders, a role that our consultants play professionally in order to preserve the rights of all parties.

1-the partner bears losses as long as there is no suspicion of default by the board of directors, and it is detailed that unlike other types of financing in which the investor does not bear any losses, this type of financing protects the decision-makers in the board of directors from the consequences of force majeure, improbable and emergency circumstances such as an epidemic that hit the country or a fundamental change in the value of the currency or other circumstances that may face the board of directors after making the investment decision and were not included in the future plan, which allows the project to continue until the crisis is overcome and then quietly replace its losses

2-also, one of the essential advantages is the correlation of the size of the profits achieved by the investor with the profits of the establishment and not exceeding the withdrawal from the capital as a result of the existence of agreements related to the return on capital and not that the return on the result of the establishment's work

1- " the company broke even in ....."The word of fact expresses the main disadvantage in co-financing if you are not eligible for this partnership, as we have explained in detail in the disadvantages of co-financing and applying it on the ground looks like the following: -

a. The weakness of the financial advisor will lead the entity to provide dreamy studies and profits that fail to achieve on the ground and thus damage the reputation of the entity and the reputation of its board of directors, or, on the contrary, provide pessimistic studies that drive investors away.

b. The weakness of the legal adviser will cause investors to use their right to monitor the company's work in a way that hinders its work in the first place, and even lose the rights of the rest of the partners, or, on the contrary, open the door for management to lose the right of shareholders.

c. The weakness of the operational consultant may cause the failure of the implementation of expansion plans in light of which the funds were collected from shareholders , the inability to produce, market, sell or even after-sales service, will be a demolition pick in the system

d. The weakness of the management consultant will lead the enterprise to the lack of clear written fair policies followed by the gradual loss of the company's strong cadres, high labor turnover rates, and then a decrease in production, non-storage, marketing and sales capabilities, and so on until the system collapses in the light of which future plans were built.

Based on the foregoing, we at the Egyptian chartered accountants company, through our experts in all fields and sectors, believe that the best financing path to meet the needs of companies is to include partners and investors, and not through any other financing methodologies, is the most appropriate path to expand and achieve the ambitions of management and shareholders in a balanced and gradual manner that protects the enterprise from any funding curbs that may eliminate it