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Lauton U: The Hidden Costs of Getting Your Project Funded รข?? Part III

Welcome back! Today we’ll wrap up with our three part series on this subject. In Part I of the Hidden Costs of Getting Your Project Funded, we discussed due diligence costs that you will most likely incur as part of the funding process. Last week, in Part II, we covered some of the costs of putting together a solid project package. In that article we discussed the costs of  compiling your business plan and financials, of getting feasibility studies and SWOT reports done and other costs you must be ready to bear such as legal fees, patent registrations, lease deposits, taxes and the costs of obtaining the necessary licenses and permits. That was a list of nine elements. Today, we discuss the remaining items from our total list of 18 cost elements you are likely to come across in the course of finalizing your project package for investors and lenders.

10. Franchise agreements
If your project requires a franchise agreement, you must plan to cover its costs. There might also be some element of consultancy and training involved as well. Just as with real property and land deals, if you have already made a solid commitment and finalized the franchisee agreement, investors will be more inclined to take your project seriously.

11. Brokers fees
If you are buying or leasing a property, you will need the services of a real estate broker. The fee is generally paid by the buyer and is calculated as a percentage of the transaction value.

12. Real estate taxes
You will have to pay taxes on land and buildings as well as on improvements made. There will be a tax element based on the assessed value and another element for services such as solid waste, fire, electricity and other special assessments. You need to factor these costs into your budget since closing the deal with investors will be easier if you already have the property in hand.

13. Stamp duty & other closing fees
Whenever transfers of assets such as land, buildings, patents, copyrights or where   legal documents are to be executed, there will be stamp duties to pay. The stamp duty is what makes the document legally binding. Once the documents are completed, there will also be costs for the filing of documents and, of course, the fees to the notary or other official executing the documents.

14. Getting Expert Advice
In addition to all of the other costs mentioned above, some projects may require special project consultancy services. For example, if you are building a hotel, but don’t know all of the ins and outs of  the industry, you will need the services of experts to guide you. That is, in addition to finding a developer and architect for the project. Even with a small project, you may be faced with the need to consult with marketing, business management, publicity, financing or legal experts before you can get to where you are ready to approach lenders and investors with your project.

15. Architects, planners, draftsmen
If yours is a real estate project, in addition to a developer, you will also need a team comprised of architects, planners and draftsmen to prepare the renderings and blueprints. All these costs have to be borne well in advance of meeting your potential funding source. You can hardly go into a first meeting with investors and not have a way to visually communicate your vision and expect to be taken seriously.

16. Private Placement Memorandum (PPM)
A PPM is the private equivalent of a prospectus used for raising capital without going through the incredible expense and red tape of a full blown Initial Public Offering (IPO). While the requirements from a PPM are not as stringent as with a prospectus (which is offered to the public at large), it still needs to be professionally prepared so that it is fully compliant with SEC and Blue Sky laws. As such, you will need the services of a legal firm in order to meet all pertinent legal requirements. This is regardless of whether it is a Regulation D 504, 505 or 506 offering. This most certainly will require a substantial investment on your part. Many firms’ rates for the preparation of a PPM start at $10,000.

17. Association Memberships
You may require memberships to local business and industry associations in order to successfully start and conduct business in your area. These tend to have an initial admission cost as well as an annual membership fee.

18. Other miscellaneous professional charges
The above is not an exhaustive list of all of the costs you need to bear before you begin courting potential investors and lenders. Depending on your project, there could be other miscellaneous and professional charges that you need to cover before, during and after your capital raise so you can seal the deal. It is always wise to have a healthy budget that can cover such unforeseen expenses rather that get stuck half way because you ran out of money. We cannot tell you how many times we have seen great projects get derailed because of a shoestring budget.

That brings us to the end of this series. We strived to cover most of the key cost elements you will come across in the due diligence stages of your project and while putting together your package for investors. Whether or not you will be incurring each of these depends on the nature of your project, the industry you are in and the level of funding you seek. If you can think of anything else we might have missed, please let us know.

Finally, it’s a good idea for you to go through our post, The Shocking And Controversial Truth About Project Funding– What You Need To Know Before You Approach Investors so you don’t get sticker shock when you embark on this process.

If you have any questions or just need more guidance on the matter, feel free to contact us.

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