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`CAPITAL’ IDEAS FOR SMALL BUSINESSES
WHAT QUALITIES SHOULD AN OWNER CULTIVATE TO ATTRACT WOULD-BE INVESTORS?

SHARE `CAPITAL’ IDEAS FOR SMALL BUSINESSES
WHAT QUALITIES SHOULD AN OWNER CULTIVATE TO ATTRACT WOULD-BE INVESTORS?

As a small-business owner, one must always consider the possibility of needing additional capital for various purposes. For example, expansion and growth of one's pres-ent company, diversification in the form of an acquisition or merger, or events that may occur that would put an owner on the defensive and short of capital.

Often a bank can be used for these purposes, but there are other possibilities that can be considered, and an owner of a company should keep these possibilities in mind. Specifically, these would be an outside investor, partner or even a public stock offering. Perhaps these possibilities should even be incorporated into the long-term goals of the firm.Those small businesses that can appeal to the emotions as well as the fundamental values of potential investors will be the businesses that have the flexibility to raise capital. What does an investor look for when investigating a small business? How can an owner position his company to appeal to the investor? In evaluating a company, what is most important to an investor? Discussed below are some key points to consider.

Management - Especially to those who may be interested in becoming a part owner or partner, the management is the most important measurement in valuing a company. Business plans, goals (both short-term and long-term) and attitudes must be cohesive. Neither buyer nor seller will want to form an alliance without understanding the other's objectives. A consistent, long-term flexible approach, along with short- and long-term goals should constantly be monitored by management.

Finances - Once more, the "old-fashioned" concept of no debt pays off. This is especially true for the smaller company. Larger companies have a better chance of attracting investor dollars via leveraged buyouts and mergers. But with a smaller business, consistent revenues and earnings, cash reserves and positive balance sheets are of the utmost importance. Investors will be willing to pay top dollar for a top quality business. Put yourself in the buyers' position: Would you want to inherit the debt or the cash of another company? Cash is king.

Product and Service - In an environment where competition is so keen, service is as important as the product. In fact, the average product can compete in the marketplace if superior service is rendered. When a superior product is combined with superior service, the value of the company soars. Remember, service to the customers' satisfaction is, in many ways, more important than the cost. This creates loyalty from the customer to the company. This loyalty rewards the company with an outstanding reputation and guarantees future revenues.

Demographics - Is the industry in which you are involved positioned to change as the rest of the world changes? Will you be flexible enough to conform to different needs and lifestyles? Our population is aging; are you considering the impact that might have on your company? We are in a "global economy"; not only do you have competition from your neighbor but also from the foreigner. If your future is limited or uncertain, the probability of an investor is remote.

These same principles also apply to companies whose objectives may be to go public and become a publicly held stock. Most of the major stock brokerages/investment bankers consider total revenues, the consistency of the revenues and the life of the company in their initial evaluations.

A potential investor will consider all of the points above, but there is one more process that must be brought forth. Most successful investors use a "sixth sense" or a "gut feeling" when making a final decision. The small-business person who can identify what the investor is looking for and appeal to those emotions has the best chance of securing the value represented in his company.

Solid management, a strong balance sheet, service with a competitive product and future anticipated growth will attract those who might be interested. Value is built with common sense, a long-term approach and a lot of hard work.