Thinking of starting a business? Considering opening your business to investors?
Once your company reaches a certain size, you might find yourself looking for new sources of financing that will allow you to continue growing the business. For instance, maybe you want to add a whole new type of products or services to your existing range of offerings. Or perhaps it is simply that your market is expanding and you are outgrowing your existing setup. One way or another, you will need to raise some funds to support your additional requirements for staff, equipment, real estate, technology and working capital.
Instead of borrowing money from a bank in the traditional manner, you should consider listing your company on the stock market in order to raise money for your business expansion. These days, an increasing number of small and medium-sized businesses are going public and listing their shares on their local stock exchanges.
In most countries, the national stock exchange allows smaller firms to join a special section or board where listing requirements are less stringent than on the main board. Some countries also have regional and OTC (over the counter) exchanges that welcome small and medium-sized issuers. You will still have to meet the exchange’s listing criteria such as minimum turnover and a certain period of profitable operation, however.
You will have to engage an investment bank, or a financial advisory or accounting firm to perform a valuation of your business, draw up earnings projections for the next several years and advise you on how many shares to offer to the public and at what price. Your advisers will also market your stock offering to their clients and help raise awareness of your company and its IPO (initial public offering) within the investment community.
By going public, your business can gain access to a substantial amount of capital that doesn’t need to be paid back, and that can make your dreams of expansion a reality. Don’t forget, though, that you are selling a stake in the company, and that shareholders will expect regular dividend payments and possibly even a say in how the business is run.
One advantage of listing your company’s shares is that if it continues to thrive, you might be able to tap the market again for more funds at a later stage. If market conditions are favorable, you could issue more shares and take advantage of an increase in your share price following your expansion, for example. You might also find that your cost of doing business goes down somewhat after you become a public company. The credit rating agencies are often able to give higher ratings to listed firms, simply because they are required to keep more complete, and more transparent, accounts.
With more and more individuals owning stocks these days, smaller companies are also listing in greater numbers. If you are wondering whether the stock market could be a realistic source of financing for your business, speak to your financial advisor today.
Also, please remember that during hard economic times, small businesses and stocks get more attention than the big dogs as they are less likely to get impacted by market volatility, along with increased consumer confidence being invested in those smaller businesses. The fall of great empires always help the birth of start ups.