Business expansion strategies for SMEs (III)
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The concern for business expansion for SMEs puts a lot of pressures on the shoulders of the owners and managers of these enterprises. But as can be seen so far, the progressive SME owner/manager is open to both internal and external business expansion strategies for his/her business. It only depends on what the person wants, how much sacrifice the person is willing to make for the expansion programme, the person’s response to learning and development, his/her vision for the business, his/her ability to take advantage of the opportunities in the business ecology, his/her interests to perpetuate the ideals and objectives of the business in its chosen markets and industry and other related factors.
In this last part, I will be discussing with you how an SME owner/manager can achieve their expansion programme through private placement. Private placement, more or less, is a financing strategy; however, it can also be utilised for the sole purpose of expansion. Utilising private placement as a tool for expansion comes with its own requirements and conditions for the SME. Some of these requirements are unwritten laws and regulations, while many others are compulsory conditions a business has to meet before it can consider private placement at all.
What is private placement?
This business expansion strategy is becoming very popular today. It is a very simple and comfortable way of raising capital to meet a business need or achieve its objective(s). A private placement is when an organisation seeks to raise capital for its operations (or to achieve a specific corporate objective) by seeking person-to-person participation. It is the opposite of a public offering where members of the public are invited to invest in a business. This form of raising capital is designed to invite investors to invest in a business without having to make this intention public, except to those invited. So the promoter of the business has a target market to throw his/her invitation to. Many businesses are doing that today like we see in the Nigerian banks and companies in many sectors today in the country. But there are conditions an organisation interested in private placement has to meet:
1. It must be registered as a limited liability or limited partnership business.
2. The organisation must have a track record. This is not to say that private placement cannot be used for and by start-ups, but it is difficult to convince investors that your business proposal or idea would fly before the business has started. If there is anything contrary to this position, then it is an exception, not the rule. Investors would always want to invest in a business that has some track record or has been in existence for quite a while.
3. You need to have a business plan. This is what investors would read before they can decide whether your business is viable or not.
4. You need the help of a consultant or a third party to mediate or act as an intermediary between you and your investors so everyone feels safe about the whole process. This may be waived in some instances.
5. You must be willing to share your profit and even shareholding with others in any private placement of shares. This is because if you’re selling preference shares or debentures, your investors would have first priority to your interests as agreed in the placement memorandum and if you’re selling ordinary shares, your investors would become part-owners with you.
Benefits of a private placement
1. It is not a public matter. So, only those you contact with the information would know about it.
2. It’s an easy way of raising money for your business expansion or for other business purposes rather than going to the bank.
3. Funds raised can be cheap and long-term for the business, thus favourable to the financial objectives of the firm e.g. in the case of equity participation.
4. It can help you achieve your objective of business expansion.
SMEs can thus expand their business operations by looking at these various business expansion strategies. Each, really, has its own merits and drawbacks. Depending on the business, the vision of the owner, the budget involved, the passion and love of the owner for the business, the available opportunities and needs in the marketplace and so on, SMEs can decide which strategy suits them most; whether strategies that do not involve other people coming into the business or strategies that require bartering of services/products or outright merger and/or acquisition.
Concluded
Articles
Business expansion strategies for SMEs (III)
Category: Business Written by - Hits: 837
The concern for business expansion for SMEs puts a lot of pressures on the shoulders of the owners and managers of these enterprises. But as can be seen so far, the progressive SME owner/manager is open to both internal and external business expansion strategies for his/her business. It only depends on what the person wants, how much sacrifice the person is willing to make for the expansion programme, the person’s response to learning and development, his/her vision for the business, his/her ability to take advantage of the opportunities in the business ecology, his/her interests to perpetuate the ideals and objectives of the business in its chosen markets and industry and other related factors.
In this last part, I will be discussing with you how an SME owner/manager can achieve their expansion programme through private placement. Private placement, more or less, is a financing strategy; however, it can also be utilised for the sole purpose of expansion. Utilising private placement as a tool for expansion comes with its own requirements and conditions for the SME. Some of these requirements are unwritten laws and regulations, while many others are compulsory conditions a business has to meet before it can consider private placement at all.
What is private placement?
This business expansion strategy is becoming very popular today. It is a very simple and comfortable way of raising capital to meet a business need or achieve its objective(s). A private placement is when an organisation seeks to raise capital for its operations (or to achieve a specific corporate objective) by seeking person-to-person participation. It is the opposite of a public offering where members of the public are invited to invest in a business. This form of raising capital is designed to invite investors to invest in a business without having to make this intention public, except to those invited. So the promoter of the business has a target market to throw his/her invitation to. Many businesses are doing that today like we see in the Nigerian banks and companies in many sectors today in the country. But there are conditions an organisation interested in private placement has to meet:
1. It must be registered as a limited liability or limited partnership business.
2. The organisation must have a track record. This is not to say that private placement cannot be used for and by start-ups, but it is difficult to convince investors that your business proposal or idea would fly before the business has started. If there is anything contrary to this position, then it is an exception, not the rule. Investors would always want to invest in a business that has some track record or has been in existence for quite a while.
3. You need to have a business plan. This is what investors would read before they can decide whether your business is viable or not.
4. You need the help of a consultant or a third party to mediate or act as an intermediary between you and your investors so everyone feels safe about the whole process. This may be waived in some instances.
5. You must be willing to share your profit and even shareholding with others in any private placement of shares. This is because if you’re selling preference shares or debentures, your investors would have first priority to your interests as agreed in the placement memorandum and if you’re selling ordinary shares, your investors would become part-owners with you.
Benefits of a private placement
1. It is not a public matter. So, only those you contact with the information would know about it.
2. It’s an easy way of raising money for your business expansion or for other business purposes rather than going to the bank.
3. Funds raised can be cheap and long-term for the business, thus favourable to the financial objectives of the firm e.g. in the case of equity participation.
4. It can help you achieve your objective of business expansion.
SMEs can thus expand their business operations by looking at these various business expansion strategies. Each, really, has its own merits and drawbacks. Depending on the business, the vision of the owner, the budget involved, the passion and love of the owner for the business, the available opportunities and needs in the marketplace and so on, SMEs can decide which strategy suits them most; whether strategies that do not involve other people coming into the business or strategies that require bartering of services/products or outright merger and/or acquisition.
Concluded