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iving
birth to a company is as much an emotional experience
as a business venture for many female entrepreneurs.
It's an exhausting one, too: You get caught up in
the day-to-day operations and have little time ponder
the long-range plan.
As
an owner watches her young start-up mature, she
becomes still more enamored of her creation. So,
when the time comes to sell or seek investment,
it's a pretty rude awakening to discover nobody
wants to pay what you thought your company was worth
- or provide the necessary equity to take
your enterprise to the next level.
Like
a mother shocked to learn that her "little angel"
is perceived as a demon on wheels in his first days
of school, women business owners are often surprised
to learn that their "business babies" are not the
most desirable entities.
The
whole time you're building your company, you have
to be mindful of what will make your business attractive
to investors and buyers so you'll be building your
primary asset in the most valuable way. That means
taking off the tinted glasses, asking some hard
questions, and shoring up a bunch of loose ends
to position your company in the best possible light
for the greatest possible gain.
A
Look Inside the Investors' Mind
Perspective
buyers and investors are looking for specific attributes
to help mitigate risks and maximize return. These
include identifying companies that have a history
of earnings growth, are proven to be dominant market
players, and have a well-diversified client base.
Lots
of companies suffer from heavy customer concentration.
Women often transition to ownership from the corporate
world and bring one or two clients with them, or
develop a service for one particular client and
grow that service around that client. Over time,
those clients become enormous pieces of these women's
businesses. Although that's good for these women
business owner's immediate needs, it's bad for future
sale or investment.
One
set-to-sell company had a unique line of upscale
book accessories purchased in volume by Barnes &
Noble and Borders, and its revenues increased each
year for five years. That sounded great - to
everyone except the prospective buyers. Their reasoning
was simple: Should one of those two clients withdraw,
half the company's business would go down the tubes.
Thus, despite the seeming success of the company,
there were no takers for its purchase.
Above
all, private capital and savvy expansionists require
bottom-line thinking.
A
private equity firm is looking for as much as a
30 percent return on investment. While you may believe
your innovative product packaging, industry status,
and strong brand image to be tangible assets, these
considerations matter little when it comes to determining
investment or acquisition worthiness. It's earnings
that count - plus, of course, a clear vision
toward how to increase those earnings in the not-so-distant
future.
Removing
the Red Flags
The first thing you need to do is take a good
hard look at your business using a SWOT Analysis
- Strengths, Weaknesses, Opportunities,
and Threats. Know where you stand and how others
outside your industry will perceive your company.
To
do this, you may benefit from the help of a professional
to help identify pitfalls and potential, recast
the financials, put a market value on your company,
and identify potential buyers or investors.
If,
as a result of doing a detailed analysis, "red flags"
come up, you need to address those issues expediently.
The more red flags, the more likely it is that your
company is not poised for an immediate sale or acquisition.
A
handbag manufacturer, with products sold primarily
in high-end retail chains and on QVC, recognized
her distribution was too limited to attract the
purchase price she desired. She expanded the product
line by "knocking off" her own upscale accessories
and selling lesser-quality replicas in mass merchandise
outlets. By diversifying products and channel partners,
she created a far more valuable property for acquisition.
A
Houston advertising agency seeking equity discovered
that its large client base was too localized to
make it appealing to investors. The decision to
purchase a smaller agency with a few key national
accounts proved to be a winning strategy for garnering
capital consideration.
The
most important thing to remember is that the ideal
time to create greater value for your company is
not when you are considering sale or investment,
but as you are strategically building your business.
In this way, you will be in the best possible position
to capitalize on market conditions and growth opportunities
when the time is right for you.
JULIE
GARELLA is co-founder of McColl Garella LLC (www.mccollgarella.com),
a Charlotte, NC, investment banking firm specializing
in women-owned businesses and serving clients nationwide.
She can be reached at 704-333-0183 (e-mail: jgarella@mccollgarella.com).
(This
article is reprinted from the Fall 2003 edition
of Enterprising Women magazine. Copyright
2003, Enterprising Women Inc. Reproduction in whole
or part is prohibited, except by permission of the
publisher.)
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