Managing Your Cash Flow

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To float or not to float?

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But this route should be approached with great caution. In the heady days of the late nineties and early noughties, there were some remarkable success stories of small companies using the relatively gentle regulation of AIM to raise funds to acquire competitors and grow aggressively. Companies such as NCC and Spice have made remarkable returns for investors – but can it still be done?

In its early years, AIM undoubtedly fulfilled its objective of being a conduit to funding and liquidity for the UK’s small business community. However, more recently, it became a victim of its own success. As the US markets tightened their controls in response to the Sarbannes Oxley diktat, there has been an influx of overseas companies on to AIM, so that today it is dominated by Russian energy companies, Far Eastern miners and worldwide real estate organisations.

At the end of 2009, the top ten companies on AIM each had a valuation of more than £500m. So should the small business owner look to this funding route?

The key issue to consider is not how much your company is worth or even how much new money is to be raised, but why do you want to float? The only valid reason to consider a listing today is if you wish to use your openly-valued and liquid shares as consideration to acquire other companies. If you analyse the success stories of AIM, they have almost without exception used this route to grow aggressively by issuing new shares to selling shareholders – thereby cutting down on legal and financial bills and avoiding the commission fee chargeable by brokers on raising cash.

If you just want to release some value from your business or to raise funds for a specific purpose, then the private equity market is probably a better option, particularly if you qualify for EIS/VCT investments. If, however, you have a bigger masterplan… take AIM now!

Michael Norris is director of The Alternative Board, Manchester.

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