Finding Money

What can a business owner do? Most see no alternatives. They just keep cutting costs as they shrink the business down hoping they can just stay alive. Others sell out, often for far less than what the business or for that matter what the assets are worth. Some give up and shut the doors.

But there is something else. Every business owner needs to consider selling equity. What's more he or she should consider jumping the hurdle that often stands in the way of a successful sale of equity.

Prepare to sell control; that's right, sell 51% of the business. Here's how I suggest it be done.

First, develop a sound plan for bringing the business back to profitability, one you as the owner can make happen - if you have the capital. This should include getting rid of the debt already in place. After all you want and need time to right the ship and you have to get rid of the pressure of monthly payments at high interest rates sucking out all the cash.

Next, add in how much you need to expand; maybe buy a competitor, take on another line or to open another location, perhaps in an adjoining town. Look for ways to use a single warehouse and one admin staff to support additional revenue generating operations.

Calculate the total, now double it and label that amount as the value of the business. Now start looking for an investor - not somebody who wants to take over your business - someone who wants a return on their money. There is plenty of money out there but those with the money want to feel comfortable that the person they will do business with will deliver on the promises and they don't want the grief of trying to get their money back if things go wrong

Solve those two problems and you get your money.

Offer to sell 51% of the total you came up with as the value of the business but state very clearly that you want to buy back control. To do so the transaction should involve two parts. One, sell 25% of the business by issuing common shares of stock for say half of what the investor puts in and, two, sell 26% of the business by issuing preferred shares for the other half of the money they put in.

Be willing to pay a dividend on the amount the investor put in to buy the preferred shares. Negotiate the start of the dividend payments say 24 months after the deal is done and the frequency of the payments, say quarterly.

Now negotiate the buy back of the 26% represented by the preferred shares. Establish how long the option to buy back stays in place (the longer the better for you) and the price of the buy back (let it increase each year.) These elements become the cost to you and define the ROI for the investor.

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Art Consoli's unique background and skills allow him to speak and write about how someone with limited experience can do a self-evaluation which will let him decide which business opportunity is best, how to evaluate opportunities and gain control over the one which offers the greatest potential and then manage that business to success. Readers of his book call and write to tell him how much his book has helped their lives and improved their business. The author can be reached at www.businessstrategyartconsoli.com.