Over the many years you have been building up your company you have been used to never drawing more than you needed for daily life. But now your kids are approaching college age and that takes some funds, College fees, dorm fees, books, a car and the allowance and the list goes on. Your wife wants to upgrade the home and you have had your eye on a sailing boat forever.
Plus you have some long standing loyal employees who you wish to retain at all costs and the best way to do that seems to be by giving them as stake in the business.
But your liquidity is all tied up in the business. It is now a multimillion dollar company and is constantly showing a healthy profit, even in these troubled economic times.
To raise cash there are a few options open to you:
You could approach your Bank. The bank has cash but they will demand collateral and of course they want to be repaid. The bank option would be fine for buying trading stock but not really for freeing up your capital.
The next possible option is getting investment from family and friends. Hmmmm. Great, if they are loaded with liquidity looking for a home and want to help you out but not a good idea otherwise. They create more pressure than a normal business relationship and you could easily damage a lifelong friendship by having to explain some of your business trips and expenses.
Private placements and Venture capitalists all have their place but you might find that the interest they demand destroys the value of the loan and critically eats into the profits.
Of course you could list on the New York Stock Exchange, but that involves mountains of paper, reports, audited results, press briefings, bank briefings, printing costs and lots of time and money. Your kid is hitting college in 2 months, not next year, your wife is nagging about the kitchen and Sailing season is going to start soon. Your staff is well enough trained to run the place in your absence but you wish to give them the stake now.
The Secondary Market Investment through the Independent Stock Market is the way to go. They have some needs which you meet. You have been trading now for well over five years, the business is worth way over their minimum threshold of $2.5mill and you have tax returns showing audited profits last year. If you list with them you have some of the advantages of being listed on the NYSE with the fact that it will take weeks, not months. That your business will be fairly appraised and shares issued by a SEC authorised stock transfer agent. The value of your business will be significantly higher than if you had used a business broker while searching for capital through a PPM or a Venture Capitalist and the cost and time involved will be but a fraction of that had you decided to go the NYSE route.
Secondary Market Investment enables you to liquidate some of your investment in your company.