14 October 2012

Zimbabwe: It Is Time to Broaden Your Horizons

opinion

"Don't accept the limitations of other people who claim things are 'unchangeable'. If it's written in stone, bring your hammer and chisel." -- Peter McWilliams

On Wednesday last week, the Zimbabwe National Chamber of Commerce held its third International Business Opportunities Day at the Rainbow Towers hotel in Harare.

Officials from embassies that do business with this country were there to discuss business opportunities with Zimbabwean entrepreneurs. The theme was, Turning Recovery Into Accelerated Growth -- Towards a Hundred Billion- Dollar Economy.

How big do you see your business five or 10 years from now? Do you see it growing significantly? Or do you see it pushed out of the market by competitors, or even liquidated?

Growth needs thinking and preparation; it does not just happen.

The main limiting factor for growing a business in Zimbabwe today is lack of capital. This is because there is a very limited amount of cash inside the country. But out there, investors and companies have cash, which they are failing to maximise value from, due to low returns on investment.

I recently received emails from an Indian and a Chinese firm asking for proposals from SMEs in my network who may want to enter into joint venture or equity investment deals in various sectors, including mining, agriculture, IT and manufacturing.

Entrepreneurs should now start thinking of how to attract these foreign investors and get the capital injection they need to accelerate their growth.

Before you can approach these investors, you need to work to ensure that your business is ready and attractive for investment. Below are some of the critical areas you need to work on to make your business attractive to investors.

Performance records

The first thing investors would want to see is a record of past performance. For your business to be investor-ready, it must have kept accurate financial records for some years. It will also need a profile of its products and services, customers and intellectual property. This will enable an investor to know exactly what business they are entering into. Without that paperwork, it will be difficult to sell your proposal to an investor.

Growth potential

Investors want to make money. This is achievable only when your business has the potential and capabilities to grow.

In your proposal, you must prove that there is potential for significant growth in your industry or market if you get the necessary capital. Serious market research has to be undertaken for your proposal to be convincing.

Momentum

An investor will want to see proof that your business is moving forward. You need to show the milestones you would have achieved in the past few years and set the ones for the next few.

A business that has been stagnant or is in decline will not be an attractive candidate for investment, unless there is a convincing reason that it can be changed. If you have simply been lazy and visionless, then investors will see no reason to work with you.

Value of the business

Do you know the value of your business? If an investor wants an equity share in your company, they will need to know its value. They cannot just pump in money; they need to know what percentage of the business' value they are getting.

There are various ways of determining the value of a business. The most objective one is to compare your business with similar ones listed on a stock exchange.

This is because share prices are market-determined and investors will consider the price to earnings ratio to come up with a fair value for equity in your business.

The second method is to consider the investor's required rate of return. This means they will take the expected profits for, say, the next 10 years and use that to come up with a value.

For example, if one invests US$10 000 into your business, he/she will want this money to come back, together with their desired return on investment, which could be 20% per year for example, within 10 years.

The third method values the business' assets, both tangible and non-tangible. Whatever valuation method is used, the investor will especially want to know the value of your business after they have made the investment, called post-money valuation.

Now that you know there is a broader horizon out there. it is time to start acting to put your business in order and make it attractive to investors.

Phillip Chichoni is a business planning and financial management consultant who works with entrepreneurs and growing businesses. You may contact him by email on chichonip@smebusinesslink.com or visit http://smebusinesslink.com

Investors value management competence

Investors don't invest in a business' buildings, machinery or products; they invest in the people who make the business run.

So you need to put in place a team of talented and skilled people. This may exclude you.

As an entrepreneur, your task is to build a business and recruit competent people to run it.

Your top team then has to have impressive credentials for your business to attract investors. These credentials include skills, experience , professional or technical qualifications and a record of past achievements.

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