How To Use Recapitalization to Grow

If you're an entrepreneur, then you must always be on the lookout for possible growth opportunities for your business. Growth is everywhere, if you just know how to look. However, no matter how enterprising you might be or how eager you are to expand your company, there are bound to be a lot of restrictions, the foremost of which is money.

Recapitalization could be the answer to your dilemma. It is a business strategy wherein a company exchanges some of its equity or shares for money, and this money is used in turn to finance growth or expansion. Take note that it only works for companies that have established themselves as being profitable. It does not work for business ventures that have just started.

Some companies undergo recapitalization to prevent a possible takeover by other companies, or to lessen the company's debt. In this article however, we will focus on how recapitalization can be used in order for your business to grow.

  1. First, you must have an idea of how much you need in order to grow further. This assumes that you already know what investments you're planning to make once you have the money. In determining this, factor in how much you will be spending in expenses and paying in debt while the returns from your new investments are not yet realized. Include these in the projected amount.
  2. Look at your current assets, and find out if there are some you don't need anymore. Which you can dispose of? You can sell these assets, and the money could be deducted from the projected amount you need in order to grow.
  3. Afterwards, look for a financial partner you can trust and work with. A financial partner may be a corporate entity or an individual. Recapitalization requires that you sell a portion of your equity to this financial partner, who will give you money in exchange. This influx of fresh capital will help you start on your planned investments. More than that, you will gain new liquidity, and you can use this money to invest in other businesses.

Recapitalization can also help your business grow in other ways, because your financial partner will probably have his own prospective investors. You can tap into these new investors to further your business interests. Moreover, your financial partner can give advice on business matters, since he also has a stake in the success of your company's investments.

Some recapitalization schemes provide for incentives wherein employees of the company can become equity shareholders. Aside from bringing additional capital, this move will also help your business grow, because it will motivate the employees to really work for the company with their best efforts, as they now have personal interest in its success.

Be ready to give up some of your control over the company, since you will be exchanging a part of your equity for money. Find out from the start how much control you will be retaining and what part of the operations you'll still be handling. You have to know how much room you have to maneuver in order to fulfill your dreams of growth.


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