Patience, so they say, will be rewarded. With any luck, that has proved true and the most anxiously awaited Budget in recent memory has been received with an abundance of optimism and unleashed a new sense of drive and determination that will reinvigorate the economy. On the other hand, readers may be beating their breasts in despair that business relief from Inheritance Tax and the exemptions from Capital Gains Tax have been stripped away as feared, wiping-out the benefits of investing on AIM. Alternatively, readers may be stupefied that we have waited four months for a hyped-up Budget which has underwhelmed with its lack of ambition.
Whether or not the Budget delivered on its promises, one thing is true. While the Chancellor of the Exchequer can add a percentage or two of tax here or take a couple of percent off something else, it’s ultimately just tweaking around the edges and is unlikely to make a critical difference to GDP. The only thing that will bring in more real revenue for the Chancellor is growth, and that’s up to businesses.
Fundamentally, in order to drive growth, we need to get more capital into nascent companies. Yes, Government can play a role by offering incentives for investment, but investors aren’t going to risk their money on a wish and a promise, and founders and their management teams shouldn’t rely on a tax break to make their offer attractive.
Growth is the Holy Grail of economies all around the globe and Governments of all hues are pulling out the limited stops at their disposal to try to stimulate productivity. Since nobody seems to have an effective answer, companies would be well advised to ignore Government promises and take matters into their own hands.
So, what can start-ups and growing companies do to make themselves more attractive to investors?
First things first, businesses need to have a clear business plan underpinned by ‘facts’ such as, a solid sales record. It’s becoming increasingly difficult to float successfully. Once upon a time you could float on AIM on the back of a good idea, particularly if it fell within the wall of a new bubble which generated a lot of excitement before ultimately collapsing. While some companies may be able to take advantage of a link to a future growing industry, such as AI to create investor interest, the majority will need to present a very clear idea that can be substantiated with identifiable targets to demonstrate that they’ve thought it all through.
Businesses should also be realistic and manage their investors’ expectations. Companies that deliver and meet their goals will build trust in the market which will help retain existing investors as well as attract new ones.
Investors are, and have always been, interested in short-term bang for their bucks, but that doesn’t sit harmoniously with the goal of building-up strong companies over time. Perhaps it’s time for a change in focus? Companies should educate investors and potential investors about their medium and long-term plans. Afterall, tall buildings need strong foundations and it takes time to put-in the groundwork.
Businesses should provide annual, three year, five, even ten year plans, that are regularly updated so that the vision of the company is continued into the future. While it’s true that some founders want to exit early, they should still look beyond a quick sale to ensure that their company’s growth is sustainable, whether that is with the current owners and management team, or whoever takes over the company post-exit. Achieving compounded long-term growth will deliver true value for investors.
Investors change over time. Existing investors’ needs evolve and new generations of investors enter the market with new expectations. Management should consider who their investors will be over the business plan’s cycle so that they can tap into their interests and attract new funds.
Finally, make sure the company has a strong finance team which will help management to make swift decisions. Scrimping and saving to make the books look good doesn’t always lead to cost efficiency. Cutting the finance team headcount may mean the company is less able to assess its position on a timely basis resulting in delays in its ability to pivot and adjust, or take advantage of new opportunities.
While Governments can intervene to identify industry sectors of national future importance and champion them with tax breaks and initiatives aimed at attracting inward investment, individual businesses and investors are not helpless spectators sitting on the sidelines. Growth comes from attracting capital and being prepared to take a calculated risk. Crack on!
This article was originally published in the Q4 2024 AIM Advisers Rankings Guide. For more information, please contact Joseph Archer.
