26/03/2012

By Lara Morgan, Founder, Pacific Direct

All business owners must think very seriously about equity, and do so right at the start. Today I endlessly hear company owners considering the sale of equity as a method of growth.

Indeed, often I find that companies have been established with a split of equity being poorly thought through, with a lack of real appreciation for what the value of each individual share could stand for in the future. Pacific Direct started with a hundred shares that were worth nothing.

It sold for £20,000,000 — with each share worth £200,000. Please think through very carefully, at the set-up stage, exactly who has what in equity shareholding. Please, and at all costs, do everything to find alternative financial means — at nearly any price — rather than surrender equity for cash.

Equity is your most valuable asset, and equity dealers cannot build businesses which is why they trade equity. It is your sweat, tears and worry that create equity value — so relinquish it slowly. You may have to starve a little to hang on tight to high levels of equity, but it will be worth it.

Although I was by no means perfect, my understanding of the importance of money and my paranoia of knowing the numbers served me exceptionally well. On any given day I could have — off of the top of my head — given anyone an accurate immediate overview of the debtors, creditors and cash in hand.

I am lucky in the sense that I remember numbers well, but I worked at that ability. I’ve always liked the impressed reaction when I can remember to the penny the important and not so important figures (including any unpaid children’s pocket money).

When I first started Pacific Direct — and right up until the point where I sold it — I would always carry round with me a checklist of questions which I would relentlessly ask myself about the performance of our business. It became my bible. Often I would have a copy I could scribble on, highlighting some points and simply ignoring others that were not requiring focus at that particular time. The key to its effectiveness was regularly reviewing it and checking it for sense, as well as constantly improving on the reporting quality, analysis and application of the information as I studied our success.

You will catch busy-fool disease if you grow without focus. Busy fools do not make the same big returns as those with a solid grasp of the boring numbers. I would sometimes ignore all other demands on my time, even when drowning in my workload, to review our performance and ensure that whatever activities I was intending to do did indeed add value.


Extract from More Balls Than Most by Lara Morgan, www.companyshortcuts.com Published by Infinite Ideas


Join us on
Follow @freshbusiness