Chapter 22 Chapter 21 Capital Expansion, Built to Last

Capital expansion refers to the expansion of the capital scale of enterprises through internal accumulation, additional investment, and absorption of external resources, that is, mergers and acquisitions, under the existing capital structure.It plays an undoubtedly important role in the efficient operation of the social economy, the effective use of social capital, and the survival and development of enterprises.If small and medium-sized enterprises want to make great progress in the modern market economy environment, they must adopt the method of attracting private or social capital to invest in shares, partnering, or even adopting listing financing for rapid capital expansion, laying a solid foundation for enterprise development and external financing including loans. Foundation.

water The financing methods of enterprises can be roughly divided into two types: internal financing and external financing.The choice of different financing methods of enterprises is the result of rational choice of enterprises in a certain financing environment. The so-called endogenous financing refers to the funds generated by the company's operating activities, that is, the company's internal financing funds, which are mainly composed of retained earnings and depreciation.It refers to the process in which an enterprise continuously converts its own savings (mainly including retained earnings, depreciation and fixed liabilities) into investment.Endogenous financing has the characteristics of originality, autonomy, low cost and risk resistance for the capital formation of enterprises, and is an indispensable and important part of the survival and development of enterprises.In fact, in developed market economy countries, internal financing is the preferred financing method of enterprises and an important source of funds for enterprises.

For example, in the past 20 years, non-financial companies in the United States accounted for more than 65% of their total funding sources, and it was as high as 97% in 1991; while in Japan, only about 30% of funds came from within the company in 1970, and by 1985 This proportion rose rapidly to 70% this year.The transformation of Japanese enterprises from external financing to internal financing is considered internationally as "the proof of the maturity of Japanese industry and the increase in profitability". But when we look back at ourselves, you will find that our country’s enterprises are severely lacking in internal financing, and their self-accumulation ability is low, which is not as good as Japan’s level in the 1970s, and the gap with Western developed countries is even greater.In addition, the capital structure of Chinese enterprises is not only characterized by excessive reliance on external financing (accounting for more than 70%), but also excessive reliance on bank loans in external financing (accounting for more than 80%). This situation directly leads to High debt ratio of enterprises (the average debt ratio of state-owned enterprises was as high as 64.82% in 1997).In fact, the financing structure of an enterprise is directly related to its operating efficiency and ability to resist risks. Insufficient internal financing will seriously restrict the self-development ability of Chinese enterprises and cause great obstacles to the long-term development of Chinese enterprises.

UF who refuse venture capital UFIDA was established in 1988 with an initial registered capital of only 50,000 yuan. Ten years later, in 1999, the registered capital was 75 million yuan.Now, after another ten years, it has entered the top 50 in the global software industry and has become a world-class software company.How did this company, which was once a small capital start-up, snowball to such a large size in just two decades? In 1991, UFIDA, facing the competition of more than 200 large and small financial software companies, took increasing market share as its primary strategic goal.Facts have proved that this decision is correct. For three consecutive years, UFIDA's turnover and operating profit have grown at a rate of 60%.Finally, UF has to consider going public.At this time, we will face the problem of financing.

Due to the fact that the business risk of UFIDA in this period has been greatly reduced, the development prospects are unlimited, and the investment value is far greater than that of mature enterprises in traditional industries. Therefore, domestic and international funds come unsolicited, forming a situation where UFIDA is being chased by funds. .Within half a year, there were dozens of visitors, both overseas and domestic.However, UF did not accept such an investment, because UF executives believed after analysis.UFIDA has already gone through the start-up period that requires venture capital, and this type of investment will not help UFIDA’s listing status and issue price. Therefore, it is of little significance to accept venture capital, and UFIDA can be listed independently.

They are certainly not blindly confident.Since the business has been in operation for a period of time and has begun to take shape, it has a fixed cooperative relationship with suppliers and distributors and a certain right to speak. UFIDA has the conditions to accumulate a considerable sum of money by occupying upstream and downstream funds through accounts payable and advance receipts. The working capital of this fund will play a great role in further expanding the scale of operation of UFIDA.Moreover, UFIDA has created profits that can be used to expand reproduction.This part of the amount of endogenous financing converted from retained profits indicates that the business operation has entered a healthy and virtuous cycle, and the enterprise has the ability to survive and develop only by endogenous financing.

In the end, UFIDA rejected the venture capital investment with the highest financing cost, smoothly passed the "puberty syndrome" of the enterprise caused by the expansion of scale, and rushed directly to the runway of China's capital market, rushing to its own brilliant tomorrow . Why did UF reject venture capital?It is true that external financing such as venture capital, bank loans, stock listing and bond issuance has the advantages of high efficiency, flexibility, large volume and concentration, but too much external financing will increase the debt ratio of the enterprise and make the enterprise control Decentralization increases the business risk of the enterprise.The originality and autonomy of endogenous financing can reduce the dependence of enterprises on the outside world, reduce the impact of the external environment on business operations, improve the self-development ability of enterprises, reduce operating costs, and reduce business risks.Therefore, the powerful UF will make a decision on internal financing.

As mentioned earlier, the current situation of corporate financing in my country is that it relies too much on external financing methods such as bank loans and stock listings, but generally neglects to carry out planned self-accumulation, that is, internal financing, and does not have the "initiative" in the supply of funds. . So what should companies do?How to judge whether you have the ability of internal financing? Internal financing mainly consists of retained earnings, depreciation and fixed liabilities.Retained earnings are the funds formed by withdrawing the common reserve fund and undistributed profits. The specific method is not to distribute the current profits of the enterprise, or to distribute stock dividends to shareholders instead of cash dividends.

Depreciation is the tangible and intangible loss of fixed assets expressed in currency during the production process, which is recovered in installments through sales revenue.Depreciation does not increase the capital scale of the enterprise, but it can increase the cash flow of the enterprise in the current period. Fixed liabilities are part of the recurring deferred payments temporarily reserved within the enterprise according to the settlement procedures of the current financial system, mainly including wages payable, benefits payable, taxes payable, accrued expenses and other payables.Although the fixed liability does not belong to the enterprise, it always exists stably in the enterprise in the short term.Therefore, enterprises can make full use of it as short-term working capital.

From the formation of these internal sources of financing, it can be seen that retained earnings require enterprises to have strong profitability, depreciation requires a larger share of fixed assets in enterprise assets, and fixed liabilities are related to relevant laws and accounting systems.Enterprises can choose their own internal financing methods according to their own conditions. Enterprises rely entirely on their own funds to operate, and there is no risk of financing. This is safe in business operations, but it is also impossible.Firstly, it is impossible for an enterprise to have an inexhaustible source of funds; secondly, when there are opportunities for development, it would be too conservative to refuse borrowing for the sake of stability. Therefore, enterprises should learn to "borrow chickens to lay eggs" and use debt operate.But in any case, debt management is definitely risky, and it is not advisable to blindly borrow money to expand production.Therefore, it is very important to grasp the sense of proportion.

Corporate debt management is subject to the influence of the financial market.Fluctuations in financial markets, such as changes in interest rates and exchange rates, will lead to financing risks for companies.Therefore, when a company mainly adopts short-term loans for financing, if it encounters financial tightening and short-term borrowing rates rise sharply, it will cause a sharp increase in interest expenses and a decline in profits.What's more, some enterprises are liquidated due to their inability to pay the high interest expenses. These risks must be prevented in advance. The collapsed super company In November 2004, it was a sad day for Wu Liming, chairman of Zhejiang Chaotong Technology Co., Ltd., and more than 2,000 employees. The company they worked so hard to close down.Some of the company's fixed assets have changed hands, some properties have been seized by the court, and some factories have been guarded by the "Iron General". Chaotong Company was founded in 1984 and has been engaged in the chemical fiber industry for more than 20 years. It mainly produces polypropylene filaments, polyester filaments and other chemical fiber products. In 1999, Chaotong Company carried out a joint-stock reform, changing from a township-run enterprise to a private joint-stock enterprise, controlled by Wu Liming, the chairman of the company. The group has Chaotong Technology, Haiyan Chaotong, Fuhua Synthetic Fiber, and Sunshine Polyester subsidiary company.In the year when the company was restructured, it achieved a sales revenue of more than 600 million yuan and a profit of more than 40 million yuan.In the next few years, the sales revenue of Chaotong Company reached a new level every year.During this period, Chaotong Company has become a "little giant" enterprise in Zhejiang Province with its annual sales revenue of 1.6 billion yuan, ranking second in the province's chemical fiber industry and ranking seventeenth in the same industry in the country. into the advanced ranks.While Chaotong Company was developing rapidly, it fell down unexpectedly.What caused Chaotong to collapse? On the surface, it seems that several banks have withdrawn a large amount of funds from Chaotong Company one after another, breaking Chaotong Company's capital chain.However, if you look at the growth history of Chaotong Company, you will find that the company initially started with a capital of 1 million yuan, and then continued to expand. One of the elements of success here is that the chairman of the company, Wu Liming, has come up with a The "secret" of making a big company is to use the money earned by the company to reinvest in fixed assets for business expansion, and use bank loans as the company's working capital. ", to be precise, it is called "borrowing money to make money".This trick made Wu Liming "play" happily for more than ten years, but in the end it got burned. Chaotong Company has borrowed more than 300 million yuan from banks such as Bank of China, Agricultural Bank of China, ICBC, Guangfa, China Merchants, Everbright, Huaxia, and Commercial Bank.Part of it is secured by fixed assets, and the other part is secured by inventory. At the end of 2003, Guangdong Development Bank first withdrew 30 million yuan of loan funds from Chaotong Company. In April 2004, Guangfa Bank withdrew all funds from Chaotong Company.Subsequently, other commercial and state-owned banks also withdrew funds one after another. At this time, Chaotong Company needed at least 150 million yuan in working capital, but they could not get it out at all.Therefore, Chaotong Company, which had been drained of its "blood" by the bank, collapsed like this. The method of "borrowing money to make money" is not impossible, but it must be properly measured. Like Chaotong Company, all the profits of the enterprise are used for expansion, and all working capital relies on bank loans, and even later uses it for liquidity. Funds from bank loans are also diverted to investment in fixed assets. Once this approach encounters turmoil, it will have nowhere to go.Therefore, we must keep in mind that debt management cannot be overloaded. The larger the debt scale of the enterprise, the more the interest expenses will be, and the possibility of insolvency or bankruptcy due to the reduction of income will also increase.At the same time, the higher the debt ratio, the greater the financial leverage coefficient of the enterprise, and the greater the change in shareholder income.Therefore, the larger the debt scale, the greater the financial risk.Reasonable use of debt financing and a good ratio between debt capital and equity capital are very critical for enterprises to reduce comprehensive capital costs, obtain financial leverage benefits, and reduce financial risks. In English, VC is the abbreviation of Vitamin C.Today, VC has become synonymous with venture capital (Venture Capital).Almost any start-up company regards obtaining VC as the yardstick for starting a business. The so-called venture capital is a capital form that takes high risks and seeks high returns by raising funds through private equity, establishing companies and other organizational forms, and investing in unlisted emerging small and medium-sized enterprises (especially emerging high-tech enterprises). . Known for its high risk and high return, venture capital has matured in many countries and has a well-formed mode of operation.Its investment objects are unlisted emerging small and medium-sized enterprises in the entrepreneurial stage, especially emerging high-tech enterprises.In the United States, about 80% of venture capital funds are invested in high-tech enterprises at the start-up stage.These enterprises focus on the development of innovative products, and the market prospects are not expected. Unlike enterprises in mature industrial sectors, which can raise funds from banks and securities markets, they can only seek financial support through venture capital. Feasibility Impresses Investors When Tom F. Herring and his wife went to Niagara Falls in New York State for a husband and wife tour, they were surprised to find that neither the United States nor Canada provided accommodation and facilities for these lingering tourists on both sides of this beautiful scenery. other facilities. From then on, an idea of ​​opening a hotel in a scenic spot came into Herrin's mind.To build a hotel would have to find a foundation, and he found a high school in Grande City because the school wanted to sell the house.But at that time, Herring was just a small clerk in a lumber company, with a weekly salary of only $125. He wanted to buy this house, but suffered from lack of funds.So he lobbied to the shareholders of his company, hoping that he could enter the hotel business, but without success.He had to raise $500 on his own, and asked an architect to design a schematic sketch of the hotel.He has neither studied architecture nor studied engineering, so he is cautious about the feasibility study of schematic diagrams.When he asked the insurance company for a loan of 600,000 yuan with a schematic diagram, the insurance company had to ask him to find someone with assets of 1 million yuan as a guarantee.So he turned to the general manager of another timber company for help.After seeing the schematic diagram of the hotel, the general manager agreed to be his guarantor on the condition that the company exclusively contracted the furniture manufacturing. Herring also raised funds by issuing stocks. He proposed two preferred stocks: one kind of shares for sale to obtain cash; the other is to provide materials instead of shares.In this way, he raised the funds needed to start a business and built the ideal La Posado Hotel. All capital seeks returns and benefits, and venture capital in the form of venture capital is no exception.Seeking advantages and avoiding disadvantages is the instinct of all capitals. Venture capital differs from general investment only in its high risk and high rate of return.Faced with such rational capital owners, such astute capital operators and managers, what do entrepreneurs use to attract the attention of venture capital?A good business plan is the key to obtaining investment. It is necessary to explain as clearly as possible those things that investors care about, such as possible growth prospects, possible risks, management, potential competition, and asset discounting capabilities and plans. The key question any investor will ask is: How much return can I get from this project?How big is this market?What will be lost?Who else plays a role in the deal?How will the company reach customers?When and how can my funds be withdrawn?In addition, it also includes third-party verification of the contents of the business plan, etc. Therefore, a comprehensive business plan should at least include the following: brief description of the management team, business plan, due intellectual background information (including market analysis, research papers, patent achievements, etc.), business evaluation of the company before investors invest in the company And the value estimation after investment, the transaction structure of selling the least equity in exchange for the most investment. Your entrepreneurial idea, development plan, business report, business model development prospect, market share, and your personal and corporate reputation are all within the scope of venture capitalists' assessment.To increase your chances of getting venture capital, you must come up with an attractive business plan and back it with your reputation. ChiNext is also called the second board market, that is, the second stock trading market. It refers to the securities trading market outside the main board, which provides financing channels and growth space for small and medium-sized enterprises and emerging companies that cannot be listed temporarily. It is an effective influence on the main board market. Supplies occupy an important position in the capital market.Most of the companies listed on the Growth Enterprise Market are engaged in high-tech businesses and have high growth potential, but they are often established for a short period of time, small in scale, and not outstanding in performance. The greatest feature of the GEM market is that it has low barriers to entry, strict requirements for operation, and helps potential small and medium-sized enterprises obtain financing opportunities.For investors, the risk of the GEM market is much higher than that of the main board market.Of course, the rewards could be much greater as well. According to the relationship with the main board market, the global second board market can be roughly divided into two types of models.One category is "independent".It is completely independent from the motherboard and has its own distinct role positioning.The world's most successful second-board market—the NASDAQ market in the United States (NASDAQ) belongs to this category.The NASDAQ market was born in 1971. The listing rules are much simpler than that of the main board, the New York Stock Exchange. It has gradually become the securities market with the most high-tech listed companies in the United States.As of the end of 1999, there were 4,829 listed companies with a market capitalization of US$5.2 trillion, of which high-tech listed companies accounted for about 40%, and a group of famous high-tech giants such as Cisco, Microsoft, and Intel emerged. "Thirty years in Hedong, thirty years in Hexi", the NASDAQ market is full-fledged 30 years later, the total number of listed companies is 60% more than that of the New York Stock Exchange, and the stock trading volume surpassed that of the New York Stock Exchange in 1994. The other category is "subsidiary".Affiliated to the main board market, it aims to cultivate listed companies for the main board.Listed companies on the second board can be upgraded to the main board market after they mature.In other words, it acts as the "second echelon" of the main board market.Sesdaq in Singapore falls into this category. The threshold for listing on the GEM is lower than that of the main board and the SME board, that's for sure.Its low listing threshold and wealth effect can give people hope and unlimited imagination space, which is highly anticipated.But it still has its own specific listing standards. Let’s take a look at the main listing standards on the GEM: NASDAQ of the United States provides optional standards for non-US companies: Option 1, financial status requires tangible net assets of no less than 4 million US dollars, and pre-tax profits of no less than 70 in the most recent year (or two of the most recent three years) Ten thousand; option two, tangible net assets of not less than 12 million U.S. dollars, the value of shares held by public shareholders of not less than 15 million U.S. dollars, the number of shares held by not less than 1 million shares, and no less than 400 U.S. shareholders. In terms of pre-tax profits There is no uniform requirement. The UK AIM market does not have a minimum listing standard. Except for accounting statements, there are no requirements for scale, operating years and public float.With the consent of the sponsor, the company to be listed can submit a listing application to the exchange, and the entire application process takes about 3 months. There is no minimum profit requirement for Hong Kong GEM, and there is no less than 24 months of active business records. During the period, the management and ownership are roughly the same, the main business is outstanding, the minimum market value is not less than 46 million Hong Kong dollars, and the proportion of public shares is high Less than 25% and up to 30 million Hong Kong dollars, the number of public shareholders must have more than 100 shares, and the management must hold no less than 35% of the shares. Competition in the same industry is allowed, but full disclosure is required. According to the regulations of the China Securities Regulatory Commission, an IPO company applying for listing on the Shenzhen Stock Exchange should meet the following conditions: the stock has been publicly issued; the company's total share capital is not less than 30 million yuan; % or more; if the company's total share capital exceeds 400 million yuan, the proportion of publicly issued shares is more than 10%; the number of shareholders of the company is not less than 200; the company has no major illegal acts in the past three years, and the financial accounting report has no false records; Shenzhen Stock Exchange requires other conditions. After seeing these listing standards, you should know how far you are from it, and where you should work hard.Companies that are interested in listing on the GEM should make full preparations, and opportunities are always reserved for those companies that are prepared.my country's SMEs have many deficiencies in strategy, finance, management, capital operation, etc. In addition to meeting rigid targets in terms of equity and profits, enterprises should prepare in many ways. For example, the ChiNext Board pays more attention to the high growth of enterprises, which means that the benefits of projects invested by enterprises may not be fully revealed at present, but there are broad market prospects and huge profit growth space, and the factors that affect the realization of these potentials The bottleneck is "funding".Therefore, it is easier to win the favor of the capital market by investing in projects with development potential, especially those that meet the listing requirements. The business scale of small and medium-sized enterprises is not large, and the number of employees is not large. It is easy to fall into randomness in operation and management. It lacks scientific and standardized operation in corporate governance and daily management, and it is easy to increase the business risk of the enterprise.Therefore, enterprises should strengthen standardized operations, especially to improve the financial management system, which can not only reduce operational risks and financial risks, but also enhance investors' investment confidence and make it easier to win the recognition of the capital market. What is built to last?In fact, it is to achieve sustainable development and to become a century-old store.To achieve this, the first prerequisite is to clearly realize that the long-term development of an enterprise, the most important thing is to have a long-term goal, and at the same time, it must have the correct strategy, culture, organization and management team to be strong. support.The most important product of an enterprise is actually the enterprise itself, and the purpose is to create an organizational system or soft environment that allows individuals to give full play to their creativity and initiative.Only in this way can an enterprise guarantee its overall quality and achieve success. Built to last is not a flash in the pan after 5 years of rapid growth, nor is it a 10-year ups and downs, but can maintain a positive, healthy, high-speed but steady development trend for a relatively long period of time. Does your business have the elements that are built to last?If not, prepare for it. The first thing to do is to make the company's interests consistent with the overall interests of social development, consciously or unconsciously, consciously or subconsciously, otherwise there will be many obstacles; there must be a "sect"-like corporate culture, and there must be a corporate culture. A set of operating tools that match the corporate culture to ensure that the company develops in the right direction. However, the process of corporate culture construction is long-term and complicated, and it is difficult to show a strong force in the short term. Therefore, as another cornerstone of an everlasting business, the long-term direction, the grasp of instant opportunities, and the courage and ability to turn the vision into reality are crucial in the short-term. The effect during the period will be very large. Then, if a company wants to develop, it must have an excellent team.A century-old foundation, talent-oriented.Enterprises must have an excellent backbone team, including talent reserves in various aspects such as innovation experts, marketing experts, production management and financial operation experts.Professional things should be done by professional people. Improve the company's human resource structure, improve the talent discovery and training system, and make your company look more professional and professional. This is also one of the key factors for the long-term success of the company. The next key word is "thinking power". "Most companies get into trouble because they forget to think." These are the words of the famous American organization theorist Carl Wicker.In an ever-changing environment, entrepreneurs’ thinking must respond quickly to changes in the situation: adjust corporate management models, operating policies, and market strategies to adapt to changes. The influence of thinking is very obvious, also known as " thinking ability".Entrepreneurs should keep abreast of macro and micro market changes, respond quickly to external market changes, pay attention to the company's internal signals, and establish smooth internal and external information collection channels.In the face of external competitive pressure and drastic changes in the market, entrepreneurs must lead their organizations and teams to move forward. Only by constantly striving to build on the basis of thinking and collective wisdom can they have a long-term success. Another key element of built-to-finish is that if you use diversification to share risks, you must require each business of diversification to be among the best in the industry. The reason why GE has been successful in diversification is that it adheres to the principle of "the best". Therefore, regardless of the economic boom or not, GE can easily accept recruits.Therefore, realizing your dream of being built to last is not what you choose to do, but whether you have the ability to do these things well. The above elements are what any enterprise pursuing development should do, or have already done.For any entrepreneur, only by keeping in mind the fundamental concepts of learning, perfection, change and innovation, and pursuing refined execution in actual operation, maintaining his independent thinking ability throughout the process, and fully grasping the core gist of enterprise development, can he keep up with drastic changes in the external environment.In the final analysis, there is no magic master key in this world. Constantly understanding the environment and adapting to changes may be the only way for an enterprise to maintain its long-term success.