Should you list on AIM

If you are a company looking to expand through acquisition, floating on AIM could be a viable way to raise acquisition finance. Since AIM opened in 1995, it has raised a collective £24bn for the 2,200 companies that have been admitted. Unlike the main market stock exchange, there is no requirement for a 25% public shareholding, and no minimum market capitalisation. Nor does a company need a trading record to list on AIM.

Floating on AIM allows a company to offer share incentives to its staff, raise its profile, and take advantage of certain tax benefits. However, a flotation is not always in a company's best interests, and there are many factors to consider.

Far from being 'quick cash', the process of becoming a listed company is long and arduous. You can expect to be consumed by the process for every waking moment of several months. If you go ahead with a flotation, make sure you have a good operational team in place to continue driving the business forward while you are tied up in the flotation procedure. Indeed, if the company cannot continue without you at its helm, this is a poor indicator of its suitability for a flotation. Shareholders will want to know that the company will continue making money when you are no longer involved with it.

You will need good advisers by your side - indeed, a nominated adviser is required at all times according to the AIM admission criteria - and it is important to be clear from the start what the roles and responsibilities of each adviser will be. The last thing you want is an important task left undone and no-one taking responsibility for it.

Last but not least, floating on AIM is expensive. You need to weigh up the potential cash gain against the costs of the listing process. Generally speaking, you should be looking to raise at least £4m from the flotation to justify the costs. Most listings incur costs of about £400k, plus brokers' fees of about 4%. A study by accountants UHY Hacker and legal firm Trowers & Hamlins found that the average cost of a listing that gained up to £2m was 24.9% of the funds raised. This compared with companies who gained more than £10m on AIM, whose costs were, on average, just 8.2% of the funds raised. If it is acquisition finance you're looking for, and you're likely to be paying nearly a quarter of your gains in fees, you might be better off looking for an alternative source of funding.

So what sort of company are investors looking for? People who buy shares in AIM-listed companies are generally looking for something interesting with growth potential. A solid, predictable business is unlikely to generate much excitement amongst investors. They are looking for a unique market proposition - a company that has an edge over its competitors.

If you do go ahead and float on AIM, remember that you need to deliver on whatever growth promises you make. If, 12 months down the line, you haven't expanded through acquisition, or increased sales, or whatever you said you would do, you will be in a lot of trouble with your shareholders.

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