Blog
When Should I Bring an Investor into My Small/Medium Sized Business?
- By Luther G. Perkins
- •
- 18 Sep, 2018
When is the right time to bring an investor into my small or medium sized business? A good number of management teams and business owners have rushed this business decision. Most of the time, the final results weren’t as good as they had envisaged. The decision about when to bring investors on board must be well thought out.
Of course, investors present a validating opportunity capable of taking your business to new heights. However, it must always be remembered that good things come to the people who are willing to put in some patience. Delayed gratification has a lot of benefits – hidden treasure for that matter. As a result, you don’t have to feel compelled to accept the very first offers coming your way. Rather, take the time to analyze the business plan and finances of the company. This will help you determine whether the company really needs funding from outside to realise its objectives. Should it become apparent that you need outside funding find out how is needed exactly.
Apparently, a firm will be required to relinquish some amount of control as well as a share of the economic upside when the partnership is concluded. Ideally, every business would want to retain the autonomy for as long as it is possible – for the purpose of establishing the business vision. However, at times, companies are left with no other option other than outside funding for them to scale.
For the majority of businesses, there are times when it is more advantageous to accept external funding. While the firm can self-fund itself even for over a decade, sometimes outside funding is needed when a new platform is being launched. A process of this nature is characterized by a couple of rounds of financial forecasting. The objective is to have clarity about the cost of attaining the business vision and if the firm can afford the cost without additional funding from outside investors.
Several factors must be put into account when considering external funding. They include:
- Whether to finance the business with debt or equity. Consider your options for debt financing and the implications of the terms such as the scheduled repayments and interest. Will your business be able to make payments out of its future cash flows? The other option entails giving up part of the equity. What proportion of the equity are you willing to give up? This takes us to the next factor
- What level of control are you prepared to sacrifice? Think about the consequences of giving up some amount of control.
- Have you identified an investor? Is it someone you are comfortable partnering with? Excellent partners thrive on mutual understanding and appreciation for each other.
- Establish and understand the full terms of the investment agreement. The importance of this step cannot be sufficiently stressed.
Diversity is increasingly becoming an essential element in the modern world of business. It is critical to the ability of an organization to innovate and also adapt to the fast-paced business environment. A good number of the most successful entrepreneurs and admired business leaders will echo this sentiment. Diversity is essential to not only the growth but also prosperity of any firm.
Companies that desire to prosper must embrace diversity in all aspects – in terms of experiences, perspectives, cultures, age and genders. Why is diversity in business given so much importance? It’s pretty straightforward; it breeds innovation, which in turn leads to business success.
