The Pros and Cons of an Investor In Your Business
Are you thinking of taking on an investor in your business? If so, it’s important to weigh the pros and cons carefully before deciding. On one hand, investors can provide much-needed capital and expertise that can help your business grow. But on the other hand, they may want a say in how your business is run, which can be challenging if you’re not interested in relinquishing control.
So, what’s the best way to decide if an investor is right for your business? Read on for a breakdown of the pros and cons.
Be sure to do your research and make sure you are compatible in terms of values and purposes. Investor commitments can also be demanding, so be sure you are prepared to give up a certain amount of control over your business.
Investors can also bring valuable skills and experience to the table. If you do your homework, an investor can be a great asset to your small business. Ultimately, the decision of whether to take on an investor is your decision.
Taking on an investor can be a big commitment, but it can also bring a lot of benefits to your business. With the right investor onboard, you can gain access to new skills and knowledge, fresh perspectives, and additional capital.
Before we explore the pros and cons of bringing an investor into your business you need ask yourself this question “why do I need an investor in my business”?
This might seem an obvious question – potentially in your mind it’s because you need capital in the business. But what else could this investor bring to the business that you don’t have now?
Bear in mind there are several ways to access or to raise capital into your business: –
– Raising funds against assets you already own,
– Private lending from family and friends,
– Formal lending from banking and lending institutions and finally
– From bringing an investor or a business partner into the business.
If the only injection you need into the businesses is capital and not to fill skill gaps as well, make sure you explore all the options first before you go down the path of an investor or business partner.
The second key consideration is to do an honest review of what you bring to the business. Check what skills you bring to the business,
– Technical Skills
– Managing people
What is your ability to raise capital is and are there any gaps?
If after this review, you realise that an investor could bring both the capital required and skills you don’t currently have then let’s look at the next step.
Consider the Pros
– The capital
– New skills into the business
– New ideas
– A sounding board
– Share the daily burden
– Somebody who can take over the reins if you are not in the business temporarily due to holidays, illness or travel
Consider the Cons
– Taking ownership of a share of the business
– A difference of opinion
– The investment repayment terms
– Additional legal paperwork and processes
Having operated several businesses with partners and investors Nick and Jo of Navig8 Biz see the Pros far out way the Con’s provided you do this …
1. Do the research.
Make sure that you do the research on the potential investor to confirm
– Their ability to invest the funds
– You can find evidence of the skills that they suggest they have
Your research can start with Googling, searching social media sites such as LinkedIn. Speak to the other businesses that they’ve worked with. If you know which banking institutions they use, give them a call and ask for a reference.
Be thorough and be sure they can do what they say they can do AND be confident that you can do what you say you can do.
2. Aligned values and purpose.
Potentially you will be working closely with this person and so it is critical to understand how aligned your respective values and reason for being in the business are.
Misaligned values in business partners can be so uncomfortable that could it easily lead to a costly dissolution of the partnership and the business.
3. Understand the terms of the investment
What Return on Investment (ROI) is the investor expecting? Share of profit, repayment terms, interest rate, length of term? When and how and what milestones need to be achieved?
4. Get a formal agreement in place
A formal agreement drafted by the lawyers ensuring all parties terms are met and that it works for the busines including how either party may exit the business
5. Document for the unforeseen
– Put a Business Will and a Buy – Sell agreement in place.
– Take out business insurance to cover these events
These documents cover the circumstances that either party is unexpectedly due to death, illness, or accident is lo longer part of the business.
Most business owners will not suddenly want to be in business with the estate of the past business partner – these agreement account for shareholdings to bought from the estate from the claim on the insurance policy.
Speak to your lawyer and financial advisor on this to ensure all parties and events are covered.
6. Create a well document business plan
The key to bringing in investors to come on board is a thorough, well researched business plan and the confidence to sell and implement it well.
If you think an investor is the right step for your business, be sure to do your homework first.
- Understand what you are looking for in an investor and what they are looking for in a business.
- Make sure you have compatible values and purposes; if not, the relationship is likely to end unsuccessfully.
- Investor commitments can be demanding, so make sure you are prepared to give up some control over your company.
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