The Business Bulletin
What are the pros and cons of having investors? So, you’ve put some of that redundancy money into this business idea you had. Then you’ve borrowed a bit more from the family to give you enough to get the business up and running, and joy of joys you’re actually making a little money. The problem is now that, to start making some serious money, you need to grow the business significantly and to do that you need to raise additional finance. Before talking about potential sources
To cut a long story short a better
you will normally be able to negotiate
of finance, however, there is one
alternative might be to look for
a much better deal based on a
thing that needs to be mentioned.
investors. At this point many people
number of arguments e.g.
This is to make sure that you have a
shy away from the subject usually
proper, rock-solid business plan to
based on the argument “they will want
demonstrate to potential lenders/
to take control of my business”. In most
investors that you have a realistic
cases that will not be true, although
view of where you need to take the
in many cases they will be looking for
business and how you get there.
a reasonable share of the equity. The
Without such a plan the chances of
question then is “what is reasonable?
raising finance are greatly reduced. The obvious first choice for finance
Let’s say you (and the family?) have already put £50,000 into the business
1. The value of the business has already grown significantly since you put your funds into it. 2. You, and maybe other directors, have put a considerable amount of what is called ‘sweat equity’ into the business to get it where
is your bank. They might be prepared
but you now need to raise a further
to help but they will certainly want
£100,000 to take it to the next level
security against any loan. That will
for stock, marketing and a couple
usually mean a charge against your
of new members of staff. Does that
property (assuming you have one).
mean I have to give away 66% of my
Also you will be tied into a specific
business? No, it certainly does not!
to divide the total sum of
repayment schedule with its effect
With the help (if you need it) of a
investment between an
on cash flow.
good accountant or finance broker
equity-based portion with the
22 | Issue 9 – Finance
it is without taking significant amounts out by way of salaries or dividends. 3. There is often the option
