A business consultant can be most helpful when you are starting to look into equity finance. Equity finance is a way of raising capitol (funds) from external investors (other people outside the business) in return for a share of the business (profits earned by the business).
If the bank doesn’t want to give you a loan or you are unable to, or don’t want to, pay interest and your business is viable with the potential for high growth, then business assistance through equity finance is a good way to raise capital.
There are two types of business assistance through equity finance for privately owned businesses – venture capitalists and business angels.
Venture capitalists provide money at all stages of a business while business angels fund start-ups and businesses in the early stages of trading.
Working out which approach is best for you depends on a range of factors including how much investment you require, how much potential return your business has and how many development opportunities your business offers.
The two types of equity investment on offer:
Private equity finance
This is where investors fund your business in return for shares that are not listed on the stock exchange. Private equity investors are looking for businesses that can provide profits on their investments in the long term in return for the risk they run giving your business their own money.
Financiers provide capital in return for being repaid at a later date. This kind of equity investment attracts interest. Banks fall into this category.
Banks can legally charge interest and set a date for the debt to be repaid. You will have to secure the loan against either your business or personal assets, which could be catastrophic if your business does not succeed and you are unable to pay back the money you owe to the bank.
Private investors don’t have these kinds of legal right so the only way they can get their money back is if your business makes enough profits to pay them back. They want to leave your company with more money in their pocket than when they entered the arrangement. Private investors tend to be more hands on and can often bring useful insights and expertise to your business.
Before you approach a private investor, ask yourself the following questions:
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- Why do you need this investment? Is it to expand the business or to develop a new product or to break into a new market?
- How much money will your business need? Be careful not to underestimate your business needs
- When do you need the funding? Do you want the money in installments or as a lump sum?
- What is the right source of income for your business? Is a bank going to sort it out or is a private investor going to give your business the boost it needs?
Finally consider engaging a business consultant or business mentor to give you the necessary long-term view of your business so you can be sure that you choose the business investment that is best for you.