Businesses require capital to operate and get off the ground. Once established, a cash infusion may be necessary to boost advertising and acquire customers in new markets.
When it comes to raising money to start or grow your business, consider the following:
Your risk level
Protection of individual assets and sharing decision making are a critical considerations when structuring and growing your business or seeking investment sources. Business owners want to keep their personal assets and minimize risk. However, the goal of any business is the pursuit of profit for gain or reinvestment.
There are two basic types of investors – those who are flexible and looking for long-term gains, and those seeking short-term gains, who will to cash out quickly. A business may have agreements with both investor types. Look to your legal agreements and documents for direction on raising money from new investors.
An established business may be able to obtain financing to purchase equipment or real estate, for example. Many of these loans would require putting up personal or business assets as collateral in the event there is a default.
Unless the cash infusion comes from your pocket, raising capital to grow the business will most likely reduce your shares. Original investors may want to increase their shares in the business in order to participate in additional rounds of funding. A new investor will most certainly dilute your original shares in the business. Consider how much of the business you need to own to continue your role in operations.
Sharing business decisions
If your business structure is a corporation, you have a board of directors. As the business grows, more members may be added to provide expertise and guidance relating to the company’s future. Capital infusions often come with a new board member or partner. An investor, whether they are an individual or company, may want to participate in decision making.
In all cases, review your agreement terms and documents carefully, and consult with an experienced attorney. Derek Usman is an attorney who specializes in Litigation, Employment Law and Business Law and will assist you with any questions you may have.