It’s common for companies to hit a point during growth where it is difficult without outside assistance. Private equity investment can be a wonderful option for business owners who want to retain some control of their business while also reaping the benefits of an outside investment.
The right private investor can be an incredibly valuable addition to your team — beyond just providing much-needed capital. As long as you consider the details beforehand so you can protect your own best interests, you may find that an investor is the key to your company’s long-term expansion and overall success.
Why Seek a Private Investor?
If your company has a solid track record for past successes, it’s natural to want to continue scaling up. However, just because you have a winning brand doesn’t necessarily mean you have endless cash flow. Private equity investment allows you to accomplish goals that don’t fit within your current budget.
Beyond helping you finance your dreams, a private investor may be able to provide valuable insight. After all, many investors got to where they are because they’re naturally business-savvy. You may be able to take advantage of their knowledge, business connections, and other resources to advance your business.
Proceed with Caution
It’s easy to get excited if you receive an offer from a private investor, but it’s absolutely critical that you do your due diligence before you embrace private equity investment. At this stage, speaking with a trusted accounting professional is a must for both investors and business owners.
Most obviously, you must consider the risks associated with receiving a private investment. What if your plans don’t work out and you end up in debt? Do you have a backup plan?
You must also consider the financing structure. Some private investors may seek guaranteed returns, earnouts, clawbacks, or convertible securities, just to name a few possible arrangements. Having experienced CPAs analyze the structure ensures that you don’t run into any unwelcome surprises down the road.
Another factor to consider is your role in the future of the company. When it comes to private equity investment, profit is usually the bottom line. While your current management style may be working for now, is the future of your management position (as well as your current staff) secured if momentum slows?
Finally, don’t forget that there’s a social dynamic involved in working with someone new. Do you have chemistry with the investor? Sometimes upper management simply not getting along is enough to bring a successful company down.
Hire Experienced Accountants
As you can see, there’s a lot to think about if you’re considering an outside investment. Fortunately, Maxwell Locke & Ritter offers years of first-hand experience helping relationships between businesses and private equity investors work. Call (512) 370-3200 or contact us now, and we’ll be happy to outline exactly how we can assist you with this exciting phase.