Taking on investors is a major step in the life of a business. By getting more capital from investors, you can grow your business and help it become more profitable. At the same time, though, there are certain caveats to allowing investors to buy into your company. Here are four things you need to understand before you make the decision to take on investors.
You’ll Likely Have to Form a Corporation
Taking on investors can mean substantial alterations to the structure of your business. If you’ve been a sole proprietorship or some other form of small business entity up to now, you’ll more than likely need to form a corporation in order to comply with the laws and regulations pertaining to investors. Though this may be a bit of a hassle, making the needed changes will help you attract investment capital that can be used to rapidly scale up your company.
You May Face Outside Pressure
Keeping investors happy is of paramount importance. At the same time, though, there may be instances in which your investors will try to pressure you into making business decisions you otherwise wouldn’t. Navigating these situations is a delicate balancing act, so be sure that you’re prepared to face such pressures from investors. Having a solid business plan can help, since it gives you a blueprint that investors can see in advance and which you can reasonably decline to deviate from.
Your Company Could Fold Against Your Wishes
One of the biggest risks that can come with taking on investors is the possibility that your company could be forced to liquidate its assets in order to provide a return to its investors. This doesn’t happen too often, but it’s more prevalent than you might think. If you’re going to bring in outside investment capital, it’s important that you retain a controlling interesting in your company, thus allowing you to prevent a forced closure and selloff.
You Need to Be Prepared for Growth
Before you bring in any investment capital, you need to have a precise plan for how you’re going to use it. Knowing what you will do to promote the growth of your business in advance will make it easier to produce a good return for your investors. Ideally, you should try to test out new production or marketing strategies you plan to put money into on a small scale, then use the investment capital you bring in to scale it up. This way, you can put the money into strategies that you are already confident in, rather than having to test entirely new ones out.
These are just a few of the things you need to keep in mind when thinking about bringing one or more investors in to fund the growth of your business. By considering these things in advance, you can make a better, more informed decision as to whether bringing in outside investment capital is right for you.