Business equity refers to the value and the ownership of your company. Several owners of small businesses use their funds for working capital, and some even rely on their savings for funding their businesses in the initial stages.
Over time business owners might need additional funds for purchasing equipment or expansion, so instead of taking a loan, they can consider sharing the ownership of their business for the funds required for development or other company establishment reasons. This act is known as small business equity financing and is widely prevalent among company owners of small to medium-scale businesses today.
Kavan Choksi explains how small business equity financing works
Kavan Choksi is a business and investment expert with invaluable experience in financial planning and management. According to him, equity financing refers to selling a business’s ownership rights to raise working capital. In such a scenario, the initial challenge of obtaining equity financing is finding the right investors interested in the industry and willing to purchase its equity.
How much small business equity financing should you take?
When you take a loan for your business, you must ensure that you pay it back with interest taken within a specific time frame. However, with small business equity, the investor will be interested in your company’s growth and focus on it for profits. You do not need to pay back the funds in this case.
The amount of equity financing you need depends on how much you are willing to share control of the business with the investor and their standing in the market. Note, when you sell your equity interests in your business, you are giving up your right to business autonomy in its management and exclusive rights to controlling the company.
Take your motives into consideration before choosing the investor
When determining how much business equity financing you can take, you should determine what your personal reasons are. If you sell a massive percentage of your business equity to the investor, this means your investment might last for a short-term period unless you try to retain the majority of the equity share in your business with time.
Investors in your small business are not interested in keeping the share in your business for an indefinite period of time. Their primary objective is to get maximum returns and leave. The long-term aim of small business equity is you can operate a successful business for several years, or later you can sell it for a handsome profit.
Consider its pros and cons with an expert in small business equity financing
According to Kavan Choksi, if you are keen to get into small business equity financing for your company, consider its pros and cons carefully. You should consult a skilled financial advisor to help you in the matter as sometimes it might not be necessary for your business at that moment.
With the help of a professional expert, you can evaluate whether you really require it at that time or not. Never rush into any decision, and choose your potential investor wisely!