It takes capital to start a business and it takes capital to grow a business. However, when you have exhausted your personal reserves, what are your options? There are a handful of ways additional capital can be gained to continue the growth of your business. Simply put, there are four categories that most types of capital fall into when you’re looking to grow your business: your own revenue, debt, public equity, and private equity options.
Your Own Revenue
Most start-ups begin from your own pocket. This might be a good way to get the ball rolling, and you can hit up friends and family for additional funds along the way as well. As long as your business grows at a steady pace, this might even be a reasonable ongoing source of capital as it encourages organic growth. This capital pool allows you to stay in control and if the business changes, you can make adjustments accordingly.
Using your own revenue to grow the business allows you to remain in control, but it may take longer to reach your growth objectives. Opportunities could potentially be lost because there is not enough available capital to take on new projects. Additionally, if you spend all your time and money concentrating on growth, you may never get to see the full value of your work because all your profits are going back into the business.
All businesses have some sort of debt whether from a bank loan, credit card loan, or mortgage for a business property. You just need to decide how you plan to use debt to help your business grow. Using debt allows you to grow your business without giving away any of your ownership in the business. Taking on debt for new equipment, for example, will increase your company productivity and allow you to pay down the loan quicker.
Taking our debt comes with its own risks; however, and banks look at the least risky way to loan you money for your business rather than taking into account the growth opportunity your company offers. Also, keep in mind that loans must be paid back, so you need to keep your business afloat. Banks don’t have ownership in your company, so their concern does not lie in the of your business, but rather getting paid back for the loan they have given you.
Debt is a good solution when you want to buy certain types of large assets, to smooth working capital, and to grow faster than you could organically when the risks of failure are low for your business.
Public equity can be a great way to create liquidity for your business, but bear in mind that only a small amount of companies go public each year, which can make the odds of public equity a bit of a long shot for business owners.
Going public though, makes the valuation of your business less opaque, and creates liquidity for your employees as well. Additionally, acquiring other companies with your stock can be much easier as well. Typically, companies don’t take this route because it puts them at risk for oversight and they find themselves chasing quarterly earning targets to appease analysts.
Private equity is literally any equity privately owned by an individual or group of individuals. Most commonly, the reference means someone who is purchasing the equity of a private company in a private transaction. This investment may come from private individuals, venture capitalists, private equity groups, or family offices.
With private equity, you don’t have to pay the investment back to the lender like you do with debt. This is because you are giving up some of your ownership in the business, which means the investor will likely take a much a more active role in dictating how that capital will be applied to help the business grow. A private investor wants to see the business grow just like you, and they have a personal interest in the direction of the company. These investors will usually act as advisors to help you take your business to the next level. Some business owners will also use equity in the form of options, or part ownership, to recruit especially skilled individuals to join their teams.
While you are reducing your own equity in the business, this type of capital allows you to cash out for some of the hard work you have already dedicated to the business. It also could help you grow the company quickly, which makes the equity you still own much more valuable should you choose to exit completely at a later date.
Using a Mergers and Acquisitions Specialist to Bring Your Goals to Fruition
If you are considering bringing on a partner to your business, you can turn to an M&A specialist with experience in helping business owners find capital through a strategic partnership. A sell-side firm will help you find a buyer who will work alongside you to take your business to its full potential.
They will explore all avenues with you and walk you through the process from start to finish. You can sit down and discuss where your business is at currently and where you want it to go. An M&A advisor will help you find the partner who fits all your company’s needs.
Benchmark International is a sell-side mergers and acquisitions firm. Making your business grow is important. We know the work and sweat you have put into it to make it come to where it is, and we will find a partner who will give you what you need to take it to its full potential. If you think equity through a partnership is the way to go for you, then we would be happy to help you achieve that goal.
WE ARE READY WHEN YOU ARE.
Call Benchmark International today if you are interested in an exit or growth strategy or if you are interested in acquiring.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkCorporate.com
Europe: Carl Settle at +44 (0)161 359 4400 / Settle@BenchmarkCorporate.com
Africa: Anthony McCardle at +2721 300 2055 / McCardle@BenchmarkCorporate.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $5B across 30 industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 13 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.