Should you sell a stake in your business?

Like every plant needs water and sunlight to grow, every business needs financing. Starting a business or expanding an existing one requires investment, and it can often be confusing for small companies to weigh up their options.

Is it time to sell a stake?

As a business owner, you may struggle with the concept of relinquishing shares in your company.  After all, you’ve built it from nothing.  It’s a dilemma — is the additional capital worth handing over some control?

Selling a stake to an external investor can change your company forever — it’s a decision not to be taken lightly.  Who should you consult, how do you go about planning, and how can you safeguard your company for the long term?

Here are some factors you should consider.

Do you have a business strategy?

If you’re looking to sell a slice of your company, you need a proper business strategy.

  • What will you use the money for?
  • Where will the company be in a decade?
  • What are your earnings projections?

Every decent investor will want details.

Consult people you trust

Before you head to lawyers and financial advisers, speak to friends about your plans.  Ask people close to you with investment experience whether your sale options are realistic and achievable.

Work with professionals

Once you’ve tested the water, select advisers you can count on with a strong track record.  Work through your options and get their view on whether a sale is the right choice for you.

Produce realistic forecasts

As you consider selling part of your company in exchange for a cash injection, always use realistic forecasts.  Any adviser worth their salt will be able to spot inflated numbers, and dishonesty early in the process could come back to derail discussions later.

Protect what you’ve built

If you’ve chosen to bring new investors on board, great.  But you need to protect your business, your legacy, and everything you stand for.  New investors might have their own ideas on the direction of your business.  Ensure your ‘mission’ and company ethos is made clear in any shareholders’ agreement.

Find like-minded investors

Don’t just think about the money.  When considering investment partners, try to find backers aligned with your goals.  Again, your mission statement can be important.  Find investors who agree with it to avoid issues down the line.