The Pros and Cons of Your Small Business Taking On Investors
As a small business owner, securing adequate financing could be the difference between exponential growth and closing the doors of your business. Several financing options are available to you—small business loans, personal finances, credit lines, and investors. If you believe your business has the potential for great success, you might feel confident enough to seek financing from an investor. There are some pros and cons you should consider before taking on an investor.
Investors can be a great source of capital which is necessary to keep the gears of your business turning. If an investor took a chance on your small business, they want it to succeed as much as you do. Your investor relationship can grow and last as long as your business does; an investor now is a likely investor further down the road.
Expertise and Connections
Investors bring more than just money to the table. They can also bring their years of business expertise and the network they have built along the way. Through your investor relationship, you could gain access to their business relationships as well—vendors, distributors, manufacturers, advertisers, even customers.
When you have someone who believes in your business backing you financially, you will find that success and growth are more within your reach. The cash flow and the industry experience an investor brings will allow you to make business decisions you could not make otherwise. Whether that’s adding a product line, expanding your brand reach, or another growth opportunity, an outside source of funds and support can make a huge difference.
For many investors, investing in a small business comes with an expectation that they will have a say in your business. There’s a chance your investor’s ideas will clash with the long-term vision you have for your business. Taking on an investor will be like taking on a business partner, meaning you may have less control over the direction of the business.
More Pressure to Make a Profit
Receiving financing from an investor will likely come with increased pressure to make a profit. An investor took a risk in funding your business and you won’t want them to lose money or regret their investment. You may be expected to provide your investor with regular updates on your business’ performance.
Potentially Less Profit
Investors expect to receive a return on their investment, which can look like a share of the business’ equity or perhaps repayment with interest over a period of time. When the investor takes their share of the profit, it will mean less profit goes back to you, the owner, and the business itself.
Weighing these pros and cons of taking on an investor can help you decide if it is the right way to finance your business. The ultimate tradeoff when relying on investor funding is between business growth and control over your business. Finding someone to invest in your small business might earn you a long-term business partner who can take your business far. Having an investor could also mean your business goes in a different direction than your original vision. The right choice depends on your own principles as a business owner and what you believe is worth the cost of success.
PlainsCapital Bank has the tools and experience to support you in all your business decisions. To learn more about how we can help turn your vision for your small business into a reality, visit PlainsCapital.com.