When Do You Offer An Equity Stake In Your Business And How Do You Do It?

Wednesday, March 28, 2012 11:14
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When Do You Offer An Equity Stake In Your Business And How Do You Do It?

Tags: Advisor businesses | enterprise value | registered investment advisors

Having a good sense of your business’s future is essential in choosing the right way to fund it. Whether you’re just starting out or needing some additional capital, knowing your market and your business’s potential leads you to the right funding sources. This includes bringing in other equity owners.

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How much equity to offer and when to offer it are challenging questions. If you and a partner have started an independent RIA and need additional funding to accomplish your goals, you may need to bring in an outside investor or add another partner. These issues also confront partnerships within an organization. Keeping the integrity of your original purpose for forming the business or partnership should be at the heart of your considerations. 
 
Adding owners may also mean offering them some control over your business or practice. In this case, you want to choose your partners carefully. This may especially be true based on events your firm is currently experiencing. If you need significant cash quickly, you may not have as many options for funding. You may not anticipate this need. It can happen if a partner dies, becomes disabled, or leaves and you are suddenly faced with equity needs you can't cover.
 
Junior partner ownership may require some type of financing so you’ll need to consider the best sources for your firm’s needs based on future expectations. If ownership is offered as part of an employment package, you’ll still have to find a way to finance it. A single solution will more than likely not cover all of these funding needs. Looking at all of your options and the various resources available can help you plan equity distribution and ownership in a way that contributes to your success without sacrificing your vision.

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