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The Future of Your Business – Should You Sell to Expand?

August 13, 2015

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Running a business is difficult. It becomes even more complex when your business has reached a certain stage and you begin to plan for not only your company’s future but also your own. To grow your company you may find you need additional capital which banks may not be willing to lend due to perceived risks and/or the lack of assets the bank can hold as collateral. You may also want to explore a different project area but you are unable because your time is fully vested in your business.

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In this instance, it may be beneficial to bring in an additional partner to your company. Introducing an additional shareholder to your company utilizes equity financing (traditional lending from financial institutions is commonly known as debt financing). Without going into detail about the different forms of equity financing, bringing an additional shareholder to your company may mean future profits are going to be split between yourself and the new shareholder.

Why splitting future profits with a shareholder may not be a bad thing:

  • If you are looking to grow your business, equity financing may provide additional capital to fulfil the expansion in place of debt financing. Equity financing may include investment from private equity firms that can provide valuable insight into managing the business expansion and mitigating potential risk areas.
  • The new shareholder(s) may provide additional capital to the business in the form of a loan, rather than a complex arrangement to the company’s share registry.
  • When you feel that you do not want to focus 100% of your time in your business and hold 100% of the burdens, introducing a new shareholder to buy a portion of your ownership interest allows for a shared responsibility of running the business and a bit more time for you to focus on your other interests.

In our advisory practice we have seen individuals expand their business by selling a portion of their business interest to another party. The new shareholders brought necessary additional capital for the company to expand to new markets, which was previously unattainable due to the lack of necessary funds. In summary, to expand your business an alternative to debt financing is to find interested parties to invest their time and money in your company.





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