Suppose you are a business owner; instead of taking in more debts for your company. In that case, you can consider the principle of sharing your organization’s ownership in exchange for monetary funds for its expansion and further establishment in the market. The above trend is called equity financing and can be used for many types of businesses with success.
Understanding equity financing with business expert Kavan Choksi
Business and finance expert Kavan Choksi elaborates that equity financing refers to selling the ownership of your company’s business interests to raise working capital. Though this might sound easier said than done, there is always the challenge of finding an investor for your company willing to obtain ownership and buy its equities.
Are you willing to share the ownership or the control of your business?
The volume or the amount of equity financing you receive depends upon your eagerness to share your company’s ownership or management and the investor’s appeal for the business. Remember, when you are selling the request and the control of your business to the investor, you are giving away a share of business management autonomy and your exclusive rights to controlling the company.
What is your value of this business ownership?
Your motives will determine the value of control and business ownership you are ready and willing to give the investor. If you sell off a large percentage of the company, your investments in the business will be short-term unless you attempt to retain most of the industry’s equity with time.
It has been seen that investors of small businesses do not have the interest to retain their control and are more focused on getting maximum returns and then quitting in the long run. The fundamental point is whether you will operate a successful business for several years or will you be ready to sell the company for a later profit? Unless you decide on this right at the start, you will not be able to decide on the future course of action. It is important to have a proper plan.
What are the different kinds of equity financing?
There are different types of equity financing, and they are sole proprietorships where the equity financing of the business stays restricted to the owner’s assets. General partnership companies often need two or more business owners; in this case, equity financing is possible with different avenues for exploration. Limited partnership companies offer limited liability to a specific number of business owners, so equity financing is possible if they are not actively involved in the company as partners.
According to business expert Kavan Choksi, business corporations offer broader possibilities and are more flexible for equity financing. However, you should be careful and be educated about equity financing for your business needs. You should examine its pros and cons before you go ahead with it. Here you need to sit with a financial advisor and assess the situation for your business to determine whether you should resort to debt financing or equity financing for your business.