Growing a Business Investors and new Partners
Changing the business structure
As a young business operator providing a service you may never need to seek additional resources from equity partners. However, if you are a business manufacturing and assembling goods on a small scale in the home garage and you need additional capital to purchase a large asset, such as major machinery or even a warehouse, it could involve finding equity partners. As a consequence it may also mean changing the legal structure of the business from sole trader to a partnership or company to accommodate the investor(s).
In exchange for the money/capital input, equity partners/investors often ask for a share in the business. That could mean a share of the profits, plus a role as a partner or director in the business. Giving them a share may mean you may lose control of the business. Alternatively it could also bring in additional energy and expertise. Doing business with an equity partner should not be taken lightly, and it would be best for you to discuss any proposition like this with your financial and legal advisers, your accountant and your solicitor.
Due diligence
It is important to do due diligence on any potential partner/investor and their existing business prior to accepting their offer. They should also conduct the same examination of you and your business. Due diligence is where all facets of the business are examined in detail to ensure that they are correct and true to the proposal being presented. The information being presented must represent the current position of the business, not its potential or past performance.
