As a small business owner, it’s highly likely you think of your small business as a baby.
You’ve brought it into this world, cared for it, nurtured it and dedicated what seems like every waking hour of your life to it to ensure it develops.
It’s because of this why, understandably, you can become very overprotective of it, something that becomes all that more apparent when you look into the possibility of having people, or organisations, invest in your small business’s development.
As fantastic as it can be – we’ve all seen Dragon’s Den and the success of some of the products on there – it’s a very difficult decision to make, deciding upon whether or not you hand over part of your business for money, as that’s invariably what’s wanted – a sizeable chunk of your business in return for what could be a sizeable chunk of money.
So what do you do?
There are three points you have to consider first and foremost:
1. Why do you want the money?
Firstly, you need to decide what you’re going to potentially want an investor’s money for – and not in terms of specifics just yet.
Is it just because you want to take on another member of staff or two but can’t afford their salaries? This is unlikely to work from an investor’s point of view.
What about if you’ve had your business running for a few months and think you’d like to try it out on a bigger sale? This is similarly unlikely to work, unless you can prove that substantial expansion after such a short period of being in operation will be beneficial.
If you’re at breaking point with your business in the sense that you simply can’t keep up supplying the demand, however, this is another story – it’s proof that there is an eager market waiting for your products or services.
Remember, as much as the money from investors will help your business grow and develop, the investors are thinking of it as just that – an investment – and they want to see a return on their money. Paying staff salaries or testing the waters on a larger scale isn’t a wise investment.
2. Can you raise the money yourself?
Once you’ve figured out why you need the money – and the reason is one that an investor would consider – you need to look at the possibility of raising the money yourself.
Although it may obviously seem easier if an investor simply ‘gave’ you the money, by raising the capital yourself, you can retain full control of your business.
Don’t instantly discard the possibility of raising the money yourself just because you may not think it’s feasible – look at everything from bank loans to friends and family and see how much you could raise, as it might be more than you think.
3. Are you willing to give away a percentage of your business?
If the answer to number two is no, you now need to consider whether giving away part of your business is the right move or not and the point where your over-protectiveness can really rear its face.
It’s because of this last part in particular why you need to think of the bigger picture, thinking of your small business as your future job and income security, removing any emotional connections.
Imagine your business is turning over $100,000 a year at the moment. After expenditure, you’re left with $20,000 profit and from that, you’re taking $15,000 home for yourself and reinvesting $5,000.
If an investor came to you and said they’d invest $100,000 into your business for a 50% stake, it can make many small business owners instantly think no – 50% would leave them with half of the profit they’ve got and therefore half of the money to take home that they live on.
But you need to think of the bigger picture.
What could $100,000 do for your business’s development? Increase your market reach? Improve brand awareness? Double, triple or quadruple turnover?
Sure, 50% is a lot of your business to give away, but if it’s going to mean you’re able to take a bigger salary, isn’t that one of the real reasons you started in business?
Although getting someone to invest money into your business can seem like the light at the end of the tunnel for some, for others it can do nothing but make that tunnel seem darker and longer.
Before you make any decisions, consider the three points above, as only then will you be certain – and confident – that looking, or not looking, for investors is the right decision for you and your small business.