Business Performance Playbook - How to grow your business

Equity finance essentially means selling some or all of your shares in the business in exchange for a capital injection. Equity investors can include venture capital providers, angel investors, or private equity firms.

Private equity investment brings both capital and expertise from seasoned investors, which can be used to enhance technology, marketing, and business expansion efforts. This support creates a solid foundation for business growth and entry into new markets or product lines. Investors leverage their industry knowledge and connections to aid your growth plans and provide strategic advice. Importantly, you can retain partial ownership of your business. Investors aim to align their interests with yours, ensuring mutual incentives for success. 

Given the additional funding and growth potential, selling a portion of your business now while keeping some ownership can be advantageous, allowing you to sell remaining shares at a higher value later.

Private equity can provide the funding needed for your strategic goals, but the process, including due diligence, can be time-consuming and challenging. It may also come with extra costs like interest and management fees.

First, decide how much of your business you're willing to sell and the purpose of the capital. You’ll also need strong financial, accounting, and cash flow systems to handle the thorough due diligence process.

Private equity investors typically seek a return within three to five years, which may create pressure to focus on short-term results. However, some investors are open to longer timeframes. It's important to choose an investor whose goals and timelines align with yours.

Keep in mind that giving up ownership of your buisness also means losing some control. Investors may have a say in key strategic, operational, and leadership decisions, often taking a Non-Executive board seat. A significant investment could also limit your exit options, as investors will influence when and how a sale or exit occurs.

Debt financing involves borrowing money from a bank or lender (such as a private debt fund) to refinance existing debt, raise funds for business investment, or facilitate the sale of shares or dividends. Depending on the amount needed and the business’s assets, the loan can be secured or unsecured.

Debt financing provides quick access to capital while allowing you to retain full ownership and control of your business. It offers flexibility through various loan options, including short-term and long-term, secured or unsecured, tailored to your business’s needs and financial situation. The fixed repayment terms, with set interest rates and schedules, provide predictability, making it easier to plan and manage your finances.

Another advantage of debt financing when growing your business, is the potential for tax deductions. Since debt financing is often considered a business expense, the interest payments can typically be deducted from your taxable income, reducing your overall tax burden. However, it's important to consult a tax professional to ensure these benefits apply to your specific situation.

Although debt finance can provide a great source of finance to help business growth, there are limitations and risks that must be considered:

• Debt financing involves interest payments that raise the overall cost of borrowing. High interest rates can significantly affect your cash flow and will likely take precedence over dividend payments.
• Taking on too much debt can potentially put your business at risk of default, especially if you are unable to make payments on time. This can lead to the seizure of assets and legal action.
• Debt financing typically involves a fixed repayment schedule, which can be rigid and inflexible. This means you’ll need to make payments even during periods of temporary cash flow challenges.
• Missing debt payments can negatively impact your credit score, making it more difficult to secure financing in the future.
• If your business is already carrying significant debt, lenders may be reluctant to offer additional financing, limiting your ability to access funds when needed.