A d d u c e n t

Every business owner reaches a time when they need to make key decisions about their company, its future and perhaps even their own future with the company.

1) One of those times can be when the company is at a point where it needs additional capital to grow. 

• The capital may be needed to fuel growth organically, through your internal efforts and to tap opportunities that are presented to you for new business or expansion. 
• Or may be needed to make strategic acquisitions that can be opportunities presented to you as well. 

     If its one of the above, how do you get the capital you need?

2) What if it’s not necessarily a “company” matter but more of a “personal” one?  You may have spent a number of years growing and building your company.  A significant portion of your personal wealth may be tied up in it.  Even with very successful businesses that may not be a good thing long-term.  Every businessperson also has personal financial responsibilities outside that of the company that they need to be aware of and give proper consideration to. Such items involve establishing an exit-strategy or transition out of the business at some point.

     How do you address the planning of your personal financial situation with respect to the business?

When faced with those times, questions and key decisions to make there are only two things you can do:

1.  Do nothing
2.  Act

If you do nothing then you will either miss opportunities (because you did not come up with the capital for them).  Or you will put your self in a situation that may expose you personally to financial risk by not planning for your exit or transition out of the business in the best possible way to ensure the most reward to you.

If you act then you have three choices.

1. Borrow money to use for expansion/growth/acquisitions.
2. Sell the company to a strategic buyer (someone already in your industry).
3. Partner with a Private Equity Fund.

Let’s look at these three:

Borrowing Money

If you borrow the money, it is you and you alone that bear the risks of borrowing and not succeeding in your growth (whether organically or through acquisitions).  And it is your equity that will be solely at risk (you may even be asked by the bank to personally guarantee the loans).  And adding debt does not help if you are at an age (or soon coming to it) where you need to plan for an orderly exit or transition from the business.

Sell to a Strategic Buyer

If you sell to a “strategic”, even if they keep you as employees, you probably will not be partners; you may not have equity (or participate) in the continuing venture, and any growth the strategic helps the company achieve will not be for your benefit.

Partner with a Private Equity Fund

In a real “sense”, this solution offers you both capital to grow your business and a means of an exit-strategy and ability to plan for when you transition out of the business.

By partnering with the “right” Private Equity Fund:

a) You immediately take the larger portion of your equity off the table, where it is no longer at risk in the business yet retain some equity in the business to benefit from the long-term opportunities and increased value of the business.  You have become liquid and can further diversify your wealth.

b) Your partner can supply all the funding needed to help your company achieve dynamic growth.  You will not have to personally borrow or personally guarantee any debt.

c) On your own, with your own resources, in the next ten years, you might have been able to make two or three acquisitions.  Some of the private equity funds we work with have been known to help their platform companies make thirty to forty acquisitions in that time span.

d) The growth of your remaining equity in the business will have been leveraged by your partner’s substantially larger investment and you will therefore, be making money on your partner’s money.

e) You will participate with your private equity partner in the future growth of the business and in managing it and will benefit from the “double liquidity” event when the business is sold again at a much higher valuation.  In some cases, this “second bite” could pay you more than what you originally received.

In the “trade”, the private equity assisted recapitalization (where you sell 60-80% and retain 20-40%) is known as:

“HAVING YOUR CAKE AND EATING IT”

And, again, what is important to remember:

Your second liquidity event (your second bite at the cake) is often much larger than your first.

INTERESTED TO LEARN HOW YOU CAN PARTNER WITH A PRIVATE EQUITY FUND … AT NO COST TO YOU? 

The above is the type of conversation that you can have with a business owner that they will really "get" and have interest in.  Want to read more about how to work with business owner and provide them solutions ... at no cost to them (but earn a fee for yourself)?

http://www.adducent.tv/articles-news/154-how-to-make-money-providing-solutions-and-services-as-a-professional-business-intermediary