Financial Planning Tips for Business 3
Are you currently considering how to finance a new business or an expansion of your existing business? A loan is only one way to go. If you have a good business idea and a well written business plan, you could present the kind of opportunity an angel investor is looking for. These individuals or groups typically invest their own money (rather than investing capital from a fund). This gives them a lot of leeway in determining if your concept is worthy. They are sometimes willing to take risks that a bank won’t.
How Does the Angel Investment Process Work?
When an investor gives you money to start or expand your business, it isn’t a loan. You’re not expected to pay the money back over a set period of time. You’ll have no loan payments to worry about which can be a boon for your cash flow and profitability. You also don’t have to put up any of your personal property as collateral. If your business goes under, you’re off the hook. The investor just has to deal with the fact that they gambled and lost.
What Does the Angel Investor Get Out of the Arrangement?
He gets a cut of your business over the long term. That’s the reward the investor expects for taking a chance on you. The investment is structured to give the investor ownership equity (part ownership of your business) or convertible debt (bonds that are converted into shares of your company’s stock upon maturity). You can expect to pay out a portion of your profits to the investor for as long as your company is in business – unless they decide to cash in their stocks.
You’re Not Quite the Boss Anymore
Of course, if you have investors, you do have to share the decision-making power. You’re responsible to them for making responsible business choices. This may reduce the kinds of risks you can take in the future. On the other hand, having some oversight isn’t always a bad thing. You could think of the investors as savvy business advisers who will help your company succeed over the long term.Tags: business, financesBusiness, Finance