Does Your Small Business Have the Right Investors?

Having the right investors can help small business owners build a strong foundation for success.

Besides providing additional capital, investors can offer useful ideas and resources that can improve the efficiency and effectiveness of your business activities.

However, depending on how you prefer to run your business, getting investors may have its drawbacks too.

Pros of Having Investors

Increases Capital

The main advantage of having investors is that they can provide more capital. You can use their investments to reduce or pay off your business debt, or improve or expand your business. Getting funding from investors can be a better alternative to taking up a business loan, because it does not require you to pay high monthly fees with interest.

Greater Negotiation Power

Investors usually have a good credit score and strong financial status, and they can help you negotiate for a higher line of credit, as well as better rates and terms on bank loans and equipment leases. Since they stand to benefit financially from reducing your financing fees, they will do their best to ensure that you get the best deals possible.

Reduces Financial Burdens and Risks

Without financial partners, you have to bear all the financial burdens and risks that are incurred in running your business. If you have investors, it is easier for you to keep your business afloat and minimize personal financial losses during tough times.

Provides Additional Expertise and Resources

Most investors are business-savvy people who know how to make a business succeed. If your investors see valuable potential in your company, they will provide the expertise and resources needed to improve your existing business processes and strategies, and provide proper guidance to drive your business forward. They can also lighten your decision-making burdens.

Cons of Having Investors

Share of Ownership

When you decide to work with investors, it means that you have to share ownership of your business with them. Investors usually expect to get certain percentages of ownership, board seats, stock options and high ROI, and they will want you to submit financial reports and explanations for certain decisions and outcomes. If you are used to running your business without outside intervention, you may not like the additional stress and hassle that come with meeting your financial partners' expectations.

 Consequences of Choosing the Wrong Investors

It is essential that you make sure you find the right investors, because selecting the wrong ones can lead to serious problems. For instance, if you select an investor who has little or no knowledge of your industry or does not want to be actively involved in your company's regular operations, you will not be able to get the guidance you need to manage and grow your business effectively. Having an investor who is overly controlling can also be detrimental to your business, because it can result in resentment and loss of morale. Before you approach potential investors for funding, you have to do proper research on them to learn about their personalities, capabilities, resources and working methods.

Having investors may require you to get out of your comfort zone and do many things that you do not wish to do, but it can be an effective move for achieving greater growth and success.

It may be worthwhile to think about what Bob Parsons, founder of GoDaddy and Bob Parsons Foundation, has said: "not much happens of any significance when we are in our comfort zone".