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Los Angeles, CA

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Considerations When Financing Your Business

June 11, 2019

 

 

Businesses require money, or capital, to get off the ground. Once your business is established, it needs continual cash infusions to be able to grow and obtain new markets and customers. When you are considering starting a business, you have to determine how much money you need and how much risk you are comfortable taking.

 

Are You Comfortable With Risk?

 

Depending on how your business is structured, you may need to protect your own personal assets. This should always be a consideration when forming your business, as well. An experienced business law attorney can advise you of the best structure for your business. When you make the choice to start or grow a business, you will want to ensure that your personal assets are at minimal risk and that your investment assets are protected. The goal of every business, however, is to pursue gain and/or reinvest.

 

Do You Have Investors?

 

There are typically two types of investors, and many businesses have some combination of the two. Consider whether the investors you have are flexible and hoping to get long-term gains or if they are instead looking for short term gains and to cash out quickly. Asking for additional funds from an existing investor could come with strings attached, so be sure you review your original agreements for how you should raise money from investors.

 

Is Business Financing an Option?

 

After a business is established, it may need financing to purchase equipment or real estate. Financing in the form of loans is often available, but many of them require putting up business or personal assets as collateral in case there is a default.

 

How much of your personal assets should you invest in your business? Capital used to grow or expand a business will typically dilute your shares of the business unless the cash infusion comes from your own pocket. Investors may want to increase their shares in order to participate in more rounds of funding. However, a new investor will likely dilute the original shares of the business, so take into consideration how much of the business you would have to own to continue making decisions about how your business needs to operate.

 

Sharing Decisions with Others

 

If your business is structured as a corporation, you should already have a board of directors. As your business grows, you may need to add more members to the board to provide guidance and expertise. Capital infusions will often occur when a new board member is added. Investors often want to participate in the decision-making processes.

 

Consult with a Business Law Attorney

 

If you are considering expanding and growing your business, you need to ensure that you are taking all the right steps to achieve your goals. The attorneys at Verhagen Bennett, LLP can review with you the changes you are considering making and help you be sure your business is protected and headed in the right direction. Contact us today to schedule a consultation.

 

© 2019 Verhagen Bennett LLP — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

 

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