Equity is what your business is worth after all its assets and liabilities are calculated. Investors look at your business equity when deciding whether or not to invest in your company. Lenders look at your business equity when deciding if you qualify for a loan. You can leverage equity in your business when you need capital, helping you avoid debt. Finally, a business with high equity can attract top talent. That’s why it’s so critical to your business. Investing in equity should be one of your company’s top priorities.
When we talk about investing in equity, we mean growing the equity in your business through strategic investment decisions. Below, you’ll find some tips to help you figure out if it’s time to invest in equity and some financial tools you can use when you’re ready to invest. If equity investing isn’t right for you now, there are ways to build toward equity investing so you’re ready when the time is right. Don’t forget to tap into further resources like your broker, where you can get a wealth of information when you want to go more in-depth into equity for your business.
Evaluate Returns
Whenever you invest in anything for your business, it should be worth what you invested. Ideally, your investment will grow and add more value to your business, whether that means improved productivity, lower costs, or asset appreciation. Invest today for higher returns tomorrow. How can you be sure your investment will grow instead of depreciate? While no future is 100% guaranteed, doing your homework before you invest will greatly improve your chances of a positive outcome.
It’s worthwhile to outline the goals for your company before you look at investing. Then, you can choose investments that will align with those goals. Have in mind where you want to take your business five and ten years from now before you sit down with your broker. It will make choosing the right investment easier for you and give your broker a good idea of what recommendations fit best. Although it’s impossible to predict the future, it is possible to make your portfolio resilient so you’re ready for whatever the future holds.
Business Acquisition
Buying an already-established business is one way to expand your company’s reach and diversify its assets. But investing in the wrong business can drag you down, leaving you with liabilities you didn’t sign up for. By acquiring the new business, you’re looking for an asset that will bring high returns for little initial investment. In addition to the business itself, you may also acquire assets like real estate, talent, and brand recognition.
- Before deciding to buy the business, look at the past performance of both the company and its industry. Has the owner kept important records on file? How has the company changed since its inception?
- Next, you’ll examine its current position. What are the current management practices, and how are the staff performing? Who else is operating in that space, and how does the prospective company compare?
- Finally, what is the company’s potential for growth in the next five to ten years? If any aspect of the company is lacking, how much would you need to invest to enhance performance in those areas?
Once you’ve decided to acquire a business, your broker may recommend an SBA 7a loan, which enables you to purchase the business along with any real estate property in its portfolio. The SBA 7a can also provide working capital for any enhancements you need to make to the new company such as hiring personnel, rebranding, and remodeling. All of these costs can be rolled into one loan so you don’t have to apply for and manage several different loans.
Real Estate
Recent interest rate hikes have many business owners hesitant to finance a new real estate purchase. However, there are still good deals to be found all over the country, and if rates drop in the future, you can always look at refinancing. Increased interest rates may mean reducing the amount of your down payment or cutting operating expenses to make the purchase more affordable. However, your business shouldn’t invest in real estate if it means spreading its resources too thin.
The age of your business influences how successful a real estate investment today will be.
- Startups may want to consider leasing property for the first few years as an alternative to diving right into the commercial real estate market.
- Older, more established businesses with strong credit scores will be able to qualify for lower-interest loans that can offset the Prime Rate increases.
- Searching in a sector or market with a low demand for property can also give you leverage to negotiate a better deal.
- Look at real estate growth over ten years.
A local broker you can meet with face-to-face should have a strong knowledge of the market where you’re planning to invest. They can be your best advocate when hunting down CRE deals, both for investment properties and long-term ownership. In some markets, building property can even be less expensive than buying. Your broker can connect you with construction loans that cover multi-use properties, owner-occupied properties, and renovations.
Equipment
Many business owners see equipment as a burdensome expense, but equipment is more than vehicles, software, and machines that help you operate your company. It’s an investment in your company’s equity. Aside from adding the equipment itself to your asset portfolio, the work the equipment does also builds equity.
To build equity with equipment, it should have a usable life of five years or more. Anything less and you’re likely to get more value from leasing the equipment than owning it.
- Look at buying only when it will add value to your business.
- Making production more efficient, improving workplace safety, and reducing power consumption all contribute to positive equity.
- Tech like software, computer networks, and AI-enabled devices also build equity and can be financed just as easily as a tractor or industrial kiln.
- Calculate how soon you’ll need to upgrade and ask when buying software if updates are included in the initial purchase price.
One of the benefits of buying equipment is that you can leverage the equity in the asset to boost capital when you need an influx of cash. A sale-leaseback allows you to sell the equipment without losing it. You’ll receive a lump sum from the buyer and continue to use the equipment under a new lease agreement. Private loans and lines of credit also let you leverage equipment equity as collateral on the loan. Secured loans have lower interest rates, in most cases, than credit-based loans. You can also qualify for a higher credit limit when you use your equipment to back a line of credit.
Preparing for the Future
Once you’ve carefully weighed the pros and cons of equity investing, you may decide that now is not the right time to move forward. It’s important to set realistic investment goals that won’t undermine your company’s progress. However, equity investing should be in your outlook for the future. If you’re not ready to move forward with it now, there are several ways to position your company so that you’ll be ready when the time is right.
Smart debt management, improved capital efficiency, and credit-building activities will all help prepare your business for investing down the road. To get a customized financial plan that’s tailored to your unique business and goals, get in touch with a broker. Financial brokers have an arsenal of debt management tools at their disposal that they can share with you. They can help you pinpoint which debt to target first and reduce your expenses so you can save money faster.
With a little bit of homework, smart planning, and a trusted advisor, you’ll be ready to invest in your company’s future. And there’s no time to start building your future than right now. Contact our brokers and we will help you source the right financing to make your move.
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