Taking on Equity Partners - Part One
Recently I have been contacted to assist business owners who wish to build their business interests by taking on equity partners. This step in your business growth trajectory is an important one to take and should be considered carefully to ensure you and the interested other party gain a result that will benefit each of you.
In part one I will set the scene of the most recent assistance I have provided to a business owner.
The business owner, I shall name John, in this instance owns a Chiropractic practice working in a near Asian neighbouring country. He has operated for over 10 years and has built a solid practice over a 10 years period. He has an associate, Belinda, who is keen to pursue her future career in partnership with him. She has worked with him for three years and has developed a practice where many of her clients are referred directly to her from a variety of referrers, social media and via word of mouth. They have just started to discuss the option for her of taking equity and have identified an opportunity to grow into a neighbouring area (some 20 mins from the main business) in the coming 6 months.
I have asked John to commence developing a number of different documents and to firstly consider the strengths that Belinda will bring to his new business. I list some of the role considerations for her below:
Ø Access to capital (but not essential as vendor finance is an option)
Ø Commitment to the practice
Ø Belinda’s current role
Ø Amount of time she spends at the practice
Ø Her ability to establish to new business and then to assist the practice to grow
Ø Special talents to offer (education officer, great mentor, proven ability to increase practice billings etc)
Ø Have met certain stated goals required to be met to be offered equity
I advised timeframes will need to be set once the interest has been declared where the practitioner has the chance to evaluate the opportunity. Such timeframe will be between 90 and 120 days.
While he is sorting the role that Belinda will take, he is planning that:
- his business vision, mission and values is clear
- he understands the Capital he will need to establish the new business
- the amount of equity he will offer Belinda and at what value
- he needs to better understand the competitive landscape
- does he need outside investors
- what are the risks he is prepared to take to develop another business
There is much for John to consider!
In part two I will provide more detail of the process that I am taking John through and highlight some of the potential pitfalls for him to avoid as he moves forward!!
