Equity Release: Managing Your Assets
It can be difficult to know when you should release equity in your company. If you wait too long, then it may never happen. On the other hand, if you release too soon, then there is a chance that the company will not succeed and you will have sold your shares for nothing. There are some things to consider before releasing equity in the UK for your business:
One of the most important considerations is how much money do I need? How much does my spouse or partner want? What about our children’s college funds? Another thing to think about is what kind of lifestyle am I looking forward to after my retirement? A third consideration has to do with succession planning. Who would take over if something happened to me tomorrow? And finally, how much money does the company need to grow?
If you decide to release equity, then it is important to have a plan in place. It’s also important that you document your company and make copies of everything before you start releasing shares.
Consequences: If the price of the stock goes down following an IPO or sale (even if we don’t know why), people will question whether they made the right decision to sell their shares. This can be humiliating for some entrepreneurs who feel as though they are letting everybody down. A second consequence would be that it may take longer than expected to raise enough money because there is less time left with our portion of ownership in play; this could delay growth in terms of hiring more employees, opening new locations, etc. Yet another potential downside is when people are able to buy shares on the market instead of for a price that we set, which can lead to people making money off our company without contributing any work.
One potential upside might be if we feel like it’s time for us to move onto something else – and have someone take over who is more qualified. Another benefit could come in terms of dividends; when there are fewer shareholders, then each one has less likelihood of receiving cash dividends (since they get distributed pro rata). And finally, exiting an equity position may allow us to take care of other important things such as paying down debt or saving some money so we’re not living paycheck-to-paycheck again later on in life.
