Equity release - is it right for your business?

21 February 2020

De-risking your business

Concerns about how the economy has many business owners considering their circumstances. Many have much of their wealth tied up in their business, so it’s no surprise that many are thinking about de-risking.

One option is to slow down the growth of your business and postpone reinvestment plans. You can then opt to pay yourself special dividends. In this way, you may free up cash now but you’re also potentially limiting longer-term business value. Some owners totally de-risk and sell their business. An owner might feel he or she has reached a ceiling in terms of their ability to grow their business so a sale is the best way to realise value. In such cases, if the offer is attractive, it’s often hard to refuse. However, what if the above is not applicable?

Are you considering a sale because you think it’s the only way to free up your capital and secure your future financial security? If so then read on because there is an alternative.

It’s not possible to eliminate risk completely from your business life, but you can arrange to have a level that’s comfortable for you. Selling a stake in your business can allow you to make your personal finances far more secure, whilst also allowing your company to continue to grow. Equity release (“cash out”) is a topic that we talk about frequently with business owners. It is the process by which an equity investor buys a stake in your business, while still leaving you with equity that’s also valuable. You can put money in the bank for personal use, while still pursuing ambitious growth plans for your company. It can be the best of both worlds.

When we talk to business owners about equity release, many aren’t aware it’s possible to sell a stake rather than the entire business. Not only can you take money out to do whatever you wish personally, but you can also afford to be bolder in the business, given that you’re more secure personally and have the support of a well-resourced and experienced equity investor beside you. If chosen carefully, the deal also comes with a new, like-minded equity partner with wide ranging contacts, access to great networks and many years’ experience of growing businesses. An equity investor can introduce new insight, expertise and talent into a business and develop opportunities you hadn’t considered before. Owners often rediscover the enjoyment of running their business once they gain the support of a well-matched equity partner. Selling a stake in your business can actually encourage more risk-taking at the same time.

Having an equity partner alongside you who is ambitious for the business means you can remain focused on continuing to grow it, with the end goal being to substantially increase the value of the company over the next few years, so that when you think about selling a further stake, or the business as a whole, you are in a far stronger position. The risk of not considering equity release is selling your business too early and failing to optimise the value you’ve so far created. Working together with the right equity investor can drive a business’s growth and future potential and could be a great opportunity for you both personally and professionally.

Contact us

If you would like to know more about how we can assist you, your clients or your contacts on corporate finance, M&A or strategic planning matters, then call us on 01908 662255 or email laurence.whitehead@mhllp.co.uk to arrange an initial no-obligation meeting.

This article was published in a recent edition of our Corporate Finance Newsletter.

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