Is it the right time to increase your ownership share?
Deciding when to invest is just as important as determining how much of your personal capital you want to leverage. Investing back into the company may make smart fiscal sense when:
- The company is established—financially healthy with good cash flow and stable within its industry. At this stage, taking a larger ownership role may allow you to reengage a challenger mindset. Without as many shareholder voices, you could move the company toward growth that could increase its value—and the value of your ownership stake.
- You want to increase ownership and the company’s profitability to fuel a transition or succession plan. Talk with your relationship manager about your personal timeline and whether or not, based on industry dynamics and other factors, your company will be worth more when you’re ready to exit than it is now.
- The overall company value is lower than its intrinsic value. Are good things on the horizon? Or is your market share improving but that’s not reflected in the terms outside investors are willing to take for a stake in your firm? It may be time to signal your own confidence in your company.
Your Truist relationship manager can help you weigh these factors before you decide whether to purchase additional equity in your company. They can ensure you have the resources—including industry specialists and Truist Wealth advisors—to help you understand where your company is positioned, the impact of an influx of capital, and how it could prime you for the next stage of your business lifecycle.
The company and personal benefits of increasing your equity share
Purchasing additional stock in your company can benefit the business by:
- Demonstrating company strength and management’s confidence in the company and the direction it’s heading, which could attract other investors if needed
- Facilitating growth or acquisition opportunities
- Increasing sales or profits
- Promoting a longer-term company vision
Reinvestment can also be personally beneficial by providing:
- Additional income growth
- Increased company ownership
- Potential tax benefits
When investing may not make sense
From a financial standpoint, investing additional personal money into your company is no different than making any other kind of investment—but it carries more emotional weight. Elevated emotional involvement can increase the likelihood of investing with risk.
To avoid that, you’ll want to consider your overall financial health and the impact the decision would have on your future plans. Here are a few examples of when investing personal capital might not make sense.
- Overconcentration: You’re an owner in good times and bad, so increasing your ownership stake can lead to overconcentration of your personal wealth within your business. If the company experiences difficulties or financial hardships, your personal accounts will also take a hit.
- Lack of liquidity: Purchasing too many shares or investing too much of your own money could tie up your finances.
- Your compensation is linked to equity: If part of your compensation package includes company ownership, you may already be building your ownership stake without needing to invest additional funds.
Taking stock of your individual financial circumstances is the cornerstone of aligning personal and business goals in a way that can increase the stability and growth of your company. If investing personal capital into your business isn’t a good fit now, Truist Business Lifecycle Advisory is designed to help you access capital in a variety of ways and to help lay the groundwork for future equity purchases.
Your Truist relationship manager can connect you with other financial advisory services, like a Truist Wealth advisor, to evaluate ideas and opportunities and understand the impact on your personal and business finances. They can assist with valuations and estimates, business management strategy, and tax planning, and potentially help you sell the business in an exit strategy.
