How to respond to a business offer that seems too good to be true
We’ve had a couple of clients recently who’ve been offered deals that seemed like what I can only call, ‘no brainers’. Offers that included generous investment or support – in return for shares in their businesses.
Such offers can feel too good to be true. After all, what’s a share or two in the grand scheme of things? You probably get on well with the person making the offer, right? And, so, hey? What’s the harm?
But what does it actually mean if you give someone else shares in your business?
From shares to where?
In simple terms, it means when your business starts to succeed, someone else gets a share of the profits. Forever.
It means that someone else gets to benefit from of all the time, effort, energy and talent you’ve ploughed into your business. Forever.
It also means they get a say in each, every, and all business decisions you make (and that every dividend will need to be split by the proportion of shares held). Again, forever.
And, it means you can’t sell any more shares without consulting them as your shareholder.
And that they can sell their shares to someone else.
Just pause here for a moment and think of the implications of what would happen in such a situation if you didn’t have the funds to repurchase their shares at the price they were asking.
Suddenly that no-brainer seems like a no way, José.
How to respond and keep your interests safe
If you find yourself considering what looks like a ‘no-brainer’ deal, stop and think for a moment.
Consider why this person wants shares in your business.
Sure, they may like you and want to see you succeed, but that’s not always the full picture. It’s more likely that they can see a way to make money… from your business.
And do you really want to share that potential with another shareholder – forever?
Stop, think and ask for a trustworthy second opinion
Discuss the offer you’ve received with someone you trust. That could be your accountant or your business advisor. Consider with care – and objectivity – what you’d be gaining in the short-term in return for that share – as well as what you might be losing in the long-term.
In my opinion? The value of a share in your business is priceless. It’s the blood sweat, tears, triumphs and achievements that make your business what it is. Think about it.
No one will love your business like you do – and no one will be as committed.
Here’s lookin’ at you
Any offer to buy shares or to invest in your work is a huge compliment – it’s a sign that someone sees potential in you – but it’s an arrangement that ties you to another person for the rest of the life of your business.
My honest advice? My Granny used to say, “If it seems too good to be true then it probably is.” So, thank them nicely and walk away.
You’ve got this far under your own steam – why not see how far you can get, knowing that you’re onto something that someone else can see is good too?
