There are many advantages to offering stocks as a business owner. However, it’s not the right move for everyone. When deciding whether to offer stocks, consider the dynamics and goals of your business.
Will You Need Additional Operating Capital?
It takes money to make money. In fact, many businesses don’t see a profit in the first year. Small business loans and investments can only go so far until you require additional capital. Large amounts of debt can also make it difficult to expand.
Selling stocks can be a great way to increase your operating capital while also encouraging employees to be more involved in the business. Employees that have a financial investment in a company tend to be more motivated to produce results. Additionally, you might not currently have the funds available to attract high-level executive employees. In some cases, offering employees the financial advantages of stock trading in their compensation package can attract these higher-level employees.
What Is Your Long-Term Business Plan?
It’s important to consider your long-term goals for the business. Some owners start a business with the intention of it becoming a full-time career, while others aim to produce a profit and then turn the company over to other active members. If you intend to make the business your career for the next 20 to 30 years, it might not make sense to set up a long-term stock option plan yet.
However, if your goal is to turn the business over as soon as possible, then it might make sense to offer stocks. Selling stocks is a great way to turn over the business gradually. Using an Employee Stock Ownership Plan (ESOP), you can offer employees a portion of the business based on how long they have been with the company. You can also set up ESOPs to allow employees to purchase ownership in the company directly from you.
Do You Want Input From Others?
When you decide to sell stocks publicly, you open your business up to the input and judgment of others. You might have to receive approval from majority holders before making big business decisions. Additionally, once you open your business up for public purchase, you are subject to valuations. How your stock performs in the market can affect your ability to gain additional funding.
Of course, you have the option to limit who you sell your stocks to. Going public opens up the purchase of your stocks to everyone. This option, however, can be expensive and is not always realistic for small businesses. You also have the option to sell to large or small investors, as well as to your employees. It is important to consider your reason for selling when deciding which type of sale is right for your business.
Selling stocks can be a great way to attract quality employees while also earning necessary operating capital. But, it’s not the right decision for every business. Consider your long-term goals and how offering stocks fits into that plan.
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