If you’re interested in selling your company to private equity, you probably already know that it can bring in a lot of money and propel your business forward. But it’s not the right choice for every company out there.
There are some red flags you should look out for to make sure that private equity isn’t the right direction for your business, and there are some signs that indicate it could be exactly what you need right now to continue growing your company. Here are seven signs that private equity might be right for your company.
1) Cash Flow Issues
Are your company’s cash flow problems causing additional problems for your business? Many companies that are in need of quick cash infusion turn to private equity. But is it really right for you? Have you met all 7 of these signs that private equity could be a good fit for your company?
2) Job Cuts Aren’t Doing the Trick
As an entrepreneur, you’re a problem solver. When one area isn’t working, it’s your job to shift gears and find a new way forward. But when layoffs and other cost-cutting measures aren’t cutting it, consider bringing in private equity firms to help improve profitability. You can use these benefits as signs that private equity might be right for your company
3) Restructuring Hasn’t Helped
If your company has been restructured, with or without private equity investment, and it’s still not profitable, you might need more help than a simple restructuring can provide.
Examine what your previous private equity investors have done for you to determine if they have been helpful in solving your problems and growing your business. If they have not helped then a private equity investor might not be right for you.
4) Valuation Uncertainty Makes More Sense
A valuation based on your company’s future potential can be particularly appealing for owners who want to exit but are not sure about how long it will take or how much cash flow their company can generate.
This could be a good option if you know you want to sell, but don’t know exactly when or for how much. A private equity firm typically buys in with a multi-year time horizon.
5) Management Overconfidence Could Use a Check
Before you allow a private equity firm to take control of your company, consider whether that is actually a good idea. Although there are many success stories in which private equity firms have helped companies thrive, there is also evidence that management overconfidence could use a check.
Some business owners may not realize when they’re overconfident and investors—particularly private equity firms—can be more objective than business owners themselves can be. Before committing to any deal, it is important to weigh all pros and cons first.
6) You Can Raise Funds Quickly with PE Funding
PE firms provide capital to small and medium-sized businesses quickly. In contrast, banks can take months to approve loans, making it difficult for businesses to secure funding in a timely manner. If you’re looking for quick funding, consider approaching a private equity firm.
7) Buyers Are Reluctant to Invest
There are private equity firms out there who will make offers to companies regardless of how your business is doing. But more often than not, a company must be struggling financially for a PE firm to look at making an offer. If you’re running a healthy business, it’s unlikely that you’ll find many buyers who are willing to step in and inject additional capital.