First, reflect on your progress and goals up to this point:

Your store is uniquely yours. There’s no easy investment strategy that works for everyone. So as you discern the best path forward, remember that you have to do what’s right for you.

Part of being a member of The Bike Cooperative is easy to private discussions on topics ranging from bike shop marketing to the business and numbers behind owning your store. Looking for more information and a network to check your instincts? Learn more about joining today. Otherwise, read on for some simple tips on taking the next step for your business.

Consider the financial state of your business

What is your annual revenue? What are your goals? What is your strategic plan and how will you get there? Are you hitting your annual forecasts? Before seeking an investment, you need to be in a position of financial clarity.

Consider your personal finances

If you rely on business income as a primary salary, determine exactly how much you need for your personal living expenses. Then consider re-investing anything above that amount. Any investment options you consider must ensure you’re able to pay yourself what’s needed to live.

There’s no right answer for everyone

Your business is uniquely yours. There’s no easy investment strategy that works for everyone. So as you discern the best path forward, remember that you have to do what’s right for you.

Considering an equity investment

An equity investment is capital in exchange for a percentage of business profits (and losses). This type of investment is riskier for the investor, as they only see returns if the business is successful. However, with great risk comes great reward, and an equity investment has the potential to pay serious dividends.

If you’re looking for outside investors, think carefully about accepting equity investments. With equity comes ownership – and with ownership comes opinions about management.

Considering a debt investment

In contrast to an equity investment, a debt investment is a loan given in exchange for the promise of interest income and eventual repayment of principal. A debt investment is less risky for the investor, but also has lower reward.

Common Pitfalls to Avoid with Outside Investment

Lack of Communication

Accepting outside investment can be a big shift. Consider the impact on your company culture and morale. With big change comes the potential for fracture. Make sure you’re up front in your communication, and get everything in writing.

Incorrectly valuing your company

As you think about valuing your company, make sure to portray the valuation as accurately as possibly. Overvaluation causes huge problems with future investors. Undervaluation causes you to lose potential earnings by giving away too much ownership. Seek the advice of lawyers and accountants experienced in valuing your business.

Not aligning with company values

It’s not just dollar sign value you should care about. Select investors that align to company culture. They don’t have to be best friend material, but they have to share similar values and expectations. Companies have failed by selecting the wrong investment partners.

They don’t have to be best friend material, but they have to share similar values and expectations. Companies have failed by selecting the wrong investment partners.

Inattention to legal details

Make sure to utilize legal counsel as you draft agreements, sign documents, and communicate with investors. The potential issues are numerous, so make sure you’re doing it all by the book, even if it’s a family member. Don’t take shortcuts. And don’t be afraid to find a specialist if your existing representation isn’t up to date on the laws relevant to your situation.

An alternative option: taking advantage of savings opportunities

Rather than contemplating debt or equity investments, there is another way to invest in the success of your small business. Start by giving yourself some money back.

Members of co-op’s like The Bike Cooperative get instant access to scale that lets them pay less for everyday business expenses ranging from marketing to payroll. Whether you’re thinking of an exit plan, looking to add value to your business, or planning an investment in the future – starting with a better bottom line is an easy first step.