Does Your LLC Need an Investor?
By Ambrose Moses, III
Does your LLC need an investor to help with cash flow? You likely have heard that cash flow is the lifeblood of a business. But, what is it?
Cash flow is a revenue (inflow) or expense (outflow) stream that changes a cash account over a given period. Basically, it is the flow of money coming in and going out of the business.
Cash inflows usually arise from one of three activities – financing (loans), operations (sales) or investing (investors/grants/donations/gifts).
Cash outflows result from expenses or investments (profits shared with
Cash inflow from investing activity occurs when investors put money into a business in exchange for some ownership of that business.
In a limited liability company (LLC), the owners are called “members”. Members in an LLC are like shareholders in a corporation or partners in a partnership.
Suppose you are the owner of a single-member limited liability company. Your business is worth $100,000 and you need $15,000 to purchase some new equipment and bring on an employee. This will help the business generate more sales and be more profitable. If you don’t increase the sales and profitability, the business can’t pay its expenses and fails.
You own 100% but can’t grow the business without getting the additional $15,000. What do you do?
One option is to increase cash inflow by bringing in an investor who gives the business $15,000 in exchange for a 15% ownership (membership) interest in the LLC. This means that there are now two owners of the LLC – you (85%) and the investor (15%). The business now has the necessary cash to purchase the equipment and hire the worker it needs. The $15,000 is not a loan. If the business fails, the investor loses her money. If the business succeeds, the investor shares in the profits. The investor is willing to take the risk because she believes the business may be successful and her share of the profits will be greater than $15,000.
As the original business owner, would you prefer to own 85% of a successful, more profitable business or 100% of an unsuccessful, less profitable business?
For more information contact: Ambrose Moses, III, an attorney with Moses Law Office. Email: info@MosesLaw.pro. Telephone: (614) 418-7898.
