Alignment. Who is carrying the risk in your business?

Alignment. Who is carrying the risk in your business?

When someone goes into business, they take a risk.

If it succeeds, shareholders reap the rewards: profits in the form of dividends and increasing shareholder value.

When a business borrows money, they are typically doing it to leverage capital and maximise an opportunity.

However, the financier is now also carrying a risk. To balance this out, the financier will want some security. To have the right to deal with the secured assets if the business defaults on repayments.

When borrowing money, the risk balance is critical.

The tension then becomes between the two risk takers. To make sure the risk balance is right so that the arrangement works for both parties.  So that both parties’ interests are aligned.

If, for example, the debt levels are too high, the financier takes all the risk and has security over the business’s assets. Potentially, including its profits.

In those circumstances, the business owner can become demotivated. When there is little reward for all their efforts, their drive to deliver results can evaporate.

When the risk balance is right, the business owner is motivated to grow the business and get a higher return on the total risk (equity & debt).

The financier is motivated to ensure the owner’s success. So, they get a return on their investment: their return on the debt loaned. There is alignment.

Working together for your success.

Interestingly if the business chooses the right finance company, that financier will work with you to ensure your success. It becomes a profitable partnership for both parties and an opportunity to work together in the future.

The International Acceptance Group works with business owners to achieve the right risk balance for their borrowings.  So that it works for both parties, and the business grows successfully. Alignment.

 

To find out how we can help you call 1300 729 955 or visit www.theiagroup.com.au.

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