Business executives and finance experts at a high level breakfast meeting in Accra Thursday were divided on whether business owners should go for debt or equity to finance their expansions.
While some advised equity, citing its flexibility and less strain on the company’s finances and operations, others said debt should be the preferred option given that it did not bind the business to the dictates of another partner. They, however, concurred that the decision to go for equity or debt should be based on the philosophy of the business, the reasons necessitating the expansion and the future plans of the owner for the venture in question.
The executives and financial industry experts at the 6th edition of the MTN Business World Executive Breakfast Meeting, were drawn from the business community, financial institutions and academia, for discussions on the topic: ‘Expanding your business: equity or debt’ at a breakfast meeting organised by mobile telecommunication giant, MTN, and supported by Business World, a magazine.
The panellists included the Managing Director of Vester Oil Mills Limited, Mr Kwasi Nyamekye, and the founding and Managing Partner of Black Star Advisors, Mr Charles K. Adu Boahen. The rest were Naana Winful Fynn, the Director of Sagevest Holdings Limited, and Madam Judith Aidoo, the Chief Executive of Casewell Capital Partners.
Mr Nyamekye said if given the option, he would prefer to source 60 to 70 per cent of its funds from equity and the remainder, explaining that equity “gives you the leverage and breathing space to operate.” He was, however, quick to add that admitting a partner into the business sometimes becomes worrying.
“They can just call you to provide this report – do this and that and that, in a way, limits you from doing things the way you want,” he added. For companies looking to expand into the future, debt should not be a thing to go for, according to the Director of Sagevest Holdings, an investing firm.
She advised businesses to “think through your business philosophy properly before choosing which method to use in expanding the business.” Equity is when an investor or another business institution buys into the operations of a business, making the former a part owner of the entity. The money invested through the partnership can then be used to support the operations and expansions of the entity for the two to share profits as well as risks.
Debt on the other hand is when a business entity borrows at an agreed interest rate from financial institutions to support its operations. While debt is repayable, mostly with interest and within a specified period of time, equity makes the investor a part of the business, with the option to exit at an agreed time.
For his part, the founder and Managing Partner of the investment advisory firm, Black Star Advisors, said investors would normally invest in people not businesses and thus urged entrepreneurs to cultivate good work ethics that would help lure partners for them.
The theme, according to the organisers, was to expose participants and the entire business community to the merits and demerits of the two sources of funding available to businesses in the country.
Graphic Business