The investor will want a board with strong reporting capabilities that are likely absent in your business currently. This brings increased process to your workplace. As an entrepreneur, you chose how to how much information you give. The board is not your team captain, but your coach. Board members are not in a competition to be smarter than you, and once you come to terms with that and their requirement to prepare regular reports, you will realize you are still the glue that makes the board a team. 

“Some companies worry about having a fund manager take a seat on their board and interfere in the business,” says Bob Roy, of Roynat Capital. “What CEOs may not realize is that most funds do not wish to “get in the kitchen,” and will focus their help at a strategic level.” Bob adds, “Owners quickly come to appreciate how the mere presence of the private equity partners on their board brings enhanced prestige and credibility to a business.”

Stage 3 Legacy companies agree that a private equity partner on their board brings professional rigour and discipline to create a vision and ensure the strategy gets done. Legacy companies recognize that they may not set the same standards or bring the same discipline as will be required when partnering with private equity.

Part of strategy is to grow and get access to capital. If an analyst looked at your finances they want to see debt. If the balance sheet is not geared, (loaded up with debt), the business risks being static. That is the trick of cash—use it or lose it. If you want to acquire other companies, you must like debt. If you tell an investor, “I’m ungeared—little debt,”—so what? It shows a lazy approach to business. 

As the company develops, there will eventually come a time to adopt the discipline of debt repayments—which has the magical effect of making management of the large private equity partnerships focus on cash flow. The team will be focused as never before on quarterly payments and not breaching covenants.

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