There are potential negatives with all sources, from bank debt (with security, and possibly personal guarantees, required) to equity plays (involving some, possibly total, loss of control).
In practice, getting the combination right can be a major determinant of the outcome. However confident the owner/manager might be, I would recommend getting the accountant, at the very least, to comment in writing on the proposed choices.
For larger scale needs, private equity is the current go-to source (there are more than 30 active entities in UK RFS). These funders will often be looking for broader consolidation, involving add-on deals or vertical integration to maximise their return.
They will also usually have specific requirements for the exit parameters (timescale as well as return), although these may not always be fully discussed or declared.
Overall, private equity is a much-needed and highly positive element in all sectors of commerce. However, those owner/managers who accept private equity funds should also realise that the funder may well have additional motivations to their own, and that, at some point, this could make for a relatively unhappy ending.
For the size of funds most usually involved in the advice sector, the what I term “bespoke angel” category (angel-type investors brought together for a specific opportunity) has much to offer.
These groups can be helpful in ways beyond providing the funds.
Choosing angels carefully, in reasonable numbers (at least 6 and ideally no more than 10), and given good stewardship by the owner/manager, can provide a group able to do more than deliver the required funds. It can be a source of intelligence, motivation and support.
Keith Carby has worked in senior executive roles at numerous financial advice businesses, including managing director of Allied Dunbar and one of the three founders of J Rothschild Assurance (renamed St James's Place). He is chairman or founder of seven other retail financial services companies.
If you have a question you would like to put to Keith or any other expert, please email it to melanie.tringham@ft.com.
