Business equity should be of interest to all those people who make it their business to deal with finance. Essentially it is the marketable part of the business value and will determine key features of the conduct and winding up of a business. Unfortunately most people hear about business equity when the company has gone bankrupt and everyone is clutching at straws in an attempt to salvage something from the wreckage. The truth is that if the owners of that failing company had paid enough attention to business equity in the first place, the company would not be in a situation where it was considering bankruptcy.
Why keep equity
A business without equity is a business on the cusp of defeat. Production should always aim to add value to raw materials to the extent that they can make a profit upon sale. The equity of a firm is the sum of valuable things in that firm. What would be the point of maintaining a firm if it did not have value?
Business equity is a means of obtaining cash and investment for the organization. Typically companies will issue shares when they wish to raise capital at varying stages of their development plan. The shares are a direct reflection of the level of equity in that firm. If the organization has depleted all its valuable assets or if its liabilities exceed its assets, then the buyers are less reluctant to buy any shares. Those who are happy to take the risk will only purchase at below market prices. Therefore it is important for a firm to maintain a good quality and amount of business equity, if only to ensure that it can attract investment.
Equity by shares is the only objective way in which the value of your company can be assessed against similar organizations within your industry. You will have a value in your head about which you think you company should sell. However financial experts can accurately value your assets based on the prevailing economic conditions and allocates a level of business equity. You are then able to persuade investors to join your vision by showing them the details of your equity.
If the worst comes to the worst and you have to sell up or go bankrupt, the fact that you have maintained good equity levels will mean that you might just be able to get a profit out of your investment or you might just be able to keep away the bailiffs. Entrepreneurs enter the business world to make money. Without business equity, their objectives will not hold any water. The presence of equity is the motivation for both investors and owners.
Building business equity on the back of your other sectors
Some firms will deliberately build their equity portfolio with a view to increasing their market ability on the stock exchange. This does not mean that they ignore their basic activities such as paying staff wages or buying raw materials. Equity is equivalent to value and without continuing production; there is no equity to talk about.