Investor agreements are usually pretty flexible. Most experienced investors understand that businesses sometimes need a grace period to get their business off the ground before they can start making payments. Investors are sometimes easier to find than lenders, and the terms can be changed or updated as needed. Just be sure that you have a clear investment agreement that defines the interest rate and when payment is to be made. Here are a few ways that you can go about paying an investor.
Pay the investor in installments each month. Decide on a fair sum to be paid each month based on the share of the business that is being given up and the income that the business generates in the previous year. For example, say an investor gives you $10,000 in exchange for a 10 percent stake in your company. Your company goes on to make an average of $20,000 per year. You would need to pay your investor $2,000 per year, which works out to an estimated payment of $166.66 per month. If your business goes on to make $40,000 the next year, your payment from then on would increase to $333.33 and so on. (Some investment agreements are set up to pay the investor a percentage based on the amount of the initial investment only, regardless of how much the business makes.)
Send the investor a check at the end (or beginning) of each business year once you determine the company's revenue for that year.
Pay the investor biannually, after you get the second-quarter and fourth-quarter earnings reports.
Pay the investor an agreed-upon lump sum after a certain amount of years. Many investor agreements are set up this way to allow the business time to grow.
Route payments on invoices directly to the investor until the investment money plus an agreed-upon dividend is paid off. Thereafter, all profits from the business can be yours. This arrangement is preferable if you already have orders pending for your business, you need a quick capital infusion and you want to buy the investor out of his or her share as soon as possible.
Pay your investor with a certified or official check and keep a receipt for your records to avoid disputes about payment.
- Tree Hugger