According to Gary Mcgahey , private companies are safer because they’re smaller, they’re more nimble, and they’re less regulated. This means that private equity firms can invest in more risky companies, as long as they have the necessary financial backing.
Private equity firms also like to buy companies that are already profitable. To achieve that, private equity funds turn to private companies, which are often small businesses. The firms approach the companies with the money they have borrowed or been given an offer to buy them outright. Most companies are happy to sell to a private equity firm because they recognize that the funds have the money to buy the company and the expertise to run it.
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How a CFO or Financial Executive Should Invest Their Company’s Cash
Investors typically want to know how a CFO or financial executive should invest company cash. In general, they should invest the cash on hand in low-risk investments that will give them some return in the very near term. You can find low-risk investments by investing in government-backed debt or government-issued shares.
However,remember, if you capitalize the company debt, you’ll have to pay a higher interest rate, making it less attractive. If you decide to capitalize on the equity instead, the company’s cash flow can be invested in a variety of ways. If a company is profitable, some private equity funds will also let you choose between investing in a growth company or an unprofitable one. If a company is losing money, the funds will typically let you choose between taking a loss or investing in a private company.
Private equity is a flexible investment vehicle that can be used to invest in companies that may not be profitable or have a proven track record. Thanks to investment changes made in 2014, it’s easier than ever for CFOs and financial executives to get involved in private equity. And they can do so without having to sell their company stock.