You've come up with the best idea since sliced bread, figured out a business name and formed a corporation. There is, however, one small problem. You need money. Welcome to the world of investing.
Business Funds
Unless Bill Gates is your friend, money is going to be a problem for every new business. Even the might Google had to hunt for cash with one of the founders of Sun Microsystems finally kicking down a much needed $100,000. Whether you decide to pimp your business plan to anyone breathing or beg your step-mother for funds, here are some issues to consider.
Investors are looking for the best deal, to wit, the most stock possible in an entity. If you are asking them for cash, they have the leverage. Don't be so desperate that you give away the farm. All to often, I speak with individuals who started a business on a whim and have become disillusioned because they have lost equity in the business.
Assume I start a corporation and need funds. My neighbor agrees to kick in $20,000 for 20% of the stock. Things go great, but four months later I need another $50,000 for inventory and cash flow. My aunt agrees to kick in $50,000 for another 20% of the stock. Yikes, I am not even through the first year and I have given up 40% of the equity!
What happens in year two when I need a $100,000? I give up more stock and suddenly own less than 50% of the business. Inevitably, this leads to feelings of resentment and bitterness. "It was my idea, but now these blood suckers are going to get most of the money and they aren't even working on the business." This sentiment is so common that it would be laughable if it weren't so depressing.
As a general rule, you should only sell ownership in a business as an absolute last resort. Instead, try to get loans from investors, banks, home equity lines and even credit cards.
If you must sell stock to raise funds, be very careful when valuing the stock. You should place a value on each share as though the company was already a raging success, not just starting out. Further, make sure you sell only small allotments of stock such as three to five percent. If you owned IBM, how much of the ownership would you sell for $20,000?
In Closing
When starting a corporation, guard equity as though it is the Holy Grail. If you don't, you risk becoming a disillusioned shareholder down the road.
Richard Chapo is with http://www.sandiegobusinesslawfirm.com - providing legal services to San Diego businesses.
A reader of one of my online sessions asked should... Read More
Yes, that IS security when nobody can downsize you because... Read More
Sacred cows take a long time to die. We get... Read More
Don't let your customer satisfaction research initiative collect dust on... Read More
Early in my career, I wrote an article for a... Read More
No matter type of business you operate you've got to... Read More
I propose this thought on the subject of Franchisee territory... Read More
In the 2003 Auto Laundry News Survey it was determined... Read More
Disclosure laws in franchising are suppose to help the consumer.... Read More
I agree that knowledge should be free, but the next... Read More
There is a continual trend we are seeing which I... Read More
Buying a franchise is not for everyone. This guide will... Read More
When starting a business, you have to determine the method... Read More
Great question!Freeing your time is an indisputably key element in... Read More
If you're like the rest of us, you've spent a... Read More
Seems as though there are a lot of business closings... Read More
One of the critical success factors for service-related businesses is... Read More
There are many little details that go into making sure... Read More
If you are a franchisee of a large franchise system;... Read More
Sometimes the simple businesses are the ones, which make good... Read More
In the book Women and Small Business author gives all... Read More
You're a small business owner with a hot new product... Read More
Debt collection letters--an overview"Debt collection letter" in the singular may... Read More
TACTIC #1 -- Never simply slash your prices, unless you're... Read More
Due to the over regulation in the Franchising Industry and... Read More
Just recently, I took a break and caught "The Return... Read More
The air in my client's office nearly crackled with her... Read More
Bookkeeping?the "dreaded" word is something we all have to worry... Read More
The key to organizational focus and helping those who need... Read More
Your on-line success is based on your efforts and yours... Read More
Deciding to start your own franchise is just one of... Read More
Mobile carwashing is hard work, it is tough on the... Read More
So you want to get into the auto detailing business... Read More
If you are thinking of turning your current into a... Read More
The choice of financing is an important determinant of whether... Read More
Pity parties are nothing new. In fact, we do it... Read More
I was floored! I couldn't believe what they were saying!... Read More
In today's fast paced marketplace it is easy to neglect... Read More
The life cycle of the typical small business is short... Read More
The book, "Become the Squeaky Wheel," by New Hampshire author... Read More
1. Resolve to build a consistent network system.Since referrals are... Read More
We visited Lexus USA, home of the Lexus North America... Read More
Many of us have noticed how some nearby communities seem... Read More
Are you thinking of starting a small pressure washer business... Read More
What's your job profitability? I meet with business owners every... Read More
Have you ever heard the phrase, 'PREPONDERANCE OF PROOF'?I recently... Read More
Over regulation of small business is so intense it is... Read More
You are selling your small business (business value under $1... Read More
Becoming a contractor or sub-contractor for the U.S. government can... Read More
As an Investment Representative you've worked hard to build trust... Read More
With all the cabinet refacing business opportunities out there, you... Read More
If you are in the professional car care business you... Read More
Did you know that satisfaction is the number one emotion... Read More
Treat your business as a serious, full-time business and be... Read More
How to identify future solutions and opportunities?Your power page, if... Read More
Bookkeeping?the "dreaded" word is something we all have to worry... Read More
So you think you're not justified in taking time away... Read More
It's a commonly quoted statistic: 80% of all small businesses... Read More
If you're looking for start-up capital for your business, but... Read More
Some marine biologists feel that the concentration of dead marine... Read More
If you are the boss and you think your job... Read More
How a donation is different from a sponsorship and what... Read More
Do you have a Business Plan? Congratulations, but you are... Read More
What is the Big Race all about when it comes... Read More
Deciding to start your own franchise is just one of... Read More
So it's time to invest some finances into advertising your... Read More
Small Business |