Forming a Corporation ? Investors

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.

In The News:

A taxing time for small business  Shepparton Adviser

How the Crab Effect Obstructs Growth and How to Conquer It

Some of the greatest words of wisdom for any man... Read More

Why is My Restaurant Not Full Every Monday Night?

In a quest for customers and to keep those customers,... Read More

11 Things Small Business Owners Can Learn From Tiger

1. There Are No "gimmes" ? They count two-foot putts... Read More

11 Things Small Business Owners Can Learn From The Supreme Court

1. Have A Strong Constitution ? Justices deliver decisions by... Read More

Small Business Ideas - Your Image Can Lose You Business

What image do you and your people portray to your... Read More

There Are No Dumb Business Questions, Not!

Q: I'm curious. What is the dumbest business question you've... Read More

Tips For Successful Home Show Businesses

Opportunities for home show businesses have never been more abundant.... Read More

More Rules for Franchising?

The FTC- Mighty Federal Trade Commission has unilaterally decided to... Read More

Cleaning Grain Silos, Towers, Containers, and Combines

If you run a pressure washing company in a rural... Read More

A Portable Trade Show Exhibit Makes for an Easier Show

You can make your trade show experience much easier by... Read More

Secrets Revealed To Having The Most Professional Staff On The Telephone!

Do you have all the customers your business can use?The... Read More

Dealing With a Crooked on the Take Government Worker

Many government department heads are on the take. Oh they'll... Read More

Deciding Which State To Incorporate Your Small Business In

Once you've decided to incorporate your small business the next... Read More

Making Your Purpose Your Business Step #2- Getting From Point A to Point B

In my previous article, Step 1, your challenge for the... Read More

ADH Will Make Your Life More Productive & Your Life More Profitable

What is a Virtual Assistant?? A Virtual Assistant is that... Read More

Are You Ready to Own and Operate a Business?

How often has someone thought of starting a business based... Read More

Procrastinate Your Way To A Successful Small Business

What will your business look like a year from today?If... Read More

Your Babys Ugly..and Youve Got Bad Breath

I've got good news and bad news. The good news... Read More

Build Credibility, Value, and Trust on a Shoestring

Setting priorities in your business? Your first job is to... Read More

Justice In Action

During the 1980 presidential campaign, candidate Ronald Reagan vowed, if... Read More

How Most Business Owners Sabotage Their Success

Owning a business is a challenging endeavor. If you're like... Read More

How to Define Business Objectives

Why does a good business relationship rely on having some... Read More

How to Handle Rejection When You Start an Office Cleaning Business

"If at first you don't succeed, then skydiving definitely isn't... Read More

Operational Aspects on P and L Statements of Mobile Services Businesses

What kinds of things effect mobile service businesses P and... Read More

Practical Money-Saving Tips For Small Businesses

One of the primary concerns all small businesses have is... Read More