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Forming a Corporation - Investors

You've come up with the best idea since
sliced bread, figured out a business name andWhat happens in year two when I need a
formed a corporation. There is, however, one$100,000? I give up more stock and suddenly
small problem. You need money. Welcome to theown less than 50% of the business.
world  of  investing.Inevitably, this leads to feelings of
resentment and bitterness. "It was my idea,
Business  Fundsbut now these blood suckers are going to get
most of the money and they aren't even
Unless Bill Gates is your friend, money isworking on the business." This sentiment is
going to be a problem for every new business.so common that it would be laughable if it
Even the might Google had to hunt for cashweren't  so  depressing.
with one of the founders of Sun Microsystems
finally kicking down a much needed $100,000.As a general rule, you should only sell
Whether you decide to pimp your business planownership in a business as an absolute last
to anyone breathing or beg your step-motherresort. Instead, try to get loans from
for  funds, here are some issues to consider.investors, banks, home equity lines and even
credit  cards.
Investors are looking for the best deal, to
wit, the most stock possible in an entity. IfIf you must sell stock to raise funds, be
you are asking them for cash, they have thevery careful when valuing the stock. You
leverage. Don't be so desperate that you giveshould place a value on each share as though
away the farm. All to often, I speak withthe company was already a raging success, not
individuals who started a business on a whimjust starting out. Further, make sure you
and have become disillusioned because theysell only small allotments of stock such as
have  lost  equity  in  the  business.three to five percent. If you owned IBM, how
much of the ownership would you sell for
Assume I start a corporation and need funds.$20,000?
My neighbor agrees to kick in $20,000 for 20%
of the stock. Things go great, but fourIn  Closing
months later I need another $50,000 for
inventory and cash flow. My aunt agrees toWhen starting a corporation, guard equity as
kick in $50,000 for another 20% of the stock.though it is the Holy Grail. If you don't,
Yikes, I am not even through the first yearyou risk becoming a disillusioned shareholder
and  I  have  given  up  40%  of  the equity!down the road.



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