[Question] Please Help

[Edrich101]

I know to some of you this may be a stupid question, but how do I go about determening how much shares I should offer a potential investor. The business is not running yet, i'm looking for investors for start up capital. Projection of future share prices

[eitai2001]

I know to some of you this may be a stupid question, but how do I go about determening how much shares I should offer a potential investor. The business is not running yet, i'm looking for investors for start up capital. Projection of future share prices

One of the easiest methods is to create a budgeted income statement, and determine the value of the company based on the profits. Then determine how much equity you are willing to sell.

If you are not sure of the budgeted figures or how to value, the best method would be to get a professional to do it for you and compile it into a report you can show investors.

[Edrich101]

One of the easiest methods is to create a budgeted income statement, and determine the value of the company based on the profits. Then determine how much equity you are willing to sell.

If you are not sure of the budgeted figures or how to value, the best method would be to get a professional to do it for you and compile it into a report you can show investors.

Thanks, now who will these professionals be? Chartered Accountants?

[jinxster]

You dont need someone as advanced as a CA, but you will find many CAs will help you out for free simply becuase they like the industry.

You really need a business plan and someone who has done entrepeneur courses would be better than an accountant.

You must remember you need to look at things from your perspective because you know what risks and future plans there are. Investors want to know what your plan is.

If you give then a projected income statement / balance it helps them read your plans.

The accounting people can write your report professionally but you will still have to provide the info. What type of entities are the investors?

If it is finance houses / banks / etc you have to get it ship shape like eitai says, but if it is private people, you can talk to them on a presentation and convince them to invest that way.

In a new business you need to provide some guarentees. Eg I guarenteed you a registered plumber because I am one and if there are no profits I will take nothing home (not true if I did your plumbing it will leak). Thats quite simple in its form. You must at least get a position on the company by drawing up the A = O + L.

So you put assets on the top...

Assets
Non Current Assets
My building 1 000 000
My car 100 000

Current Assets
Bank 1 000

Equity
Capital 25 000 balancing figure

Liabilities
Long tem borrowings
Building 1 000 000
Car 76 000



Then explain the capital.

If it were me, I would say, what per cent would I like to own in 5 years, 2 years and 1 year and now. Then work out how much all your assets are worth. You can say the liabilities are your own personal problem and take them off the books. That way your capital is R1 101 000 in the above.

So, 10% of the company can be sold for R110 100. As shares. If you or / and the someone else work in the business remind yourself to set aside some form of salary. There are a number of reasons why but at this stage is just to seperate that working in the business is not going to alter your profit sharing ability unless you save up and buy the shares from the other guy.

How far have you planned at this stage (it isnt bad) just you need to look at a feast and a famine situation.

An option that you dont see that often is debentures. Basically the same as shares only with a guarenteed profit (you become liable if there isnt) and a set profit (if you make 300% you only give them what you agree eg 15%.

The nice thing about debentures is, the investor never owns anything in the company and you can sell them to many little people. Eg sell 1 000 debentures to 100 people (10 each). That is a lot easier to buy back than 1 oke with big share who could get political on you.

In the long run we will need to see figure before we can advise exactly how much, but very basically the more you sell now, the less of the profits you get later. If you are planing to go big possibly, dont start sharing risk more than you have to.