As a startup business, you are probably going to become very familiar with capitalization tables, or cap tables for short. After all, these tables will provide you with a running update on share ownership in your company. This is not just important for you when it comes to making sound financial decisions, but also for any investors that are planning to invest in you. Basically, they need to be done right.
On this page, we want to discuss one of the best ways to use cap tables which ensures accurate information, but also requires the minimum amount of effort.
Generate Tables Using Software
In theory, you could put together some cap tables in something like Excel and it would be perfectly functional. The problem? It doesn’t look that good for investors, and you will often miss out on some important information.
Since one of the main reasons why you are using cap tables is to attract investors to your company, then it is important that you get things right.
One of the best ways to use cap tables is to have them generated using a proven template. This way, all of the correct information will be included. The calculations will be carried out for you too. Basically, you end up with fantastic startup-worthy cap tables with the minimum of effort.
Automated Calculations Can Make Business Decisions Easier
While you will often be using a cap table to attract investors, you should also be using it to keep tabs on the ownership of your business. This will help you to make better business decisions.
For example, the best cap tables will allow the user to work out how many shares they can afford to give away in exchange for funding. It will also allow them to give away shares to new employees if there is some sort of employee share ownership scheme in place.
If you do not use cap tables, then it can be easy to get confused about who owns what part of the business. This can slow down the decision making process and, in some cases, it can result in poorer decisions. In rare cases, you may even end up dealing with legal consequences because somebody feels that they are not being given the ownership that they deserve.
Cap Tables Should Be Updated Regularly
As a business evolves, the cap table will evolve at the same time. This means how the cap table is used will be different.
Sophisticated software will enable the user to completely change up the tables based on changing investments. For example, the table pre-money will be different to the post-money table.
Ideally, your tables will reflect how ownership has changed overtime. Once again, this is going to result in better business decisions and ensure that nobody feel as though their shares are being diluted too much. Well, at least not without a bit of discussion before shares are diluted.
Regularly Run Calculations
Your cap tables are there to be used, so use them. You can regularly run ‘what if’ scenarios on cap tables that carry out automatic calculations for you. Once again, this will lead to better business decisions.
This is another reason why you should be using software for your cap tables. It makes running various scenarios on the table a little bit easier.
Conclusion
Cap tables are incredibly useful tools for all startup businesses that are looking to attract funding. However, don’t just leave them as a single document. They are great analytical tools too and, when used correctly, will ensure that a company runs more efficiently.