If you’ve ever started a business or invested in a business then you probably know the importance of a cap table. As a quick refresher, a company’s cap table is a spreadsheet that shows how the ownership of the company is divided among the founders and investors. Basically, it says who owns what percent of the company.
As a founder, the cap table plays a crucial role in growing your personal wealth. It holds the key to how much you get when it’s time to cash out on the business. Even if you start and grow a business worth millions of dollars, you could receive very little in the end if you don’t manage your cap table well.
Taking care of your cap table and making smart ownership decisions should be just as important to you as building a great company. Here are 3 tips to help you accomplish cap table success.
Too often we hear about entrepreneurs that are so excited about starting their business that they forget the importance of organizing their cap table. Soon enough they have to face the reality. As the company grows, everyone involved begins to shuffle for a piece of the pie.
If ownership hasn’t been worked out beforehand, this can lead to drama and legal issues. As soon as you begin your company, it’s important to start thinking about how to divide ownership fairly. Organize a cap table and record these decisions early on to avoid future headaches and to position your company for long term success.
Accurate record keeping is essential for your cap table. The last thing you want on your cap table is an error.
Any error on your cap table will end up costing you, one way or another. From legal fees to incorrect allocation of money, these errors are better just to avoid all together.
You need to track every single transaction on your cap table. And as stated above, make an effort to do this from the very beginning. This might seem obvious, but you’d be surprised at how many cap tables have errors. Sometimes it’s a math error, other times there is information that is inaccurate or simply missing.
In the past, there were pretty much only two options for managing your cap table. You could either hire expensive lawyers and accountants to do it for you, or you could try to do it yourself.
It may seem easy enough to handle your cap table by yourself. There are definitely some great spreadsheet templates out there to get you started. But even these are very limited.
As your company and cap table mature, it will become too complicated for a spreadsheet. You will need to keep track of option exercises, cancellations, terminations, sales, transfers, and more. Frankly, it becomes messy and time consuming, and there is greater room for costly mistakes.
Luckily, we live in a world of user-friendly business automation software, and that includes cap table management. Now there is handy software with expert support, such as Capshare, to help you keep management of your cap table under your fingertips without being left in the dark.
Your cap table needs to looked after with the same care that you give your growing company. Maintaining a cap table may seem like a daunting challenge, but it doesn’t have to be, due to helpful software. Don’t delay getting started or recording important transactions. Keeping up with your cap table now will lead to less problems down the road and a larger payoff in the end.