If you’ve got what you think is a great startup idea, you’ll have to figure out to get funds to launch it. Maybe you can find the money by contacting a venture capital firm, or perhaps you can get a wealthy relative to invest in your idea. Maybe you’ll get a bank or credit union to give you a business loan.
However you get the money, it’s unlikely you’ll be the sole individual to enjoy the financial dividends if your company takes off. There will probably be multiple people or entities who have a financial stake in the business. That’s often what it takes to launch a company: you need to bring on partners.
When you do, you need to make sure to keep track of who owns what. In other words, you should have a detailed breakdown available of who owns a company percentage.
A cap table is one way you can do that, and cap table software exists now you may want to use if you’re an entrepreneur and your startup is catching on. We’ll talk a little about cap tables and cap table software right now.
What Exactly is a Cap Table?
Before we discuss what cap table software can do for you, we should first make sure you understand what this term means. A cap table is short for a capitalization table. It shows a breakdown of each individual or entity that has a financial stake in your company.
As we mentioned, it’s relatively rare for a company to have a sole owner, even if the business model was ostensibly one person’s idea. Usually, even if you come up with a concept, you’ll have to divide up controlling interest within the company. If you’re the CEO or CFO, you might maintain majority creative and monetary control, but you’ll likely chop up the business financially at least a bit.
The reason why it’s critical to keep a detailed cap table is because, at some point, you may want to bring on additional investors. You want to show them what percentage of the company is available to them and what is off-limits.
Other Reasons You May Want to Set Up a Cap Table
One other major reason why businesses set up cap tables is that it makes it much easier for the IRS to understand the company’s structure at tax time every year. If a company has expanded significantly in a given year, and the ownership group has diversified, you should be able to show the IRS all of that. If you don’t bother to set up a cap table, that’s a sure way to get the IRS to audit your company.
Also, a time might come when you want to look closely at your firm’s capital structure because you want to purchase more controlling interest than what you currently have. Company ownership can change as the months and years pass, and the larger the business, the more complex the ownership can be. A cap table is how you can keep track of it.
What is Cap Table Software?
As for cap table software, several companies make it now, and it might behoove you to get it. If you shop around for cap table software, you’ll probably want to get some that features blockchain technology.
A blockchain-enabled cap table software suite will give you the most security features, and you’ll undoubtedly want to enable those. You never know when a hacker might try to find weaknesses in your software, but blockchain makes your cap table almost impenetrable.
Also, you’ll want to look at whether out-of-the-box cap table software will work for your company or whether you’ll want to hire someone to create a bespoke version for you. There are cons and pros with each option.
If you buy a ready-made cap table software suite, it won’t cost you as much. It should come with plenty of features and probably everything you need to keep track of your company’s financial assets and how you’ve distributed them.
The time when you might get someone to make you a bespoke system is if you feel like your company is too complex for a ready-made software suite. A customized system will cost more, though, so make sure you have the money in your budget.
Either way, it’s highly likely you’ll want to set up a cap table for your company, and equally probable you’ll want a software suite to keep an eye on it.