Page 250 - merged.pdf

CHAPTER 8 MASTERING YOUR MONEY

disadvantage is that you have to give up some control of
ownership and a share of the profits when the business
becomes profitable.

My advice is to only offer shares to your management team,
founding partners or investors who will play an active role in
adding value to your business. By having a share in the
business, they will be strongly motivated to work hard to make
sure the business succeeds. The last resort would be to get
capital from external investors.

The most common question entrepreneurs ask is how they
should value their company and what percentage of their
shares they should give up for every dollar invested. For any
startup business, the total value of the company is only made
up of the total capital invested.

For example, if you are investing $50,000 of your own money
and John (an external investor) is investing $50,000 of his
own money, then, rightfully, the company is valued at $100,000.
So, you will own 50% of the shares and John will own the
other 50%. “But I am working in the business while John is
doing nothing. Shouldn’t I get a bigger share?’ Technically,
the answer is, “No!”

In business, you should always separate ownership from
employee-ship. Ownership rights come from how much money
you put into the business. If you are working in the business,
then you immediately become an employee of the company.
The compensation for your work should come in terms of a
monthly salary, bonuses or additional incentives that should
be agreed upon at the beginning.

SECRETS OF BUILDING MULTI-MILLION DOLLAR BUSINESSES 241