The Small Business Start-Up Guide by Matthew Thompson

Author:Matthew Thompson
Language: eng
Format: epub
Publisher: Sourcebooks
Published: 2013-01-23T05:00:00+00:00

QUICK Tip

Get Creative: You may be privy to other sources of capital, such as inheritance, stock, garage sale revenue, or rainy-day money stuffed into a mason jar. We’re getting pretty far fetched here for a reason. We want you to search for capital in any and every avenue or venue possible. Do not overlook any potential legal source of capital.

Stock

When people talk about a business issuing stock, they’re usually talking about an initial public offering, or IPO. Small businesses tend to be focused on more intermediate forms of stock ownership to make sure initial investors get paid. That’s what we’re going to be talking about here.

Selling stock can bring capital to your company in the form of shareholder’s equity. Stock is an issuance of ownership in a company. It is usually affected by a sale of a certificate for money to an individual or organization. When you start a corporation, you will have a certain number of shares issued at start-up. This might be all the capital you need.

In early 2012, President Obama signed the Jumpstart Our Business Start-ups (JOBS) Act, which provided several key advantages for small companies to raise funds. It provided two key provisions for smaller companies:

1. Allowing small businesses to harness “crowdfunding.” Building on early models like Kickstarter.com, once the U.S. Securities and Exchange Commission (SEC) sets specific rules, start-ups and small businesses will be allowed to raise up to $1 million annually from many small-dollar investors through web-based platforms, thus democratizing access to capital.

2. Expanding “mini public offerings.” The bill has made it easier to file IPOs of less than $50 million in market capitalization.

There are other options for stock issuance for small companies. Direct public offerings (DPOs) allow a company to raise capital by marketing its shares directly to its own customers, employees, suppliers, distributors, and friends in the community. The paperwork needs to be overseen by an attorney with experience in these areas, but this is not a process with the typical expense and procedures of an actual IPO.

Getting Creative

Get a Part-Time or Seasonal Job

A part-time job before, during, or after your start-up can provide capital and will be proof to potential investors and lenders that you are serious about financing your business. Although you will not raise a lot of money this way, it is a viable option, especially if you are starting a SOHO or microbusiness.

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