How to Use an Excel Cap Table

Two12  helps you and other investors better understand your business s capital structure, and it also makes it incredibly easy to accurately observe who owns what. Managing this cap table properly is an imperative activity from the very early stages of your business, yet many new entrepreneurs often neglect it. For example, when should you sell a portion of your business to an angel investor? When should you hold on to the majority of your business assets? Or when should you liquidate all of your business assets? These are questions that you must answer early on if you want to retain a significant portion of your equity as a start-up.

There are many reasons why managing cap tables is so important for early-stage startups. First, it allows you to accurately determine how much of your business is worth and the value of each of your individual assets. This value should be updated monthly and annually for tax purposes. It should also be used to determine whether funding is needed in order to grow or expand your company. Capitalizing now can help ensure that you never have to make this painful calculation later.

Second, cap table management keeps your entire ownership structure in proper perspective. By ensuring that only 70% of the equity is owned by you (or fewer shares), you will have a significantly more accurate picture of the liquidity of your business. This will help you determine when you need to raise additional financing in order to support growth, and will help you avoid excessive share sales at too early a stage in your company's development. In other words, it will help you avoid situations where you voluntarily decide to sell portions of your ownership to raise cash.

Third, cap table management ensures that you take the right steps to protect your equity in your company. Many times, entrepreneurs make the mistake of treating their shares as if they were "free money." They fail to realize that they must apply these same considerations to current cash needs, such as buying additional equipment, building new facilities, or expanding into other markets. As with any financial decision, there are always risks involved. However, by properly putting this type of analysis into place, you can avoid many costly human error and legal problems that could occur if you are not careful.

Fourth, cap table management keeps your overall capitalization in check. In the days of the past, many investors simply sold all of their stocks without really ever looking at the underlying businesses. They tended to view these businesses as "paper profits" that would eventually depreciate in value as their investors saw no tangible benefit from them. The result was an abundance of shares for too many people and inflated prices for those that didn't work hard enough to increase their stake. However, a smart investor knows that a company's intrinsic value is much more important than the value of its shares. A savvy investor also will take advantage of any downward trends in the price of the company's securities, as they often provide a solid opportunity to increase their stake.

Cap table management also helps companies that need to raise capital. There are two primary ways that companies can borrow additional funds: through issuing securities or by participating in capital appreciation transactions with other companies. In order to participate in these exchanges, however, they must be able to determine their maximum acceptable cap table; otherwise, they will never raise the money that is needed to fulfill their obligations. In addition to helping investors meet their obligations, cap table management also helps provide a measure of safety for the company itself.

Last but not least, cap table management provides a way for the CEO to effectively manage the overall portfolio. If a company's portfolio is managed incorrectly, it can lead to real time losses. This is because some of the most volatile markets can be highly sensitive to small changes in the prices of the securities within a portfolio. If the cap table management process is improperly implemented, however, CEO's may find themselves spending enormous amounts of time responding to potential problems, rather than focusing on the more critical aspects of their investment strategy. In addition to this issue, human error has long been a problem with the execution of these types of strategies, as it is difficult to ensure that every step of the process is followed to the letter.

Excel's Cap Table Management function is perfect for both small and large companies that need to accurately assess their invested capital. The main reason that the service is so valuable for such large companies is because it takes into account both the long term value of the stocks that a company holds, as well as the short term volatility of the market. Because of its ease of use, it is no wonder that Excel has become so popular as a leading Cap Table template tool. If you are interested in learning how to use the program to calculate the best possible return on your investment, you can easily learn how to do so by downloading an Excel trial version of the template that you need. From there, you can begin playing around with the different settings and charts to understand just how Cap Tables work in the real world. No matter what type of business you own or operate, there is no reason that you shouldn't be able to accurately determine the profitability of your investments.