Why Do Companies Need a Cap Table?

Businesses are mushrooming daily, and some do not possess the professional intelligence required to maintain them. Cap tables are essential to any company, whether big or small. Companies go through various transitions that are key to their development. Maintaining well-organized documents such as a cap table is necessary for the overall function and easy understanding of the company structure, and there are several reasons cap tables are preferred.

What is a Cap Table?

A capitalization table, or “cap table,” is a spreadsheet containing a company’s equity position and how the dividends are distributed among the shareholders. It also displays the projections of the company when it has been in operation for some time. Other features include convertible equity, common and preferred equity, and warrants.

The Importance of Cap Tables for Businesses

Business owners need to understand the role played by their company’s cap table to comprehend its importance. Private companies that do not have a cap table are at risk of diligence issues arising. Maintaining a professional cap table ensures various stakeholders understand the business’ performance.

Understanding Ownership

Knowing who is in control of the business is fundamental. Major company decisions like dividend payments are made by whoever has the highest share. Investors can determine this using information on the cap table. Their voting interests assist in understanding the overall trajectory and future of the business.

Track the Value of Your Business

The business trends and decisions made over time are tracked in the cap table and determine the kind of business formed. Top talent is maintained and job security is guaranteed. Employees can evaluate their chances of owning equity in the company in which they work. As employees become satisfied, customers feel appreciated. Repeat customers become your brand ambassadors, and investors get value for their money.

Fundraising

The share capital information in a cap table gives potential investors a basis on how the business has been performing and its current value. It also shows them who is in control and will determine what percentage of share capital they will get. A cap table can make or break the future fundraising needs of a business.

Easier Auditing

Whether financial or legal audits, cap tables can be a great source of information if well-maintained. The business structure and history are present within the cap table, and projections are arrived at by studying the cap table.

Creating a Cap Table

Cap tables are created and kept using different methods. The choice depends on its size, availability of resources, and how long the company has been in existence. Here are a couple of ways to create one:

Spreadsheet

A spreadsheet is the cheapest, easiest, and most traditional way of maintaining a cap table. It is a typical Excel sheet fed with the necessary investor information. New businesses with low volumes of data can easily create and maintain an Excel cap table. However, it requires high levels of efficiency. As the business grows, it becomes tedious to feed the information manually. It’s also subject to becoming inaccurate; if someone inputs the wrong information or simply forgets to input data, the cap table can no longer be relied on for accuracy.

Cap Table Management Software

Business expansion translates to Cap Table Management Software becoming the best option. Such software is sold and managed by professional companies, eliminating the stress of inaccuracies by the ability of the software to update itself as you hire new employees and bring in new investors. Legal issues are also solved, and your main focus becomes making profits.

Make Cap Table Management Easy with Astrella

As stated earlier, spreadsheets can be tedious and inaccurate; Professionally developed software is the best bet in terms of efficiency. Having correct calculations should be a top priority for any business. To achieve this, working with Astrella as your cap table management software company will take your business to the next level. Get started today by requesting a demo