Formation

Personal v. Business Expenses?

Authors: StartupPercolator

Many startup owners, in the early days as the sole owner, may feel tempted to run “sort of” personal expenses through their corporation on the theory that they have no other owners to harm.

Of course that poses legal issues – those expenditures are generally not valid tax deductions, and most likely constitute dividends to themselves as owners.  But it also presents an appearance issue for potential investors.  Those persons want to evaluate the profitability of the business.  If your company’s bottom line reflects non-business expenditures, investors must “erase” personal expenses from your company’s financial information to get an accurate picture of the underlying business.  They want to invest in a business that gets operated as a business, and personal expenditures call that focus into question.  They also want a forthright business partner, because as much as investors invest in the company, they invest in the founder.

In my experience, founders who avoid running personal experiences through their startup benefit in the long run by appearing as straightforward, ethical partners focused on the business itself.

And if your business doesn’t need outside money, you can substitute “acquiror” or “strategic partner” or even “employee” for investor – because those persons ask themselves the same questions when they invest their money, operations, or time in your company.

Fundraising Without General Solicitation

When you’re building the next big thing in the startup world, it’s easy to overlook some crucial regulatory requirements in your quest for success—especially when it comes to fundraising. Securities laws (which apply to any fundraising) tend to be an afterthought for many founders, but this oversight […]