business-plan, seed, business-proposalI’m almost finished developing my cloud-based project management platform project and there are people offering to help with my seed investment. Is there a way that I can include with the business plan a way to recover my initial expenses out of the seed fund they will be providing? If yes, how do I include that in my business plan? Is there are right term for it? Would also appreciate if you could provide additional info regarding this matter.
Thank you.
It’s a tricky one as many investors will expect a founder to have taken a bit of a hit in the initial funding of the business.
One way to do it which is dishonest would be write off the debt but pay yourself a wage. Set the wage at a level slightly higher than your initial wage estimation so you can believe you are being paid back that amount over a period of time. Many investors will be quite happy for a founder to be paid a moderate wage whilst working on the project pre-revenue and you could look good by writing off the debt.
Another way of doing it is absolutely up front. Have the debt on the books as a directors loan into the business and show in your cashflow and projections that the money coming in will wipe that out. So your cash flow forecast graph will start off in the negative then jump up when the investment comes in and slowly tail off with expense.
Or, similarly you could put it into your cashflow but show it being paid off in instalments over time.
In the past I have simply taken the financial hit and made sure to keep my costs down and not even registered it as a company debt to me.
I’m aware everyone’s situation is different and so that may not be possible. But also every investor is different especially at seed level, so it may come down to individual negotiation and up front chatting about it if you want to be paid it back. Let them know that the seed investment will pay off the debt, if they question it then negotiate either an instalment package or that money being taken into account in some way (buying more shares at the same price?)
I am neither an accountant nor lawyer.
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