Work For Equity?

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I just had a Linkedin member ask me to consult on a project in exchange for equity. And, perhaps down the road, three to six months, they would have the money to pay me. Ah, gee! Well, no!

I am sure he wouldn't answer my email, which explained I can't buy groceries with promises of equity. Oh yes, he also told me I could have the exclusive on the story of his company.

You would think alleged business owners would have learned by now. There was a recent article in Vanity Fair, which gave a widespread history of the Net. One quoted individual relayed a conversation about a company who not only wasn't profitable, but was on their third round of financing.

It seems that this craziness continues. I figured that the dot.com explosion had taught everyone that businesses need to be capitalized with money to run their daily activities.

Back in the early heydays of Net, people were willing to take a chance your company was going to be the next one with a great IPO. After all, there had been a string of others who had done it. However, great IPOS don't mean that the company is profitable or hopes to be anywhere in the future. There was a comment on that in the same article in Vanity Fair.

When companies aren't funded/budgeted properly they ask the rest of their world to go along with the gamble. That's what I equate to asking vendors, me for instance, to take their pay in equity or to wait three to six months to get paid.

I have another great example of these nutty practices. I have a friend who is a partner in a business incubator. She got an inheritance, which she used to buy a partnership, and was worried the last time I talked to her because she never had any money. She lamented, "We should be rich by now with all the companies we got off the ground, but we keep putting all the money that comes in back into the company." I explained to her that was a recipe for disaster, but her answer was, "Oh, well."
Running a business successfully means having enough in the budget to pay for its expenses along with your own personal bills. The first time you take personal money for business, consider it the first step towards bankruptcy court.

If you are running a business or thinking about running one, please read this advice carefully. Also go back over some of the lessons that we witnessed, and were very well documented, during the dot.com explosion. We should be past the stage of thinking someone else is going to plunk down hard cash if you don't use your first round of financing wisely.

Do not be the next one who asks vendors for their wares and services for future payment. Don't be the employer who let's his employees know there is no more money in the bank when they were suppose to have gotten a paycheck that day.

Frivolous business planning doesn't just hurt you, it hurts everyone you have interacted with during the time your doors were opened. Please think hard about these principles and make sure you don't find yourself trying to explain why you make similar errors.

 

Laura Bell is Freelance Writer and owner of www.bellbusinessreport.com. The Bell Business Report offers common sense business advice and how-to info for running your business. It takes the everyday headlines apart, dealing with business news, and shows you how to put that information to work for you.

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