Recently it has been noticed that hundreds of startups have been growing all around the world. People from different professions and different fields are interested in startups. As every businessman should know and it's basic knowledge too, in a business whether it's a Startup or an already established one the most important thing is Equity.

Equity in a general sense is the ownership of the business. Currently, many people have diverted their focus from sole proprietorships to partnerships and that's because in partnership you can get much more capital investments but the problem is about deciding the portion of the equity that each partner should get. You should also know how you should distribute the portions of equity among the investors.

Equity Allocation

In a very basic sense, equity allocation means the distribution of equity among the founders and investors in an agreed proportion. Many people who are not aware of this concept do not divide the equity of their business in the correct order which may lead to their downfall in the future. Equity is not simply divided among the founders in an equal ratio. Several different factors are crucial in deciding the equity that each partner and investor would be given.

Different partners contribute different amounts and resources and that too in different manners which plays an important role in deciding their equity in a startup. The best way of deciding the equity of each founder and investor in a startup is by doing it with the help of a startup equity calculator.

Equity calculator

Before knowing about the tips that you should be aware of while using an equity calculator, first, you need to understand the concept of equity calculator and its meaning. Calculation of equity is a very necessary process that each business needs to do at some point in time. Even if you are the owner of a sole proprietorship then also you would eventually need to calculate equity for your investors.

A startup equity calculator is a tool that would help you to divide the equity among your founders by analyzing several different factors. Earlier dividing equity in an equal ratio among the founders was seen as the only best possible option but it isn't the case anymore. Calculation of equity is a lot simple and easy now as there are several different equity calculators present on the internet that would help you to calculate equity most satisfyingly.

Tips for using an equity calculator

As every businessman may know, the [urlhttps://www.codeventures.com/blog/startup-equity-split-for-cofounders/]founder's equity calculator[/url] is not as simple as it seems but it's not much difficult either. All you need to know is how to use an equity calculator. Given below are some tips that would help you to use an equity calculator much more effectively.

_{Roles of every partner}

Most of the startups are either sole proprietorship businesses or partnership firms. In the early stages of a partnership firm, the partners of the firm are assigned different roles which they have to play if they want their business to succeed and grow. Before calculating the equity of each partner, you should be aware of the role that they play. If a partner plays a role that has huge importance then his equity should be more than that of others.

_{Importance of each partner}

Every partner that joins a partnership firm has his importance. All the partners have some sort of importance that is beneficial for the firm, some may have a good experience and knowledge about the field or market while others may be highly reputed. These factors increase the value of a partner and make them more valuable assets for the startup and due to this reason, the partners that have more importance and can add more value to the business should get more equity than others.

_{Management skills}

The best thing about a partnership business that makes it better than a sole proprietorship is the factors that different partners may have different management skills which will make them able to handle different tasks.

Management skills are very necessary for a business and the partners who have the most useful management skills and the one who handles the toughest tasks should be granted more equity than others. So as a tip, the person who is about to calculate the equity of the partners should be aware of this factor.

_{Resources contribution}

Every co-founder has to bring some resources to the startup if he wants to become a part of it. Different partners may bring different amounts and kinds of resources which would be an important factor.

A partner may bring machines or furniture as an asset instead of money. You first need to calculate its value in terms of money because a startup equity calculator will eventually ask you to fill in the details regarding the assets that each partner has brought with him. Knowing and providing the exact value will help each partner to get a fair amount of equity.

_Commitment

If you want to decide a fair amount of equity for each partner by using an equity calculator then you should be aware of the commitment that each partner gives to the business. Some may give it in the form of money, some in the form of time and some can even give their goodwill to the company. These commitments may be in different forms but knowing about each of them is most important while calculating the equity.

Conclusion

Calculation of equity may not be an easy task but it's not much difficult either. The tips that have been mentioned above may not make equity calculation easy but it will help you to use a founders equity calculator much more conveniently and in an effective manner. Wrong or unfair equity calculation can generate a feeling of discord among the partners which can eventually lead to the downfall of the business.

So make sure to follow each of the mentioned tips while using an equity calculator to prevent any kind of mistakes. All the tips above will act as a perfect guide for using an equity calculator.