stand the profit-making process. It is akin to trying to build a television
system without knowing anything about electronics.
What we have established so far is that, in order to run a profitable
company, shareholders’ funds need to be raised at the outset.
Why do companies need shareholders?
Most people will tell you shareholders are essential because,
without their funding, a company could not trade. This is not true. You
can run a business without having to raise any funds from investors at
all.
Suppose you have discovered a great new product: edible crockery.
When people have finished their meal there’s no need to wash up
– they eat the plate with their coffee! Having canvassed friends and
colleagues there seems to be a healthy market for this product, so you
set up the Edible Plate Company. Being the shrewd businessperson
you are, you insist on payment with each order and manage to secure
orders totalling $60,000. You then contact a supplier and arrange for
plates to be shipped directly to your customers. The supplier charges
you $50,000 for this service, leaving you with a profit of $10,000.
These transactions are summarized overleaf.
Insisting that customers pay cash with their orders means you do
not need to raise any funds from investors. Your customers are financing
the entire operation. This proves it is possible to start up a business
without the need for investors. Regrettably, this is an extremely rare
occurrence
system without knowing anything about electronics.
What we have established so far is that, in order to run a profitable
company, shareholders’ funds need to be raised at the outset.
Why do companies need shareholders?
Most people will tell you shareholders are essential because,
without their funding, a company could not trade. This is not true. You
can run a business without having to raise any funds from investors at
all.
Suppose you have discovered a great new product: edible crockery.
When people have finished their meal there’s no need to wash up
– they eat the plate with their coffee! Having canvassed friends and
colleagues there seems to be a healthy market for this product, so you
set up the Edible Plate Company. Being the shrewd businessperson
you are, you insist on payment with each order and manage to secure
orders totalling $60,000. You then contact a supplier and arrange for
plates to be shipped directly to your customers. The supplier charges
you $50,000 for this service, leaving you with a profit of $10,000.
These transactions are summarized overleaf.
Insisting that customers pay cash with their orders means you do
not need to raise any funds from investors. Your customers are financing
the entire operation. This proves it is possible to start up a business
without the need for investors. Regrettably, this is an extremely rare
occurrence
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