Starting A Business
By Members Desk
April 4, 2022
0:00 / 3:07

Hi, I'm bill Ackman. I'm the CEO of Pershing square capital management. And I'm here today to talk to you about everything you need to know about finance and investing, and I'm going to get it done in an hour and you'll be ready. So let's begin in order for you to get a better sense of finance and some of the basic terms associated with a business and investing in a business.

I'm going to use the example of lemonade stand. We're going to go into business together. We're going to open up lemonade. So the reason why I'm using an example of a lemonade stand is a very simple way to understand the basics of a business. How to understand how our business works, how business generates.

What's involved in raising capital to start a company. What you do when you're ready to decide to monetize your investment or take some money off the table, you'll be able to understand each of these concepts through the very simple lens of a small startup business, like a lemonade stand.

We're going to go into business together. We're gonna start a company and we're gonna start a lemonade stand. And now I don't have any money today. So I'm going to have to raise money from investors to launch the business. So how am I going to do that? Well, I'm going to form a corporation. It's a little filing that you make with the state, and you've come up with a name for your business.

We'll call it Bill's lemonade stand. And we're going to raise money from outside investors. We need a little money to get started. So we're going to start our business with a thousand shares of stock. We just made up that number and we're gonna sell 500 shares, more for a dollar each to. The investor's going to put up $500.

We're going to put up the name and the idea we're going to have a thousand shares. He's going to have 500 shares. He's going to own a third of the business for his $500. So what's our business worth at the start. What's worth $1,500 if $500 in the bank, plus a thousand dollars because I came up with the idea for the company.

Now I need a little more than $500. So what am I going to do? I'm going to borrow some money. I'm going to borrow from a friend and he's going to lend me 250. And we're going to pay him 10% interest a year for that loan. Now, why do we borrow money instead of just selling more stock? Well, by borrowing. We keep more of the stock for ourselves.

So if the business is successful, we're going to end up with a bigger percentage of the profits. Now we're going to take a look at what the business looks like on a piece of paper. We're going to look at something called a balance sheet, and the balance sheet tells you where the company stands. When your assets are, what your liabilities are and what your net worth or shareholders equity.

Did you take your assets? In this case, we've raised $500 in exchange for the $500. The person who put up the money only got a third of the business. You got, the two thirds is owned by us for starting the company. Well, that's a thousand dollars of Goodwill for the business. We're borrowed $250.

We're going to owe $250. It's a liability. So we've got $500 in cash from selling stock to $150 from raising debt. And we owe $250 loan and we have a corporation that has. And you'll see on the chart, shareholders' equity of $1,500. So that's our starting point. Now let's keep moving.