Slicing Pie

            Supplies & Equipment

            Many companies require supplies and equipment to get into business. A T-shirt company needs printing presses and dryers. A hamburger stand needs a grill and spatulas. A tech company needs computers. A zoo needs cages and at least a couple of nice llamas.

            If these things are purchased for the company and the person who purchased them was not reimbursed from the company account, the fair market value would be the price they paid. 

            Slices = Price Paid x Cash Multiplier 

            However, in many cases, people may have equipment that they acquired some other way. Someone may keep llamas as pets, for example, and provide some for the start-up zoo. Or perhaps someone has an old truck that the startup can use for deliveries. Transferring ownership of a pre-owned asset into a company isn’t the same as spending cash. It’s a non-cash contribution. Therefore, it represents a different level of risk and slices are at the non-cash rate. If the supplies or equipment is less than a year old, the model uses the purchase price. 

            Slices = Price Paid x Non-Cash Multiplier 

            If the supplies or equipment is more than a year old, the model uses the resale price. You can find the current resale price fairly easily by looking on eBay.com, Craigslist, or industry classified listing for similar supplies or equipment. 

            Slices = Resale Price x Non-Cash Multiplier 

            It’s important to note that when slices are received, the supplies and equipment becomes the property of the company. This means that if the person who contributed the equipment leaves the company, they can’t take the stuff with them. The company owns it.

            In many cases, personal laptops or cellphones used in building the company would not be treated as contributed equipment and people who own them would not receive slices. The company, therefore, would not own these items and departing employees could take them when they leave.

            Similarly, small amounts of supplies brought from home may not warrant slices. Use your best judgment, a person probably doesn’t deserve slices for bringing a tape dispenser and some old pens to the office.

            Cash contributions or tangible contributions will have special treatment in the event of separation, which I will cover in detail in the chapter about recovery.

            Updated: 04 Apr 2016 06:22 PM
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