Starting a new business

Discussion in 'Starting a Business' started by Abey, Jan 13, 2010.

  1. Abey

    Abey
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    For the past year I have been trying to open a new bar, which is a new concept and it's a potentially successful project, since there's high demand for the concept and little competition. But because because lack of money, I couldn't go very far.

    Finally I found someone who is willing to bankroll the project, and he's very excited about working together as he believes the idea has a full potential to become big. The project will cost $30,000.

    My question is about % of net profits to split. We haven't sit yet and talk about it , I do have some numbers in mind, but honestly, I'm a very creative person, and very good with ideas, marketing ,managing and people, but 0% skills when it comes to money.

    We had a conversation about possible monthly expenses, and he will be adding $1200 to the total monthly bar expenses for 24 months to recover his investment.

    What would be a fair % to ask, and how much is my idea worth if it becomes very successful?

    My original thinking is to ask for about 30% to 35% without asking for base monthly salary, since I'll be managing and working at the bar as well. And after one year renegociate it. Does it sound reasonable or fair?

    If not , what is the best way to deal with the biz shares?

    I really thank you guys for taking the time to read my post and helping me out with ideas, you have been so helpful in the past and I'm forever grateful for the wise advice.

    A.
     
  2. anissa34

    anissa34
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    Hi

    Protect your personal assets.
    When you go into business for yourself, you are usually personally liable for all judgments and debts that the business incurs. This includes business loans, taxes, money owed to suppliers and landlords, and any judgments against the business as a result of a lawsuit. If you don't protect yourself, a creditor can go after your personal assets, such as your car and your house, to pay for these debts.

    Understand how -- and if -- you will make a profit.
    You should be able to state in just a few sentences how your business plans to make a substantial profit. For starters, you need to know your costs: how much you'll spend purchasing inventory, paying the rent, compensating any employees, and covering what is likely to be a surprisingly long list of other costs. Then you can figure out exactly how much you need to sell each month, for how many dollars, to cover those expenses and have an adequate profit besides. These numbers are all you need to create a "break-even analysis."

    Thanks
    have a nice time head.
     
  3. Fergal

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    Abey will the investor be active in the business or will she be a silent partner?

    Have you decided to create any kind of written partnership agreement between you?
     
  4. Abey

    Abey
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    My partner will be an active partner, I will basically teach him about the business and he will be working side-by-side with me.

    We have figured out the total investment will be $30,000, and I'm thinking of putting a value for my sweat equity of $10,000. So the total market value will be $40,000. With this numbers rather than 30%, I believe 25% plus a small base salary will sound fair.

    What do you guys think?
     
  5. seanstevens

    seanstevens
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    Hi Abey, one thing to get straight now is "fair" does not come into business. It is a harsh fact but at the end of the day money will talk.

    I assume the business will be a LLC or the like? Think about the worse case scenario now so that you do not get personally damaged at a later date.

    As Fergal mentions, whatever is decided, get it all written down and have someone with a legal background check it out and then both sign it and keep it safe. Business partnerships can go wrong and you need to be ready for it just in case.

    Now, the happy stuff:
    If you say the total investment will be $40K, then you would assume that your share should be 25% based on your $10K input. However, given that your partner will be taking $1.2K back each month (if I got this right) then your % should be a little higher, especially as you will be teaching them the ropes. You need to get duties outlined from the start. Who will do what if there is a problem? i.e. a supplier does not deliver on time, who calls them to sort it? who sorts out all of the issues with licenses etc.? Draw up a huge list of everything that may need to be done and then who will be dealing with it. This will give you a better idea on the split of work and money.

    I don't know the full picture but would expect your share to be higher than 25% and more like 33%+.
     
  6. Fergal

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    Abey, you've received some great advice from Sean and I would agree with everything he has suggested. If I was you I would start with asking for 50%, as a negotiating position. If your future partner does not agree with this percentage you have some room to negotiate downwards from there.

    You should also ask yourself what this partner will offer to the business, in addition to their initial investment. Do they have business experience that will be relevant to the venture? If they don't have strong experience and knowledge to help the business, you might want to also consider the option of getting a business loan or other form of finance, instead of taking a partner on board.

    When preparing a partnership agreement you should include details as to what will happen if the business is not successful and loses money. Obviously everyone will hope that the business will be successful and profitable, but it is important to be prepared for the worst.

    Please post back with your thoughts.
     
  7. Abey

    Abey
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    Guys, these is all gold to me. I haven't post back because we are still doing the interior design and bar will be finish in about two weeks ( we hope) so once the bar is completly finished, and we have the exact numbers as far as how much we spend on it then I will sit with my partner and will discuss about %. I will definately get back to you guys with the outcome.
     
  8. stepheny

    stepheny
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    That's a Great Article Friend Which You have shared here With us
    I Found it really very useful for Myself,Keep Sharing such Useful Information with us

    Thanks & Regards,
    stepheny
     
  9. eddane

    eddane
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    Give him as little as possible!

    Try to give no equity.

    Ed
     
  10. Fergal

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    Thanks for the update Abey, glad to hear that it is working out for you and I wish you the very best of luck with it when it opens, may it be full of good drinkers.
     
  11. Abey

    Abey
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    One thing I forgot to mention is that part of his investment ( $10,000) is part of rent deposit that he will get back after we close rent contract. Would I then remove it from the total market value for % share porposes?
     
  12. Fergal

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    I would suggest that you should Abey. That deposit could be treated as a loan to the business. The investor would be entitled to some return by way of an interest rate on the investment, but as he /she is getting the money back it should not automatically qualify them to get a share of the business.
     
  13. JanetChua

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    Hi Abey. It's not too late to give an advice, though I still suggest for the both of you to still have a feasibility study, even if you have much experience in handling everything. I had read earlier that you are having poor skills in handling money, that would be my reason in giving this suggestion. Same thing I will be suggesting to your business partner. I am hoping that this would give you reasons to think over and over again the plans that you are having with your partner.
     
  14. gumrosin

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