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  • #964363
    AIDMT
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    Hi everyone

    I am in the process of starting a online travel and tour agency with my brother whi is in New Zealand. I will be taking care of all customers from Australia and my brother will service all customers from NZ. We have decided to pay ourselves commissions and salary. Working out commission would be easy since we will have a commission rate for that, but how will we work out the salary. What factors should we consider. Do we work it out according to our capital contribution, which would be 50/50 anyway. Also the profit earned from the business will go to our trust account which will be distributed eventually. Now do we define that who gets what type of share from that profit. What happens if someone sells more tours and the other. I mean wouldnt it be unfair on one who sells more tours but still the profit gets divided equally.

    I will talk with my accountant about this but I thought first get some insights from you people.
    Any help will be much appreciated.

    #1005097
    Burgo
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    What happens if someone sells more tours and the other. I mean wouldnt it be unfair on one who sells more tours but still the profit gets divided equally.

    We have decided to pay ourselves commissions and salary.

    You have answered your question, what if one sells more, they will earn more commission.

    #1005098
    BrightSpark
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    You will need to think very hard on this matter, not only taking into account that amount of work done, the sales of each etc but also the different dollar values, cost of living etc. so if you only worked on commissions would be a fairer means. Then again there is also the need to have a base wage so that one can live while you are building up the business. You need to talk to a lawyer as well and get into place agreements to cover all these things and others like what if one wants to sell out of their half etc.

    #1005099
    Dardee
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    It might be an idea to set up a discretionary trust for the business (if travel agents are allowed to trade via a trust) so that you can distribute the income as you see fit. There is a bit to it but your accountant will be able to advise on this.

    Alternatively set up a commission structure that takes into account the sales $, gross profit, or number of tours each partner signs up. In my experience calculating commission on gross profit is a good way of allocating remuneration. You are not rewarding a person for potentially making a loss even though the sales dollars involved may be quite high.

    #1005100
    Ric Willmot
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    Why divide the 100% in the first instance?
    The business is just starting, so much is going to change very quickly you will be amazed.
    If you apportion equity, you will certainly do it wrong.

    That’s because it’s based on this instant, this point in time.

    Sure, today, your brother’s share is worth 50% and yours is worth 50%.

    But a year from now, that number can’t possibly be right. You may have acquired six more strategic alliances, raised additional private capital, closed sales and sold the company for a handsome profit. Alternatively, you may have done zip, zero, nada.

    Here’s a different angle:

    1. Today, you might value your contribution as worth 5% of the company and equally, your brother’s contribution to the company is worth 5%. The other 90% is based on what each of you achieve, contribute and develop over the next 18 months.

    2. You establish a list of what has to get done, and what you agree it’s worth.

    3. And, then make a list. Action items that will result in tangible and intangible benefits and growth to the organisation.

    4. Also in the list you would include action items such as: closing sales, managing staff, developing procedures and operations, and raising further capital …

    Naturally, you build in an “out-option” for unforeseen circumstances, events and dilution based on bringing in new partners.

    You may decide to implement smaller agreements on how to interpret the list. The value in this advance flexibility far outweighs the awkward conversation it takes to get it started.

    Consider including a clause into your business agreement with your brother, appointing a trusted third party as an arbitrator, so that minor disagreements can be handled quickly and avoid the potential for them to snowball into litigation.

    Good luck!
    Rgds,
    Ric

    #1005101
    geoffreybowman
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    • Total posts: 13
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    Great reply Ric, I agree wholeheartedly.

    Things change quickly – and startups should always be evaluating their strategy on an almost daily basis.

    Burgo also makes a great point – he/she who earns more sales, earns more commission.

    Geoffrey.

    Ric Willmot, post: 4584 wrote:
    Why divide the 100% in the first instance?
    The business is just starting, so much is going to change very quickly you will be amazed.
    If you apportion equity, you will certainly do it wrong.

    That’s because it’s based on this instant, this point in time.

    Sure, today, your brother’s share is worth 50% and yours is worth 50%.

    But a year from now, that number can’t possibly be right. You may have acquired six more strategic alliances, raised additional private capital, closed sales and sold the company for a handsome profit. Alternatively, you may have done zip, zero, nada.

    Here’s a different angle:

    1. Today, you might value your contribution as worth 5% of the company and equally, your brother’s contribution to the company is worth 5%. The other 90% is based on what each of you achieve, contribute and develop over the next 18 months.

    2. You establish a list of what has to get done, and what you agree it’s worth.

    3. And, then make a list. Action items that will result in tangible and intangible benefits and growth to the organisation.

    4. Also in the list you would include action items such as: closing sales, managing staff, developing procedures and operations, and raising further capital …

    Naturally, you build in an “out-option” for unforeseen circumstances, events and dilution based on bringing in new partners.

    You may decide to implement smaller agreements on how to interpret the list. The value in this advance flexibility far outweighs the awkward conversation it takes to get it started.

    Consider including a clause into your business agreement with your brother, appointing a trusted third party as an arbitrator, so that minor disagreements can be handled quickly and avoid the potential for them to snowball into litigation.

    Good luck!
    Rgds,
    Ric

    #1005102
    beanydc
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    • Total posts: 44
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    Dardee, post: 4565 wrote:
    It might be an idea to set up a discretionary trust for the business (if travel agents are allowed to trade via a trust) so that you can distribute the income as you see fit. There is a bit to it but your accountant will be able to advise on this.

    .

    Make sure that your accountant is a Trans-Tasman specialist. NZ tax law isn’t friendly when it comes to non-residents and trusts, and companies also come with their own traps when crossing borders.

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