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  • #992737
    Alex123
    Member
    • Total posts: 8

    Hi,

    I’m looking for some help on a number of things. My current boss and I are going into business together. I currently cannot take out a loan, because I neither have equity or capital. My partner has agreed to to finance my initial investment, which I will then have to pay back before I take any profit from the business. Our roles within the business will essentially be the same, and had I been able to finance myself, it would be a 50-50 partnership. Considering that he is financing me initially, should he be getting a bigger slice of the pie? If so how much? I should be able to repay my loan within 1 year…

    Are there any other finance options available form someone in my situation. The business is a franchise, and has a record of success…

    Thanks for your time, any help will be greatly appreciated.

    Alex

    #1187837
    Jason Ramage
    Participant
    • Total posts: 3,161

    Alex
    if it is a ‘loan’ from him to you and you are still operating the same as if you were financing it and the expectation is you pay it out BEFORE profit withdrawal i can not see why the 50/50 should not still move forward.

    In saying that, i will add a few additional comments.

    1. Ensure the loan is documented, separately to the business and has a pay down rate with interest documented and schedule of payments etc etc and what occurs if not paid back
    2. reconsider the 50/50 split – if there are only 2 of you and the split is equal, what happens if you can not make a decision on a divisive course of action for your business? stale mate, ensure you have a documented action plan for dispute resolution if you move forward with 50/50

    Good luck

    Jason Ramage | Lucas Arthur Pty Ltd | E: hello@lucasarthur.net.au   P: 61 3 8324 0344    M: 61 412 244 888
    #1187838
    Alex123
    Member
    • Total posts: 8

    Thanks for the reply and the advice…

    1. Definitely will be doing all of that.

    2. That’s something I’ve come across a few times now, and will be looking more into it. I’ve seen it mentioned that the ownership and decision making percentages can be different/separate. I.e 50-50 ownership, but 51-49 decision making. Is that reasonable?

    #1187839
    bb1
    Participant
    • Total posts: 4,485
    Alex123, post: 220183, member: 70529 wrote:
    , but 51-49 decision making. Is that reasonable?
    Only if you are the one with the 51% decision.
    I would never go into a business on a 50/50 ownership basis and give decision making away.
    #1187840
    Alex123
    Member
    • Total posts: 8

    Thanks bb1,

    How would you get around the issue Harry raised in his second point?

    #1187841
    bb1
    Participant
    • Total posts: 4,485
    Alex123, post: 220185, member: 70529 wrote:
    Thanks bb1,

    How would you get around the issue Harry raised in his second point?
    Make sure I had 51% or no deal, be interested in lukes view

    #1187842
    Jason Ramage
    Participant
    • Total posts: 3,161
    bb1, post: 220186, member: 53375 wrote:
    Make sure I had 51% or no deal, be interested in lukes view

    Thanks Ernie for the rope in..

    The position of equity is one of contention and who ever you ask will give you their ‘opinion’ and the one that suits their personal representation, status in life, morals, understandings, insight, finances and the likes and as such you may find the entire process overwhelming and this is just referencing asking for input and not an actual decision that needs to follow.

    That may sound confusing, and it is intentional because a decision like this needs to factor in your personal situation and that of the ‘partner’. Things like:
    – who is the introducer to the business (drive behind it)
    – who is the financier
    – who will run the daily ops
    – is it going to expand and is there a best party to drive this
    – age, experience, acumen and so forth

    Example, if you were in a McDonalds and you were the manager and the franchise came along and said ‘hey bob, i reckon you could run your own business. How about we formalise it, i will fund it and i will also be the key go to person in the business at a top level and you run day to day’ they would possibly want the additional weight of decision making, and potentially, rightfully. Even if the funds are being repaid out of your wages from the business (not profit as this is his/her money as well).

    For someone like me and Bert who possibly enjoy our own company (lol, that can be interpreted on multiple levels) we would possibly find it difficult to relinquish the reigns of decisions making (even if by 2%) to someone else as we have a bit of history in the world, business and can make pretty dam good decisions on our own.

    I know this probably hasnt answered your question, although i fee you need to be realistic about what both parties bring to the table – what both parties perceive should happen and what they want to happen. From there, you can work out what to do.. You should really be speaking to your partner about this, and raise it as a topic of discussion – great partner chat really

    Jason Ramage | Lucas Arthur Pty Ltd | E: hello@lucasarthur.net.au   P: 61 3 8324 0344    M: 61 412 244 888
    #1187843
    bb1
    Participant
    • Total posts: 4,485

    All good pointers to the way you go, I agree it all depends on the circumstances of you and your partner.

    I guess I was once in what I thought was a 50/50 partnership, but soon found out it wasn’t, so got out of that and decided I would never get in that situation again

    #1187844
    bb1
    Participant
    • Total posts: 4,485
    HarryLuke Logistics, post: 220187, member: 34537 wrote:
    and can make pretty dam good decisions on our own.

    Hey Anon, I agree with this although not always, but getting better at it

    #1187845
    Alex123
    Member
    • Total posts: 8

    To bb1,I can assure you there is no chance of me getting a majority ownership or decision making in this deal. Reasons outlined in my following response to Luke.

    Luke, what you wrote is almost exactly the situation I am in. My situation is as follows:

    My business partner is my current boss who I’ve worked for for 7yrs, managing his pizza franchise. For the past year we have been planning to open up a second store which I would be investing in, and own a minority share in both stores ( I hope that makes sense). Failed contract negotiations with the franchisor has made us change our plan. My boss will now wants to sell his current business and take on something new…While I have years of managing experience, I have little to no experience of owning and operating a business. I also don’t have the finances to do it on my own. My business partner, on the other hand, does. Ultimately he can do this without me, while I can’t without him. So he holds all the cards in negotiations. The change of plan only happened in the past week or so, and we haven’t had negotiated a new deal. Which is why I’m asking these questions. All things considered, would I be asking for too much if he was to finance me as well as give me an equal share?

    Thanks again

    #1187846
    Jason Ramage
    Participant
    • Total posts: 3,161

    finance and ownership is 2 separate items… Finance is paid back and has no residual value once it is paid back, therefore allocation ownership rights based on financiers favorable terms is not required. If he was to finance the entire show and burden the entire debt with him paying back on his own, well that paints a dif picture

    Jason Ramage | Lucas Arthur Pty Ltd | E: hello@lucasarthur.net.au   P: 61 3 8324 0344    M: 61 412 244 888
    #1187847
    Alex123
    Member
    • Total posts: 8

    So in your opinion, you don’t think he has the right to say, “I’ll only cover ur investment if you take a minority share. Otherwise I’ll just do it all on my own”?… The fact that he is doing me a ‘favour’ or giving me an oppurtunity that I otherwise wouldnt have, doesn’t give him more of a right to majority ownership?

    #1187848
    Jason Ramage
    Participant
    • Total posts: 3,161
    Alex123, post: 220202, member: 70529 wrote:
    So in your opinion, you don’t think he has the right to say, “I’ll only cover ur investment if you take a minority share. Otherwise I’ll just do it all on my own”?… The fact that he is doing me a ‘favour’ or giving me an oppurtunity that I otherwise wouldnt have, doesn’t give him more of a right to majority ownership?

    Personally, we do not know the minutia of the entire scenario.. There is a lot in play in this type of situation, as inferred in previous posts, including AGE + Money + experience + etc etc..

    You will find most in this forum, as we are small business owners wanting to work for ourselves, that none of us would forfeit a majority holding especially if funding is coming all from us.

    This decision and the questions you are asking will come down to a ‘whats comfortable for me’ scenario.. And to be honest, if you are having this thought already before you actually get to the creation, you may find that you too do not want to forfeit any decision making percentage.. If i was to be impartial, i think the other party has most of the power at stake here and it would be hard to argue in your defence for you to take a majority. Is this a deciding factor for you moving forward, ignore what others think is right, but what about you.

    Obviously you have not had a conversation with them about this yet, so everything is hypothetical, but lets play it out.. Lets say he/she says ‘well i can do it on my own, would do it on my own but we get along and i am happy to seed you on your journey although i want 51/49 and if not i’ll go it on my own’.. Would this stop the transaction? How many times in the near future do you believe you may get a similar offer? Just playing devils advocate

    Jason Ramage | Lucas Arthur Pty Ltd | E: hello@lucasarthur.net.au   P: 61 3 8324 0344    M: 61 412 244 888
    #1187849
    Dave Gillen – FS Concierge
    Keymaster
    • Total posts: 2,543

    Hi Alex,

    As HarryLuke says, I would expect the partnership and the loan to be separate things. This is particularly true if he’s charging you interest on the loan (because he’s already being compensated for the loan).

    If the loan is interest free then that is genuinely worth $ in value to you so he could possibly offer you a lower percentage because he may feel he’s bringing more to the deal. Note: You can calculate that amount in $ (the amount of interest the free loan saves you versus a bank loan).

    In the end it’s up to you what deal you want to make. If your alternative sucks (i.e. missing out on the deal) then a lower % may still be a good deal for you.

    If you’re really keen to keep to 50/50 then you could offer to pay interest on the loan at market rates to even the ledger. That makes a statement that you want a legit full partnership and are willing to pay your way.

    Good luck!

    Dave

    Dave Gillen - Client Acquisition | Brisbane | (07) 3180 0288
    #1187850
    Alex123
    Member
    • Total posts: 8
    HarryLuke Logistics, post: 220239, member: 34537 wrote:
    This decision and the questions you are asking will come down to a ‘whats comfortable for me’ scenario.. And to be honest, if you are having this thought already before you actually get to the creation, you may find that you too do not want to forfeit any decision making percentage.. If i was to be impartial, i think the other party has most of the power at stake here and it would be hard to argue in your defence for you to take a majority. Is this a deciding factor for you moving forward, ignore what others think is right, but what about you.

    Obviously you have not had a conversation with them about this yet, so everything is hypothetical, but lets play it out.. Lets say he/she says ‘well i can do it on my own, would do it on my own but we get along and i am happy to seed you on your journey although i want 51/49 and if not i’ll go it on my own’.. Would this stop the transaction? How many times in the near future do you believe you may get a similar offer? Just playing devils advocate

    The thing is this. Like you said, I’ve got to decide what I’m happy with. The truth is, all things considered, Id be ‘happy’ with almost any ownership percentage. In the financial sense, I’ll be making more than I would otherwise. But of course there is more to it than just the money.

    You’re right in that this conversation hasn’t happened yet, and to be honest I don’t know what he’s thinking in terms of ownership percentage. I just wanted to get an idea of what people think in case he does ask for a majority in order for it to go through. Because while I feel a 50/50 split is the fairest, I’d understand that he might want that little bit more. But how much should I be willing to ‘give away’ That’s where I’m struggling a bit. In your hypothetical situation, I’d accept a 51/49, but a 55/45? 60/40? I’m not too sure. But in saying that, even at 60/40, I would be in a much better situation than I would be if I didn’t have anything at all…

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