Long story short, the business I’ve been managing for past several years for an absentee owner has fallen into a hole of debt from another industry related endeavor the owner had tried to get into and failed. It’s left me in the position of needing to find a new career path
One of my long time customers offered to invest with me to start my own business in hopes we can maintain some of the previous customer base.
I have all the tools and knowledge to get the jobs sold and finished but need about $25k to fully start off in the manner I would like so I can maintain the same professionalism my customers have become accustomed to. I project to gross around $200k in the first year with a 65% gross profit.
My investor has offered the loan at no interest, want 35% equity as a yearly distribution, hands off with the business. He also brings to the table a much more powerful sense of business than I myself possess, a rolling line of interest free credit, and bookkeeping/admin/marketing help. Our goal is to grow the business in a scale that will require amounts in the 6 digits in the future and our deal is to restructure our percentages at that time as profits grow. But loans remain interest free.
I feel like 35% is nothing with the resources I’ll have available to me as a new business owner. But also recognize the power that removes from myself going forward so I’m looking for others thoughts?
I would exhaust all other lending possibilities first.
Sounds to me like all he’s going to do is give you $25k, you’ll do 100% of the work and he gets 35% of business and if you do well, he’ll take more equity.
If you’re expecting $200k of revenue, his $25k = 12.5% of revenue.
If you measure against GP of $130k his $25k is 19% of GP.
35% is way too much.
If your projection is accurate, he’ll make 82% on his $25k in the first year.
You can get a better deal than 82% annually using a loan shark.
Imo, 35%
How much equity do you expect him to grab in the future?
How will that be determined?
But what is the net profit? That is what he will be getting 35% of. If expenses equal $100k he is only getting $10k payback.
Projections are never accurate. Op is starting his first business. I would be surprised if the projections are even 50% accurate.