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?
There are a lot of other details we don’t have that would make it easier to understand but I’d say overall, it doesn’t sound like a terrible deal. I would get very clear on some definitions though:
Outline much deeper what that 35% distribuiton is going to entail. In the first year, you may need to make investments and want to have cash on hand in the bank so if he expects a fully realized dividend based on an accrual profit margin, but your business isn’t in a position to spport that, you just want to have a better understanding of what your potential exposure could be.
Define clearly what “bookkeeping/admin/marketing help” actually means. Does that mean he is going to assist with that when he can? Provide someone full-time? Allocate resources for it, etc? Understanding what that means will be crucial as those support roles are critical and if not done correctly, will distract you from what needs to be done.
Overall, sounds pretty fair but definitely get into the details on that stuff so you both understand and get a very solid operating agreement.