A Franchise unless it is a McDonalds, Chik-Fil-A, or the like, is very risky, far more risky than real estate. On the other hand a successful franchise will absolutely annihilate real estate in terms of profit.
Each scenario has to be evaluated independently, there is no way to know which is better until you know what franchise you are comparing to which piece of real estate.
Usually, yes.
However there could be contingencies written into a contract which could require him to buy the stake back. That’s why anyone selling a stake in their business needs to have a lawyer review any contract they are presented with.
I think he is better served by hiring his own lawyer to advise him if he is given a contract drawn up the investor.
As others have answered, yes. The investor only makes money when the business does and what I haven’t seen anyone mention is, depending on how the business is structured, partnership/llc/s-corp/c-corp the investor can share in liability should the company get sued or the company is forced to declare bankruptcy.
There’s a lot to it and it all depends on how the company is structured and operated and even how the ownership is setup assuming they have a lawyer draw up the contract.
Going merely off of what you stated:
They want an equity stake in your company, you would own 95% and they would own 5%. They have also valued your company at $600,000. If you take their money you wouldn’t owe them anything but they would be part owner of your company though you would retain full control.
Do you believe your company is worth $600,000? Do you need the $30,000? If you feel your company isn’t worth $600,000 then this might be a good deal. If you need the $30,000 to help you expand then this might be a good deal.
If your company is worth more than $600,000 then it’s probably a bad deal and if you do not need the $30,000 for any reason then it is a bad deal.
Finance, accounting, heck even economics are excellent degrees to pursue and will all aid you in business.
You mentioned grading well you might not ever use calculus or linear algebra in grading but a math degree might just come in handy depending on how big of a project you end up undertaking.
One that I received free from one of my old banks was financial planning services. They had in house CFPs who worked with me to develop a financial plan. I was impressed with it then and now as it has been amazingly accurate in terms of predicting where I would be today, that plan was developed more than 10 years ago and was a huge benefit.
Good CFPs are great and help you think through life events which you would simply never consider because they do that type of thing for people every day and they get exposed to what people go through as they age.
I’m not deluded into thinking your 30 yr old guys are going to think that’s a great benefit, most won’t but if you could somehow convince them to take advantage of it most would see the value.
Additionally, offering fee only fiduciary financial advising to your employees as a benefit would be just as good. There are some companies which do this for businesses. This is not a recommendation and I do not do business with them but I know they do this type of thing:
https://edelmanfinancialengines.com/
Or google “fee only financial advisor” and then contact some of the companies in the search results.
Another one along the same lines would be elder law attorney services. You mentioned kids and if you have kids you need to have a revocable trust it doesn’t matter if your net worth is $50,000 or $50 million a revocable trust is an absolute necessity and will be a blessing for your kids. So maybe talk to some local elder law attorneys in the area and consider that too.
One of the biggest mistakes entrepreneurs make is they under sell themselves.
Your wife might be right here.
This isn’t as bad as you think or fear it is. The 40K profit you seem most worried about isn’t that much. The standard deduction in 2021 was $12,550 for a single tax payer, well turns your 40K into $27,450 taxable. Your maximum tax bracket, assuming a single filer, is 12%.
Worse case scenario you owed $3,294 but that might be far higher than what you actually owed depending on your situation. Your fear however has made the bill higher because the IRS will now charge you a failure to file penalty as well as a failure to pay penalty in addition to interest. You are now bleeding and due to your inaction you are continuing to bleed.
STOP THE BLEEDING ASAP. Contact a CPA or tax preparer now, don’t wait another day. The sooner you address this the sooner you stop the bleeding and the more money you will save.
The figures mentioned above ate absolute worse case scenario and you likely owed less.
I need a sugar momma. I’d support any woman I was married to in the business endeavors. I have a female friend who had the same problem with her husband and I just do not get it.
Who doesn’t want a smart ambitious woman? Something is very wrong with dudes in the world.
I always check out businesses which I have never patronized before by going to their website. I want to know what they offer and get some idea of their pricing. I cannot remember the last time I just wandered into a business I have never visited before without doing some research in advance.
I might be the minority or I could be the only person who does that but then again I could be pretty typical. I think if you want to encourage people like me to become your customers you should create a website. It doesn’t have to be fancy, don’t go getting all complicated and expensive if you create one. I merely look for one that has basic information about your business and what you offer.
I encourage you to not worry about it too much. From a customer’s perspective I can tell you that I do not even look at 5 star reviews. Some 5 star reviews are fraudulent anyway. What I want to know about are the 1 and 2 star reviews and what was the reason given for those reviews.
I cannot tell you how many times someone wrote a review of a product and the reason for the low rating had nothing to do with the product or the seller. Maybe they were unhappy because the product got delivered on Tuesday instead of Monday. If that is their complaint then their opinion is meaningless and their review is meaningless.
If the 1 & 2 star reviews turn up nothing bad then I move on to look at the 3 & 4 star reviews.
The truth is, if I were a potential customer of yours and I looked at your reviews and all I saw were 5 star reviews I would assume you are gaming the system and most if not all of them are fraudulent. Or you are having any reviews which are less than 5 stars deleted.
I’d tell myself to do what I did, which is to say I stated a business in a field I enjoyed.
Next I would tell myself that even though I hate college and do not want to be there, I should slow down and take to easy. Don’t try to get it over with quicker by taking more than a full load of courses each quarter as well as attending school in the summers. I would explain that you will burn yourself out by trying to go to school full time and work full time and that you will kill your entrepreneurial spirit.
Finally I would tell myself that the key to a successful business is stubborn tenacity in the face of all adversity. No matter what happens never give up and as soon as you can, hire people to help, even if those people do menial clerical tasks so that you can focus on what is important. And for gosh sakes if you have family members who might be willing to help you a little, let them freaking help you.
This is actually a good question and needs a solution. I don’t have $50,000 that I could risk in such a situation but I certainly could risk a couple thousand if I felt the individual was right and in my local area so I could personally keep an eye on the business.
Once upon a time I started my own little business when I was in my early 20’s and would loved to have had an angel investor. This is the type of thing where a group of investors could get together and pool their money and then invest in local people who are eager to start a business.
I wish I had an answer for you because I certainly would consider becoming part of such an angel group.