Need some business advice please! - Page 2

Wait, wait, wait....

"Profit" is what is left over AFTER the expenses are paid, which includes salaries. It is important that you recognize that you hold TWO positions now- 1. Investor that "owns" the business, and 2. Baker/ decorator.

Look at a $100 retail price cake. You spend $20 on the ingredients (eggs, flour, sugar, etc.) , $5 on the supplies (boards, ribbon, supports, etc.), $3 on the "rent" or space use, $2 on the "use" or depreciation for your tips, pans, supplies. Then you spend 3 hours making it at $20/hr, so $60 dollars "salary". What's left? $10 "profit". As the "owner", you get the salary and the profit= $70. So if you have a partner, you split the profit.... $5 for the partner, and $65 ($60 salary +$5 profit) for you. NOT $35 each, because your salary IS NOT part of the "profit".

If the partner has skills that are "worth" something to the business, then the partner also gets a salary and a profit share. But maybe the partner only mops floors well... so the partner gets $8/ hour salary, and then the added profit share.

This is the obvious "sticky" part. What are your skills worth to the business per hour? What are the partner's skills worth?

I agree with a PP that said ask a lawyer... but if you think it out a bit before you meet, you will save money (as you are billed per hour).

Last, NEVER sell 50%. 49% maybe... but you need a legal option to "break a tie", if you disagree.

My hubby and son partner in a business flipping houses. Son draws $20/ hr, but more experienced/ skilled Dad draws $40/ hour. What is left after expenses, is split 50/50. Son has control, but calls in Dad when needed.

A partnership is answering..
1. Who makes the decisions- 51% partner?
2. Who draws a salary, and what is that salary amount?
3. How can you dissolve the partnership or buy the other out?
4. Who "owns" the intellectual property- like recipes?

Good luck--- lots to think about....

Getting business loans will be very difficult in today's environment. If you need startup capital and this person can provide that, you can structure the deal as equity (where the investor would get a percentage ownership of the business and potentially share in the profits) and/or debt (where the investor would be guaranteed payments over a specific time period).

Since a startup company usually won't be profitable for at least a year or two, an investment in exchange for equity is probably more realistic.

Another alternative is microfinancing, where you take out small loans from different individuals around the country. One example: http://www.opportunityfund.org/about/small-business-loans/microfinance

All of this is contingent on having an airtight business plan with clear competitive advantages and a quantified path to profitability.

There's really no good single answer to that question, it will entirely depend on the circumstances of your business, the quality and projections of your business plans, your own sales and negotiation skills (or those of your representative), and the risk tolerance of the investor.

If you look at it from the investor's standpoint, let's say he will be kicking in $30K seed money, and your business plan projects net profits for the first 5 years as -$5K, $0K, $5K, $10K, and $15K. That's $25K total profit, so even if you granted the investor 100% of the profits he would still have a negative return after 5 years, and unless there was a solid basis for exponential growth in the following years the investor probably wouldn't be open to an equity deal at all.