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Investment Scenario - your thoughts?

john3981

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May 30, 2018
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I am considering starting a plumbing business with a friend. He's the plumber; I have the money. Overly simplified, rosy scenario here, but just for discussion, let's assume we're 50/50 partners in the business: at the end of each year we decide what goes back into the business and split whatever's left over. At the beginning, my money is obviously vital, but 10 years down the road things are humming along, I'm still getting half the profits for having put up the money ages ago. Doesn't really seem fair to my friend. Is that just the way it works, or would I quit getting a share of the profits after I make back some multiple of my original investment? I realize we can set it up anyway we like but what's the norm? Thanks much in advance.
 

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ApparentHorizon

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Why don't you ask him yourself?

If you're not comfortable bringing this up now, perhaps you're not the right for him.

If he doesn't understand this is how a lot of capital ventures are done, perhaps he's not the right for you.

And a quote I heard was, "A business partnership has to be better than a marriage."

Read principles by Dalio
 

ZCP

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a business partnership can be anything you want it to be if properly written into your agreement / bylaws / etc.

more importantly, how will you service your clients and grow the business. splitting profits means nothing if there are no profits. :)

sit down and put a projected P&L and Balance Sheet together for the next several years of running the business. Then see what cash and skills are actually needed. then come to an agreement on who gives and gets what and when.

welcome, put an intro thread out there if you would!
 

Stargazer

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Do you know much about The Body Shop story (Cosmetics company)

Anita Roddick was very well known whilst alive. Up with Branson in the 'Name an entrepreneur' category in the UK throughout 80's and 90's

Anyway there was a man nicknamed The Body Shops Missing Body. It was the guy who gave her £4000 to start in 1977 and she gave him 20%. He died 8 years ago valued at £146 million. (Ian McGlinn)

She was not someone to shaft people though. What about your friend?

Dan
 
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john3981

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May 30, 2018
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Is the cash the only thing you're providing?

If so, why not consider a loan. And if you really want an equity stake, you can always create an agreement that allows him to buy you out if/when the time comes that he no longer needs your cash.
Are you suggesting "I" take out a loan or the plumber take out a loan? I think this is a good investment opportunity, that's why I want to be involved.
 
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john3981

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May 30, 2018
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Why don't you ask him yourself?

If you're not comfortable bringing this up now, perhaps you're not the right for him.

If he doesn't understand this is how a lot of capital ventures are done, perhaps he's not the right for you.

And a quote I heard was, "A business partnership has to be better than a marriage."

Read principles by Dalio
Oh, I plan to bring it up with him, we just started talking about this a few days ago! When you say "this is how a lot of capital ventures are done", do you mean it's common for a ground floor investor to receive a cut forever?
 

ApparentHorizon

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Oh, I plan to bring it up with him, we just started talking about this a few days ago! When you say "this is how a lot of capital ventures are done", do you mean it's common for a ground floor investor to receive a cut forever?
Correct. If the company pays out dividends, you as a shareholder, can receive money forever.

If your partner is the one actively working, he'll take a salary + dividends.
 

JScott

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Are you suggesting "I" take out a loan or the plumber take out a loan? I think this is a good investment opportunity, that's why I want to be involved.
I was suggesting that you provide him debt (you giving him a loan) instead of buying equity (you partnering with him for a piece of the business).

But, if you want to be a partner, then I suggest a buy-out clause that gives him a right to buy out your equity at a some fixed point(s) in time for some pre-defined calculated amount (some multiple of earnings, based on appraised value, etc).
 

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