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yomtov

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Hi fastlaners,


The point is that a good of friend of mine has a business service and he s doing ok...I mean nothing great but decent but with a huge potential. I know what I could do to improve it significally. My friend is motivated to work together, however I don't like the package is offering me and that s why I need your opinion.
Now, he's making 400 k / year with +/- 100 k in profit, minus taxes = +/- 60k
Untill 2 months ago, he was doing it in private person (sorry I don't know how to say it in english) but due to the high taxes now is has turned into a company (sprl).
The business value has been estimated at 200 k and he borrow money to the bank (200k) under the new company to buy it to himself.
What is offering me: 50% of the company for 100k
A new company making 400k/y with 200k debts
So even if I don't move a finger, I get my money back within 4 years but if I work hard, he'll have 50% of my incomes as well.
There is smthg distrubing me...he has received already 200k and if I take 50% of the company than he'll have 300 k for a business estimated at 200k. A good move for him altough he'll have to split the profit.
I don't know what I could propose him to find an agreement. Of course I couldn't be part of it for free and I need to benefit from his 40 self employed workers network, his knowhow, customers network and reputation he has build for the last 15 years.
So what's your opinion about it and if you have a better idea, I'd be glad to hear it.
I take it or leave it?
Thank you
 

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yomtov

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I have to add that as it is a company, now, taxes are lower and the difference will absorb the monthly fee for the loan.
 

RazorCut

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There is smthg distrubing me...he has received already 200k and if I take 50% of the company than he'll have 300 k for a business estimated at 200k.

I would steer clear but just so you know if you did invest 100k that money would go into the business, not to him. You would be investing 100k to buy 50% of a business valued at 200k.

I'm replying to the PM that you sent me at the moment.
 

biophase

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I don't quite understand. The business is making $100k. He borrowed $200k for what? The $200k was spent buying his own business? Now the business will make $100k minus the loan payments.

Let's say the business is worth 2.5x, so it's worth $250k before the loan. Let's say it makes now $60k because of the laon. So now it's maybe worth only $150k? and has $200k of debt? So it's worth -$50k?

Am I understanding this correctly? I still don't understand what he did with the $200k?
 

Ernman

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I may have misunderstood you, but I don't understand why he would borrow $200K for a business he already owns and is making money. Unless, he wanted to use the money to grow? Regardless, I'd NOT take the deal. It violates the rule of Control. You will not be in control of the business.
 

yomtov

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I don't quite understand. The business is making $100k. He borrowed $200k for what? The $200k was spent buying his own business? Now the business will make $100k minus the loan payments.

Let's say the business is worth 2.5x, so it's worth $250k before the loan. Let's say it makes now $60k because of the laon. So now it's maybe worth only $150k? and has $200k of debt? So it's worth -$50k?

Am I understanding this correctly? I still don't understand what he did with the $200k?


He runs this business for 15 years under his name with a vat number (in french we say " en personne physique " )wich is ok if assets are not too High but this year he exceeds a certain amount and taxes are huge. So, the best option was to turn into a company.
The running business was estimated with the help of an expert and the bank at 200k. He sold it to the new company he has created. One entity selling to another, no matter who is in.
Two advantages : first he takes 200k in his pocket (minus taxes) and he creates expenses to lower the future profits of the new company (we pay 40% taxes on benefits).
Demands are increasing and there is plenty of work to be done. I wish I could be part of it cause I ll feel really comfortable in this sector and I couldnt do it without the tool he has created.
You agree that I couldnt be part of it for free?
His calculation is : business price is estimated at 200k and he wants 100k for 50% of the shares. If not, he doesnt see how we could share properly incomes. If I do it on my own I become a competitor, If I join him to be paid only with the customers I bring, I ll have to pay him a ratio (as I use his name, réputation and expérience) and It ll be hard to know, when we have a new demand, who brought it.
50-50 is the easiest way.

Am I explaining correctly ?
Thank you

[
 

biophase

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So he had a company under his name, created a company, the company borrowed $200k from the bank, and then bought his company.

So he really did pocket the $200k himself and paid taxes on that income. Meanwhile, he saddled the company with $200k in debt. So how is the company worth $200k?

If the company is really worth $200k, then he should have gotten a personal loan himself for $100k and bought 1/2 of the company and then you'd paid $100k for the other half. Then he would have pocketed $200k and he would have a personal loan of $100k. He would pay off the $100k loan and he'd have half of the company for $100k and you'd have 1/2 the company for $100k equaling $200k total.

Instead, he got all $200k from the bank and is asking you for $100k. So he's getting $300k for 1/2 of his company. Makes no sense to me at all.
 

yomtov

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So he had a company under his name, created a company, the company borrowed $200k from the bank, and then bought his company.
Exact (first as private indivudal then as LLC )

So he really did pocket the $200k himself and paid taxes on that income. Meanwhile, he saddled the company with $200k in debt. So how is the company worth $200k?
That's the point. Previous one, clean of loan, worth 220k precisely...Technically the new one just worth the capital contribution 20k ....but we know that even if it is new, the forecast will be around 450-500 k for the first year with easy capability for monthly payments of the loan (7 years = +/- 30k / year).


If the company is really worth $200k, then he should have gotten a personal loan himself for $100k ( No, He couldn't , it was already under his name and he coudn't borrow to buy it's own stuff) and bought 1/2 of the company and then you'd paid $100k for the other half. Then he would have pocketed $200k and he would have a personal loan of $100k. He would pay off the $100k loan and he'd have half of the company for $100k and you'd have 1/2 the company for $100k equaling $200k total.
Instead, he got all $200k from the bank and is asking you for $100k. So he's getting $300k for 1/2 of his company. Makes no sense to me at all.


Agree with you and that s why I'm uncomfortable. When he did, I wasn't supposed yet to do smthg with him and that's why I'm asking opinion. Right now it is not a healthy situation but I try to find how I could find a solution to work together (or a proper amount to offer) . He will not accept to split in half revenues, business, network, experience, knowhow, reputation, listing, etc... for free. If I accept to pay 100 k, refunding part of the loan for example, what is his interest? He losts direct incomes and has no compensation. It sounds more as a one guy venture actually.
The perfect scenario would have been to make partnership before the loan, create a company together, paying him 50 k to compensate his direct losses for a year or more, the time I make the business growing.

I just wanted to know what more experienced entrepreneurs would have done in this case. Take it, leave it, reajust it?
 

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