Hey everyone,

This is my first post and I found this forum by searching online to discuss business topics with like-minded individuals like yourselves. I'm glad I found this forum as I'm excited to exchange ideas, thoughts, etc etc.

Background
I've been in business for about 4 years selling automotive wheels and tires. The business is mainly online selling locally, with no overhead. I've been successful in what I do and have been growing yearly on a consistent basis. I run the show myself, and no other partners or employees at this moment. Sales have grown and I think it is time to expand and open a full retail store to have a further customer reach.

Dilemma
I've been seriously considering having a partner (which is a friend for a few years -we're not best friends or anything of that nature). He has the technical skills in installing wheels and tires and all the other stuff that is required to run a shop that can do tire/wheel installations. He has years of experience so I trust that he can run the back competently without me helping (I don't want to do labour work).

We've been thinking on how we can do this "partnership" and what type of spit we would do. If we do split 50/50, he is required to bring more capital upfront as I have established a proven company that has a very steady flow of customers and revenue. On another note, I feel that I will be contributing more as I have to run the front of the shop, and all administration work, networking, marketing, wholesale side and other various roles that would be ontop of the usual sales quotes and customer care. He says the he can help with this, but because he has no experience and I don't want to rely on such a vague solution of "I can try and help", I feel that a 50/50 would be unfair for myself and selling myself short (as I have made a name for myself and the company, and built it from the ground up). I was thinking along the lines of an equal contribution in capital but not a 50/50 split. Example, 65/35 or something of that nature.

My reason in wanting to do a partnership is because I can rely on him for running the back end of the shop, and I don't have the capital to completely fund this expansion.

Dilemma #2
I have a stable and somewhat enjoyable job with good pay, but the challenge and satisfaction is simply not there. I've been thinking of expanding my business for a couple years already, but still can't decide on it 100%. I feel like I'm 70/30 for this expansion. Reason for this is that I will probably have less time for my family, but quality of life may increase substantially. On the flip side of keeping my full time job, my family time will be abundant but the challenges that a shop owner will have cannot be compared to this job at the moment. No satisfaction, no huge growth potential in this line of work.

I would love to hear some insight on this matter, and other issues that I may have overlooked.

First of all congrats on your business, it really sounds like you already establihed it very well.

Some input on your dilemmas:

#1: Don't share like that ! If it doesn't work out with you two you will get large problems no matter how the %tage is shared, do something else instead:

- Found a new company with your friend where you hold 50%+1 share and he 50%-1 share
- Agree on that the new local shop company will have your existing company as a buying source with a fixed but low margin for handling

Your advantages: If it doesn't work out you still keep your running online business. You only share the profits from the local shop and services which is basically what your friend is helping you with. You later on easily can sell one or both businesses as they are not tied together. You can replace your friend far more easy without risk if you don't fit together. Your income is higher as you have the margin from the existing company selling to the new one as well as the money from the new company. Plus your existing business may gain advantages in cost through the new scale and be worth more than before. You are in control.

Dilemma #2: If you can't find a decision try the weighted average decision matrix. You can find it in the book or use google as your friend if you are not familiar with it.

Can we see the website of your online business ?

Are you sure that sales have peaked for your online sales and profits ? Or is it just that point where you feel like you want a physical retail store and goods on hand but maybe its not necessarily needed (it could help but can also hurt) ?

Is the site optimized to where you are getting the best turn over right of sales per visitors/traffic ?

Do you have an up to date mordern digital store front that adapts to desktop, mobile, and tablet so that whenever your customers view you from they can make a purchase ? Or at the least positively and easily as well as visually enjoy checking out and reading about your products ?

Their are always opportunities to scale your business and website tp gain more growth, sales, awareness, and customers. It just has to be done in an effective matter that will really entice your customers to buy with you and share the news.

Would love to check it out and see if I can help. The business I have built very much helps clients increase their sales thru cutting edge web developments that are effective.

Well with wheels and tires, it is very restricting to just have an online business especially with tirerack and other huge online retailers that have cornered that market.

I feel that the potential has been almost maximized but I could also be wrong as well.

My site isn't an e-commerce site, it is solely a site to show what brands I carry and a few pictures. With tires, prices change too often to have a real-time e-commerce site that I would have to regularly update as prices change.

Yeah a static site versus an e-commerce site can be difference. If theres no automated buy and check out process there are people that will keep moving along and never pick up a phone or take a trip down to the store. Your local so I think I pretty much get it. Your using the site as a showcase but more or less doing the business local in person ?

An e-commerce site would require you to update prices and the like but honestly with systems such as :

http://www.woothemes.com/woocommerce/

implemented into a admin dashboard that you can easily log into from any pc, create products, set a price, update with ease might not be a bad idea if you intend to go full force as a business. If your only planning to do local business only I don't think thats a good idea. I'm not a car guy but have many friends who order parts, tires, etc online regularly and if they happened to stumble upon your site and were interested chances are you'd miss out on making a sale to them. Plus you have to think about the tons of people that rather search for the best deal online. You could potentially offer certain packages that are better than big name retail competitors and really make it a focus that you take care of the small guy customers.

You have options for the web. Depends on if you wish to target that portion of customers as well but I understand with other big online retailers out there it seems tough to compete or bother. But honestly I wouldn't look at as competing with them. People like brands and they support brands that support them. You can approach it from a branding method that your the wheels guy you take care of your customers. Example : I wont buy a video game from walmart simply because I like supporting the gamestop brand and they answer any questions I may have directly quickly. Big name retailers generally aren't as quick or easy to get in touch with online. You can possibly have a call us direct to have a customer consult you with a question before they make the e-commerce project.

I have yet to get into a retail space with a business so I can't speak much there.

Hopefully sparks some thoughts for you.

Shakeandbake said:

Well with wheels and tires, it is very restricting to just have an online business especially with tirerack and other huge online retailers that have cornered that market.

I feel that the potential has been almost maximized but I could also be wrong as well.

My site isn't an e-commerce site, it is solely a site to show what brands I carry and a few pictures. With tires, prices change too often to have a real-time e-commerce site that I would have to regularly update as prices change.

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here is a worksheet I wrote up in 2009, as part of a course I created on raising money.
its bout partnerships. the good, the bad, the ugly and how to do them right.

The Lesson
https://s3.amazonaws.com/rcsV11/rcsV11paperlessons/5-partnersV11.pdf

The bonus, Worksheet, to sit down with and share with someone.
https://s3.amazonaws.com/rcsV11/rcsV11bonuses/lesson5-partners-bonus-worksheets.pdf


Hope this helps.

Z

So I'm caught at a crossroad in this opportunity.

My Wife brings up this good point:
Although I may have majority in ownership (60/40), the partner brings in 3x as much capital as I do, but I probably do 3x as much of work, and he comes up ontop because what he currently is making is probably $30k and I'm upwards of $80k with my FT job and business.

My job isn't bad now, but I don't have huge monetary incentive to go ahead with expanding my business while my potential partner has LOTS of upward incentive (he really has nothing to lose, except the capital- but even then it's mainly in inventory). What I potentially lose is my quality time with the kids and wife, and in a way freedom (I'll have much more stress for at least the first couple years).

However, I told my wife it isn't all about the money, I want to have the satisfaction of knowing I can do it and doing what I love. But she does make a good point. If I'm making 80k now, and can only make $120k expanding my business FT in the next 2yrs but I have A LOT more stress and job responsibilities, is it worth it at this point?

Now, I'm sure I can make much more than that after the 2yrs but I have to be somewhat realistic. What she is suggesting is I get even more majority ownership (70/30?) and then it would make sense to make such a sacrifice. But, will my potential partner take a 70/30 and if so, with that kind of split I would have to put equal amount of capital. BUT, I feel that if I take too much off the table my partner would not be very happy. Of course he's all of 50/50 but its easy to say that without looking what is being brought to the table. I have business acumen to expand the business and he isn't quite there yet. He does have the technical skills I need and trust to run the back of the shop.

From what I'm getting from your post is that you have a separate full time job, plus the business, correct? If so, why haven't you quit your job and focused on the business full time?

With the little information you gave, I can't wrap my head around what your business actually is (other than selling wheels/tires online - if so, what's unique about that?). I would take a step back and ask yourself, is this the business I want to be in? Can I scale it? If I devote myself to the business, what can I grow it to?

I'm not saying you can't do these things, but I would take a hard look into what it will take to get where you want to be. I would make sure your business fits CENTS (Need, entry, control, scale, time).

Just my 2 cents. Congrats on the success so far, and good luck.

Edit: Also agree with Andviv/Lighthouse.

so here is my take:

You sell the product.

Your friend provides installation and servicing.

Why would you want to partner?

It makes no sense to me.

Simply let him open a shop and work with him a deal where one pays the other for each referred client.

He takes his risk/rewards for doing what he does well.

You focus more on what you need to keep doing (make sure your site and inventory meet the clients' demands).

What am I missing here?

I agree with andviv, except why #1 open an expensive shop when you are making money now, and #2 why partner? There are tons of people that know how to mount balance and install tires. It is the most every level job in that industry, with oil changes. It's really trainable. And if you need someone to run a shop, you hire a manager. No reason to spilt the company for something simple.

JasonR said:

From what I'm getting from your post is that you have a separate full time job, plus the business, correct? If so, why haven't you quit your job and focused on the business full time?

With the little information you gave, I can't wrap my head around what your business actually is (other than selling wheels/tires online - if so, what's unique about that?). I would take a step back and ask yourself, is this the business I want to be in? Can I scale it? If I devote myself to the business, what can I grow it to?

I'm not saying you can't do these things, but I would take a hard look into what it will take to get where you want to be. I would make sure your business fits CENTS (Need, entry, control, scale, time).

Click to expand...

Nothing really to explain more than it is a wheel and tire business. It's not revolutionary but it's a need that needs to be filled.

Reason why I haven't gone full time into it is because this business is capital intensive. I have a family so I didn't want to maximize risk, while having a decent job and this part time business on the side. I can definitely scale it and differentiate myself from the others.

andviv said:

You sell the product.

Your friend provides installation and servicing.

Why would you want to partner?

It makes no sense to me.

Simply let him open a shop and work with him a deal where one pays the other for each referred client.

He takes his risk/rewards for doing what he does well.

You focus more on what you need to keep doing (make sure your site and inventory meet the clients' demands).

What am I missing here?

Click to expand...

Because I would solely rely on his business to be open to succeed in mine. I have yet to see a successful tire shop that sources out their installation elsewhere and not have it in house. If for some reason he closed down his business, mine would fall apart because it is completely dependent on his service.

I'm partnering because I want to attain his technical skills in the back, and I can trust him by doing it well and looking after the back. Ontop of the fact, he has the capital while I don't. Yes, I can easily hire someone to do it for $12/hr but trusting them to operate the back is a whole other story. If they don't do their job to a T, I am accountable for their actions and can cause bodily harm (wheel falls off- accident happens- lawsuit).

LightHouse said:

I agree with andviv, except why #1 open an expensive shop when you are making money now, and #2 why partner? There are tons of people that know how to mount balance and install tires. It is the most every level job in that industry, with oil changes. It's really trainable. And if you need someone to run a shop, you hire a manager. No reason to spilt the company for something simple.

Click to expand...

#1- I want to open up a full retail shop because there are many challenges and opportunities to grow the business. I just do it online, so my market segment is very small compared to a full blown brick and motor store, that will see walk in clients etc.

#2- Yes, I can easily hire a back manager but can I trust them to succeed? They can easily call in sick or quit and my business would crumble instantly (starting stages is the most important). I could get away with a manager at the back once the business is more stabilized and have enough money to hire $10/hr employees, but I'm not at that stage yet. I feel that if I give this partner a piece of the pie, he has an attachment to succeed and not call in sick or quit on me. That's why I feel like I need to offer him something more than a monetary salary. I need him to come in even if he's sick, especially the first couple years.
Ontop of all that, he has the capital to fund 2/3 of this business, while I don't. I could probably borrow money but it puts much more liability on me that I want to avoid, because I have a family.

Let me get this straigh... You built a somewhat successful business...made a name for YOURSELF... and now you are considering giving a hefty amount of it away to an "employee"???

Ummm... why would you partner when you can keep 100% and hire "employees" ... Pay them nicely, and they will be happy to make sure your store runs well... You mention that this "potential" partner only makes 30k per year. Im sure he'll do the same quality of work as a partner as he would for a better pay day.

If you want to partner with someone, partner someone who will help scale the business. I dont see how he does that. All he brings to the table is "physical labor". A dime a dozen ... His years of experience means nothing because every body in that business will tell you they got 20+ years experience.

But lets say you do want to make him a partner... give him a probation time of about 60 days and see first hand how he works and what he brings to the table before even considering a partnership. You havent mentioned him having any experience running a business so this time period should tell you a lot.

Do you know the legal ramifications of having a partnership... the complications... etc.

Sorry, but I do not see why he needs to even own 10% of YOUR business. A partner is someone who brings something to the table that not everyone can. He doesnt.

PeteLife said:

Sorry, but I do not see why he needs to even own 10% of YOUR business. A partner is someone who brings something to the table that not everyone can. He doesnt.

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Very good insight and point. I would say he is crucial to the first 5 years of business, but after that, his skills can be taught to someone else. My worry is if I hired him or someone else, and they called in sick or quit, my business would literally crumble if that happened in the first year (as I would have no other employees but him) to help run the back. That was my fear, and I was willing to give a % for that ease of mind- which isn't the right way to go.

Like andviv mentioned above, I may explore the idea of being 2 separate businesses but running under 1 roof. All the duties and responsibilities that are associated with the back of the shop he control, but he gets 80% of the revenue from the labour work. I would keep 20% (just a figure), because without my existing business name, he would have 0 clients. I think that is somewhat fair? We split rent, he pays for all equipment.

if you gave him a %

he could still call in sick.

that will not stop him from getting sick, or getting hit by a truck.

you can do better. hire employees, train them, and have 1-2 part timers who overlap.

Z

zen******* said:

if you gave him a %

he could still call in sick.

that will not stop him from getting sick, or getting hit by a truck.

you can do better. hire employees, train them, and have 1-2 part timers who overlap.

Z

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This is my exact thought, what makes you think he isn't going to call in sick or just not show up anymore?? Not to mention, THAT situation could crumble your business because now he is a huge liability. He owns part of the company and doesn't have to do a thing.

It sounds like you are dreaming up to many negative hypothetical situations. He is worth 30k in the marketplace right now, that sounds about what tire and oil change guys make on average anyway. You can't not trust a manager before you even hire them, i would trust a manager hired over this other guy anyway based on the fact that he needs to do his job or he gets fired. But your buddy knows you so you get the friends tax, meaning he thinks he can do whatever cause you all are buddies and since he owns part of the company who are you to tell him what to do. He has a highly replaceable and learn-able skill, the job market is scarce so if i guy doesn't work out then get another guy...


Silly idea, I would think on it a bit more before you make moves.

LightHouse said:

You can't not trust a manager before you even hire them, i would trust a manager hired over this other guy anyway based on the fact that he needs to do his job or he gets fired. But your buddy knows you so you get the friends tax, meaning he thinks he can do whatever cause you all are buddies and since he owns part of the company who are you to tell him what to do. He has a highly replaceable and learn-able skill, the job market is scarce so if i guy doesn't work out then get another guy...

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Couldnt have said it better myself.

What do you guys think of the other approach, where I let him "own" the back. He gets the majority of revenue earned, he pays half rent, and buys all necessary equipment. I keep full ownership of company and am able to retain him.

You have to know this as well, I don't plan on this shop being a low end tire shop that sees corollas all day. My potential partner has worked on Ferraris, Bentleys and Lambos....there is a different skill set that you get from working in other high end shops -which he has been and has gotten the experience. Yes his skills are replaceable, but definitely not in the first 3-4 years of the business when I'm trying to scale it up.

At the same token, he won't call in sick because if he has a stake in the business, he's not just motivated by monetary means. There is a difference in entry level tire changer working on corollas, and a tire changer that works on Lambos and knows the higher end cars. You pay a premium for that kind of experience, which I believe he has. There are even tire schools that people go to, to get trained on the higher end portion of this industry. I think Bridgestone holds these courses as well.

I believe letting him run the back and receiving majority of revenue from the labour I charge is a better approach then giving ownership of the company. I would agree on that. This idea gives him something to work hard towards as his work ethic and performance, is directly related to his compensation.

Does that make sense?

LightHouse said:

you can do better. hire employees, train them, and have 1-2 part timers who overlap.

Click to expand...

I can't train employees when I don't know any of the technical skills in the back.

Shakeandbake said:

I believe letting him run the back and receiving majority of revenue from the labour I charge is a better approach then giving ownership of the company. I would agree on that. This idea gives him something to work hard towards as his work ethic and performance, is directly related to his compensation.

Does that make sense?

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Of course it makes sense. Great idea! How did you come up with this solution? Sounds ideal to me!!!!

Ok so there has been some development in regards to this but I have another small question.

What is the revenue multiple for buying a small profitable business? Let's say no assets, Sales of $1MM, Net Profit $100k/yearly.
Year-after-Year growth. 2011 Doing the business full time, 2012 doing the business part time while having a full time job, which yields the same results of 2011 which is Sales of $1MM, Net Profit $100k/yearly.

I know there are tons of other variables but I want to see what the range would be......

Thanks FLers!

he is a know how hands on guy, you are the business guy. Just keep him as an employee or contractor(prob easier on you) then put him on a stock option program to give him some incentive, but have the options vest over several years.

He needs you for business affairs and lead generation or he'd open his own shop. You seem to be selling yourself short. Starting a business that even has a little success is worth a TREMENDOUS value. Don't give that away because he might be "working harder" than you. Entrepreneurs do have to work hard but the super successful ones learn to work smart. Congrats to you!

Intitially you could offer several local repair shops or just gas stations that may have oil changes, high end wheel tire lead gen and have him travel to the location to do the installation on their equipment or supervise them, and give them a cut. That way you avoid the capital expenditure while expanding the customer base and still have some quality control.

Shakeandbake said:

What is the revenue multiple for buying a small profitable business? Let's say no assets, Sales of $1MM, Net Profit $100k/yearly.

Click to expand...

It depends heavily on the industry...

Determining Your Company's Value: Multiples and Rules of Thumb - NYTimes.com

Business Brokerage Press publishes an annual guide to pricing small businesses for sale in both a print and online version. Here are some multiples and rules of thumb for a handful of businesses from the latest version:

Manufacturing (annual sales of $1 million to $5 million): three to four times S.D.E. plus inventory.

Retail auto parts: 40 percent of annual sales plus inventory.

Commercial printers (annual sales under $2 million): two and a half to three times recast Ebitda.

Retail apparel: one and a half times S.D.E. plus inventory.

Wind farms: 10 times Ebitda.

Some industries have their own rules of thumb.

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Using Multiples to Value Your Business | Entrepreneur.com