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Advice on a potential new opportunity

Discussion in 'General Business Forum' started by Dura, Jul 31, 2020 at 12:59 PM.

  1. Dura

    Dura UKBF Newcomer Free Member

    1 0
    HI all,

    First time poster, I hope you will be able to help me make sense of an offer I recived of late.

    I work in the public sector in a full time position. A private company (friends of a friend) have approached me and asked me for support with part of their business. It is something I am experienced in and can can value to. It's also in a sector I would like to move into ultimately and one that I am particularly interested in.

    They are asking me to lead on the coordination and development of this business area. It is a part of their business that they have lost focus on and due to other business opportunities aren't really interested. They have considered just running out the existing contracts and focusing on the other areas of the business. The down side to this for them is that the contracts also generate income in other business areas and letting them down could cause them to go elsewhere.

    They know I am intersted in starting a business but not too keen on taking the risk entirley on my own.

    The offer is to run this part of the business almost in its entirety in return for a % of the Profit (yet to be agreed. No slalry, no retainer just % profit) on everything they make from this end of the business. in return they dont need to think about it.

    Little risk to them as they were planning to close down that part. Little risk to me as its thier liability and I only bill them for the % profit each month that we agree. I will continue initially with my full time employment and work on this project in the evenings and weekends. with a view to developing this part (there seems to be scope to do this, market research pending). If its very successful i would consider re negotiating my terms and moving into this full time.

    Does this all sound a bit too good to be true?........ hense seeking advice. I have never worked for a "% profit share" given the scenario (little risk to me other than time invested) does this sound like a terrible idea? I mean I think they are trust worthy people and I enjoy spending time with them. I'm also quite keen to try something out in this industry.

    Should I go for it? What should I negotiate the % profit based on? What details shold I try to firm up before making a decision?

    Thanks in advance and apologies for the long post.
     
    Posted: Jul 31, 2020 at 12:59 PM By: Dura Member since: Jul 31, 2020
    #1
  2. ethical PR

    ethical PR UKBF Legend Free Member

    7,276 1,589
    The risk to you is that you can spend a substantial amount of your time and expertise for little or no return. What they are suggesting is that you become a commission only salesman.

    Not too good to be true. Just something that you would be foolish to consider. @Dura
     
    Posted: Jul 31, 2020 at 1:24 PM By: ethical PR Member since: Apr 19, 2009
    #2
  3. MBE2017

    MBE2017 UKBF Ace Free Member

    1,841 638
    If losing this work could lead to clients going elsewhere for other services goods they supply from the core business, then if you were to consider this I would be asking for a percentage of shares in the company, plus a percentage of the profits.

    You need to protect yourself, what if your part becomes very successful and the old management decide to let you go? All your work would be for a small amount of profit.
     
    Posted: Jul 31, 2020 at 2:09 PM By: MBE2017 Member since: Feb 16, 2017
    #3
  4. Annoying Donkey

    Annoying Donkey UKBF Ace Free Member

    2,864 987
    Make sure you define what "profit" means - profits can be made to disappear...
    % of gross sales might be better...

    As for the percentage, if they're not interested, and they're not making anything now, it's incremental sales - the sky's the limit... ;)
     
    Posted: Jul 31, 2020 at 5:23 PM By: Annoying Donkey Member since: Sep 13, 2009
    #4
  5. LanceUk

    LanceUk UKBF Contributor Free Member

    79 27
    This was the thing that stuck out to me.. They don't have interest in a part of their business (the fact it may be a separate entity is immaterial) and it will negatively impact their core business? Ask yourself, does this really make sense to you?? How are/were they going to plug the hole should you or no-one else take it on?

    Without much more detail, I smell a rat and its droppings... But if you are keen, then @Annoying Donkey has the right idea.. .% gross.. but I would go for % ownership and make sure it's a £2 company and you 50p is paid up... and you do not take on any existing directors guarantees or liabilities... and make sure the ground rules for taking on obligations (i.e. debt and accounts payable) are well documented and understood... etc etc
     
    Posted: Jul 31, 2020 at 8:35 PM By: LanceUk Member since: Jan 8, 2018
    #5
  6. LanceUk

    LanceUk UKBF Contributor Free Member

    79 27
    Actually, the more I read your post, the more I think walk away.. "Friend of a friend.." always a red flag for me... They don't care if you're taken to the cleaners and they don't care about your relationship with your friend.

    Why would you just let existing contract run out and not focus on getting new ones? Maybe because once they run out, the clients never need the services again (no repeat business) and it is a lot of work to bring in new contract - more than their other businesses.. Which, in other words means, maybe for the work involved, it is not that profitable...

    In other words, they are happy to exploit my inexperience and tentativeness to their benefit.. maybe at my cost (i.e. win/lose).. May as well become a futures investor.

    [I fixed the typo] In other words, it doesn't make enough to pay you a retainer to allow you to eat and keep a humble roof over your head while you a) come up the learning curve of running a business and b) take the necessary time to build contacts, get traction, etc (maybe you have the latter from your original post). They don't have to put you on a payroll to pay a retainer.. Also, what training are they willing to give you? What pipeline clients have they got? Are they well qualified or mainly tyre kickers, or keeping their incumbent suppliers honest?

    This is my favourite. Take it from someone who has been there.. to properly develop a business is a full time job. Yeah - there are some side gigs and hustles you can do.. But if you're not full time on it, your clients will notice and guess what? They won't buy. Oh.. of course, you are talking about developing the business.. But it is there already, right? And there are run down contracts already in flight (which makes me think loss-leaders). How are you going to turn that around.. If your mates of a mate are moving onto other more shiny businesses, they aren't going to put the time into your business to sell the stuff you develop.. Put yourself in their shoes...

    And on renegotiating terms.. say you cracked it and it became a £MM business.. again, putting yourself in their shoes, would you (as them) renegotiate? Heck no. You (as you) have built them an lovely business.. Thank you.,. these are the terms.. you know it.. and it is now worth too much to walk away from...

    I would recommend reading about behavioural economics and the theory of illusory superiority... The latter I learned the hard way.
     
    Posted: Jul 31, 2020 at 9:00 PM By: LanceUk Member since: Jan 8, 2018
    #6
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  7. Mark T Jones

    Mark T Jones UKBF Big Shot Free Member

    4,647 1,718
    You'd need to ask 100 more questions to have any idea whether it acually s an 'opportunity'. or just them handing you lemon in the vague hope they will get a return from it.

    But, even with all the answers, nobody can tell you what your appetite for risk should be.

    A few starter questions:

    What is the trading history trend?
    What are the barriers to entry / is there a clear USP?
    How swiftly does the business yield returns

    etc, etc , etc

    A good, detaild discussion can be quite revealing - not just the answrs they give, but the tone & nature of the answers.

    And before you agree to ANYTHING - get a clear contrat stating all terms agreed. These people aren't your friends, they are business partners - be business-like.
     
    Posted: Aug 3, 2020 at 9:30 AM By: Mark T Jones Member since: Nov 4, 2015
    #7
  8. Mr D

    Mr D UKBF Legend Free Member

    23,486 2,835
    Often business is both risk and reward. However some business can be hard work, and no one cares if you end up working long hours for free or even subsidising the customers out of your own pocket.

    If you want a part time business outside your normal working hours start one up yourself, fresh. That way you learn, make the risks you want, figure out ways to manage and don't take on someone else's crap.
    If a customer is worth keeping by that company they should fight to keep them. If a customer isn't worth keeping for them will they be worth anything to you?

    Saw an advert the other week for a percentage only job. Turned out they were offering 5%, no negotiation. Looking at it to make money I'd have settled for a mere 35%. Anything below 20% wasn't worth bothering with in that field.
     
    Posted: Aug 3, 2020 at 10:29 AM By: Mr D Member since: Feb 12, 2017
    #8
  9. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    11,685 2,429
    I must agree with the others they still have all the key parts and you would have none not even a basic salary, that's their confidence in your skills

    They are not likely to open the purse to invest in the company for growth which would include marketing, sales, assets or just plain old stock

    They will be able to manipulate "Profit" there are plenty of ways, but one big one may be the contract between the parent company and the one you take over, their management charges may be very high and unrealistic, inter company loans at high rates etc

    Everyone on this forum will tell you there is no way you can run a company part time, especially one in trouble

    Have you seen the last few years accounts, don't bother with the published accounts ask for a copy of each months managements accounts for the last three years and see what has been happening month by month, where the sales come from each month etc

    Bonus is paid on profit, salary is paid for working for them

    Good Luck I am afraid you will need it
     
    Posted: Aug 3, 2020 at 3:23 PM By: Chris Ashdown Member since: Dec 7, 2003
    #9
  10. SillyBill

    SillyBill UKBF Regular Free Member

    210 98
    For them it does, not sure about you. You are potentially the knight in shining armour and you are commission only. If you have confidence in yourself and your abilities negotiate something which puts some risk in their camp (not all upside, no downside), if you are lacking confidence then I guess you need to correct that somehow or face accepting terms 90+% of people bringing value to the table would not accept.
     
    Posted: Aug 3, 2020 at 5:46 PM By: SillyBill Member since: Dec 11, 2019
    #10
  11. Stas Lawicki

    Stas Lawicki UKBF Regular Free Member

    348 143
    As deflating as it may sound to read some of the responses, and I can't say I disagree with any of them, I would add this however...

    Depending on your role in the public sector, you may be immune to the pending and quickly unravelling chaos we are seeing. Obvs don't know you or your situation, but consider having no job tomorrow and work out how long you could live off no wage. There are merits in being under the umbrella of an exsisitng business, but also many drawbacks. I would consider finding some level of security for your hours above and beyond a profit share. Shares in the Co, a flat basic or retainer, something tangible. Profit share is something you have no control over as an outsider so really, no contract or piece of paper will help you mitigate losses and therefore ensure your share.

    It's a huge gamble. You might get chewed up and pi55ed off with the way things are being run and how you are not getting paid. You may find however you make a bit of money. Perhaps a ton of it. You may find you become indispensable and they throw everything you would want at you.

    The things is, nobody on here knows the answer. You don't either. But if you can go without / want to learn a new skill/ taste the life of working for yourself, or perhaps are bored and fancy a punt. Go for it. Life is short. Nice a few months and see what happens. Don't like them or it, give them the boot.
     
    Posted: Aug 3, 2020 at 10:28 PM By: Stas Lawicki Member since: Nov 14, 2017
    #11
  12. The Byre

    The Byre UKBF Legend Full Member

    10,059 4,114
    This!
     
    Posted: Aug 3, 2020 at 10:34 PM By: The Byre Member since: Aug 13, 2013
    #12