Advice on New business Role

[antcurious]

Hi,

Two of us are looking to partner further with a third person who would be responsible for bringing in new business and essentially market our skills, which is broadly, Corporate design and Photography.

We have the perfect person who is keen to join, but we are unsure as to what kind of business arrangement would suit us best.

A limited company would be set up, but initial thoughts are to have this person bring in business on a commission basis initially, for say, 6 months.

After which, if we can see it's viable, the 3rd person is made a shareholder and shares in all our profits.

Is this arrangement common? or would it make more sense to make him/her a third partner from the get go?

We're trying to avoid setting up a company that we more than likely would continue to use, but with a potential shareholder doing nothing to justify their profit share.

Additionally, how do people come to an agreement on a rate of commission? How do you place a value on the "getting" of new contracts?

I realise this is all very general, am just hoping some conversational input would give me firmer grasp on "typical" arrangements etc.

Kind regards
Anton

 

[Colin Smith CBP]

Hi,

Two of us are looking to partner further with a third person who would be responsible for bringing in new business and essentially market our skills, which is broadly, Corporate design and Photography.

We have the perfect person who is keen to join, but we are unsure as to what kind of business arrangement would suit us best.

A limited company would be set up, but initial thoughts are to have this person bring in business on a commission basis initially, for say, 6 months.

After which, if we can see it's viable, the 3rd person is made a shareholder and shares in all our profits.

Is this arrangement common? or would it make more sense to make him/her a third partner from the get go?

We're trying to avoid setting up a company that we more than likely would continue to use, but with a potential shareholder doing nothing to justify their profit share.

Additionally, how do people come to an agreement on a rate of commission? How do you place a value on the "getting" of new contracts?

I realise this is all very general, am just hoping some conversational input would give me firmer grasp on "typical" arrangements etc.

Kind regards
Anton

There are as many different arrangements of this kind as there are businesses, so it's impossible to say what might be "typical". The important thing is that the arrangement is perceived to be fair and that rewards are commensurate with contribution to the business. The business development role that you are proposing to bring this third party in to fulfil is critical to the success of your business. Indeed, unless there is something remarkable or proprietary about your design and photography, I would say that the business development role is the most important role i the business.

Given the importance of what you are asking him to do, I would align the rate of commission you propose with the amount that he would be paid if he was to become a shareholder. That way, he is properly incentivised to work hard and feels like a valued partner. I understand your reluctance to give him a shareholding in the business, especially if you are already trading at a reasonable level without him, and as long as the terms of the "trial period" are fair, clearly explained and adhered to, then I think that offering him the actual shares after say a six month period would not be thought of as unreasonable by your potential partner.

Hope this works out. If he is good, do whatever you need to do to keep him. In commoditised markets like the one you operate in, often the only source of competitive advantage is the quality of the sales and marketing.

 

[antcurious]

Hi Colin,

Thank you very much for taking the time to reply.

Paying a commission in line with what he would get as a shareholder is exactly what I was thinking! This person is very much on board and talk so far has been about starting a company together, so I need to be careful how I introduce the 6 month commission idea and very clear in what we propose.

Thanks again for your input.

Kind regards
Anton

 

[Multi-store]

Sounds to me like the obvious answer is to split everything three ways. If i was the salesperson doing 100% new business for the two skilled members of the business i would want 33% of the profit for my efforts. With the salesperson you have zilch!

 

[antcurious]

Thanks for your input. The third is what we decided to go with!