Am I being left behind?

[Bearer911]

Good afternoon,

I suspect each of you will have different views on the following so I'm here posting to try and get a balanced opinion before I make my next move.

In a nutshell, I am a "partner" within a relatively small business (5 employees) and we are due to profit around £40k this year (year 3). I use the term partner in speech marks as technically I am an employee - I take an 'ok' salary from the business which my business partner owns outright. My 'partnership' is in place on the basis that I have been at least 50% instrumental in setting up and getting the business to where it is today. The only difference is I haven't made the initial cash investment to get it there - my business partner covered this side.

Our plan when we set up 3 years ago was to build the business and eventually reach a situation whereby I owned a percentage of it (and to my knowledge this is still the case). It still owes him around £150k in directors loans (these were accrued from a previous company that I was not involved with). He has also not effectively taken a pay from the current business yet but moving forward will be repaying his directors loans by around £3k per month.

He has today proposed a 20% profit share for this year meaning I could take around £5k-£10k as what would effectively be termed a 'bonus'. My questions are as follows:

1. Should I be feeling deflated about the offer? In terms of workload and productivity I can honestly say that we have been as instrumental as each other in reaching where we are today. Would you see 20% as a fair offering? Bearing in mind that i'm the one who's been taking a salary the whole time and he hasn't.

2. Should I be requesting a stake in the business instead of just taking a profit share? This has always been my goal but would now be the right time? If I request a stake and it's granted I suspect I'm also taking on the directors loans - would this be sensible? I'm quite confident that these will be wiped out within the next two years. Would you hold off or try and get your foot in the door at this point?

3. What would you do in this situation? I don't know whether I'd be pushing it asking for more from the offering or whether I should wait for the right time before requesting a real stake in the business.

I guess my main worry here is that when the business starts to become worth something it could effectively be sold leaving me with nothing to show for all the hard work, other than a salary for few years with the odd good bonus.

I'd also like to say that on a personal level we have a great friendship and trust between us hence the reason it has gotten this far down the line before I've really started thinking about it.

Any help would be massively appreciated - I'm relatively young and can't draw on previous experiences
to guide me so am looking to hear from those of you who may have been through similar partnerships.

Kind Regards,

B

 

[seeingISbelieving]

I'd also like to say that on a personal level we have a great friendship and trust between us . . .

It's your "partner" you should be sitting down with to discuss this, even more so in light of the above comment.

 

[businessfunding]

Unfortunately your relative naivety is working against you here

You absolutely must put this on a contracted, business footing, as the problems will get worse

Tough to do, but have a business meeting and thrash this out ASAP

 

[Bearer911]

Unfortunately your relative naivety is working against you here

You absolutely must put this on a contracted, business footing, as the problems will get worse

Tough to do, but have a business meeting and thrash this out ASAP

Thanks - your exactly right in that my nativity is the issue here. I don't want to shoot myself in the foot during the business meeting by being unrealistic or coming across as unprofessional - my business partner is almost twice my age and has much more life experience. I just wondered if anyone could relate to it and perhaps float an idea that I might not have thought of.

The most logical thing I can think of at this point is to make a counter offer based on business performance over the coming years - in other words I build a stake in the business as we continue to grow and hit certain benchmarks, whilst still holding on to a percentage profit share.

I also intend to float the idea of having our staff profit share so that everyone sees the benefits of their hard work and strays motivated throughout each year to continually grow.

My real worry here is that without a stake in the business if we were ever forced or wanted to sell, I'd walk away as just as well paid employee at the end of it as opposed to really seeing the benefits of everything that's gone into making it what it is today.

I wonder if anyone can think of any other win-win scenarios for us?

B

 

[Blood Lust]

1. Should I be feeling deflated about the offer? In terms of workload and productivity I can honestly say that we have been as instrumental as each other in reaching where we are today. Would you see 20% as a fair offering? Bearing in mind that i'm the one who's been taking a salary the whole time and he hasn't.

2. Should I be requesting a stake in the business instead of just taking a profit share? This has always been my goal but would now be the right time? If I request a stake and it's granted I suspect I'm also taking on the directors loans - would this be sensible? I'm quite confident that these will be wiped out within the next two years. Would you hold off or try and get your foot in the door at this point?

3. What would you do in this situation? I don't know whether I'd be pushing it asking for more from the offering or whether I should wait for the right time before requesting a real stake in the business.

So the problem is the business isnt as profitable as you had hoped it would be by now? You would have liked to be up to the point where you can have a share of the business, are disappointed this hasnt happened and had hoped you'd be getting decent income from it?

Why not communicate that to your partner and find a way forward?

Sit down and establish the profit level which will get you a share in the business. Then look at ways to reach it. That means cutting operating expences (being LEAN) and finding ways to attract more customers.

How do you compete?
How do your rivals compete?
Can you neutralise them?

Imagine 20 different customers looking at websites to find a business offering a service which meets their needs. Are you communicating that you do effectively? (speed of service, quality, dependability, price, flexibility, etc).

 

[Christine Hough]

The business is his and not yours and it still owes him 120k In his position repaying that would take precedent over bonuses.

You don't really say what you have contributed. Certainly your time but did you contribute unique skill without which he could not have done it?

Is your 'modest pay' reasonable and would a pay rise be a better option for you? That you as an employee helped build his business is what employees are supposed to do. Its what they are paid for and does not give them ownership rights.If it all goes wrong now it will be him left holding 150k debt.

It sounds as if you and he want a fair solution, but how that fairness is calculated is something you will have to sit down and work out together. Firstly get into the open what each of you think the intentions are. There may have been a genuine difference in understanding from the beginning. That is the danger when agreements are not written down.

 

[wearewattle]

The business is his and not yours and it still owes him 120k In his position repaying that would take precedent over bonuses.

This is the key thing here, granted there might have been verbal discussions, but the fact remains that this is not the OP's business, in any way! Be happy with your bonus I would say!

 

[NickGrogan]

So you didn't put any money in, you're not liable for any of the debts, you've been taking a salary for doing your job, when your "partner" hasn't and now that it looks like the company is about to starting making money, you want your share?

I suggest you approach your "partner" suggest that you will repay your salary for the last 3 years, taken on liability for the directors loans (jointly) and ask for half the company.

How can you expect the benefits of being a partner, if you're not prepared to shared the risks/costs?

"I am an employee - I take an 'ok' salary from the business - I have been at least 50% instrumental in setting up and getting the business to where it is today."

To quote Chris Rock - "It's what you're supposed to do"

 

[Bearer911]

Thanks for the replies everyone - some good points of view here - some of which I agree with and some of which I don't.

In response:

1. 80% of the debt was accrued via a different business which I wasn't involved with and has simply been carried into this business.

2. Yes, I may of not shared the financial risk but what I have done is sacrificed very good offers elsewhere to build this business on the proviso that this will pay off and I will own a stake in a profitable company.

3. I am not expecting to own a 50% stake in the business - simply enough of a stake (in the long run) to ensure that I have not wasted the time, effort and skill set that I have, and will continue, to put in.

4. Yes I have contributed unique skills to build the business to the level at which we are at today and I am confident that there wouldn't even be a business without my input.

Thanks again for your comments - I've realised that at this point Im probably too soon in trying to have my cake and eat it. We met today to discuss this further and things are much clearer for me now. One thing that remains constant is my ambition for this business and I think it's easy to let that take over from time to time and sometimes not exactly in the positive way. We grew this from absolutely nothing and after being a part from day 1 see myself as more than just an employee in this case.

Regards,

B

 

[Christine Hough]

It sounds like you have had that important conversation. Well done and wish you all the best.
I believe it is always good to confirm in writing what was agreed, this can be by minutes or an email saying "Thanks for the conversation which clarified these points...."

Not because you distrust, but to keep things clear.

 

[japancool]

2. Yes, I may of not shared the financial risk but what I have done is sacrificed very good offers elsewhere to build this business on the proviso that this will pay off and I will own a stake in a profitable company.

3. I am not expecting to own a 50% stake in the business - simply enough of a stake (in the long run) to ensure that I have not wasted the time, effort and skill set that I have, and will continue, to put in.

For point 2, unless you have this down in writing, it's worthless.

I don't know what stage your business is at, but unless you can negotiate a shareholding now, when the business is not making a huge amount of profit, you're not going to get it when it does. At that stage, the owner can replace you with someone with lower expectations, and you'll then need to decide whether you're happy to be an employee or walk away.

You're not a partner in any sense of the word, I'm afraid, and no matter how instrumental you feel you've been in setting up the business, I can almost guarantee that the owner won't see it that way.

Don't rely on personal relationships and implied promises. It's amazing how quickly these can go out of the window.

 

[Talay]

As far as the OP has stated, this business has no outstanding directors loans as they were all from previous businesses (later qualified to perhaps 80%).

One must ask where the seed capital for this venture came from ?

As for a partnership stake, then no, fundamentally, the outstanding loans are not part of the package, though I am sure some part of them is what started this venture.

As stated, you have to thrash this out but be very clear before you have this conversation that things can never be the same again. You may end up as business partners but you could equally be setting in play your own exit.

However, no risk, no reward.

The very fact that the "owner" now wants the business to repay the outstanding loans is indicative of how he sees the way forward. Perhaps the other business "failures" or costs were what propelled this success, through trial and error ?

Foregoing the bonus to "buy in" over time to a maximum of "X" percent is where I see this. Less bonus means more to pay dividends and if you can agree on the loan issue, then there may be a way forward.

This is not an after work, down the pub sort of conversation. Think long and hard and work out what your objectives are.