New Start Up

Hi

My wife and I plan to start a business with another couple who are both very business savvy with both sides planning to invest 50%. We plan to work there and of course take a low pay to get the business off the ground and having all the graft, whilst they will offer advice and support. What is the best way to recoup the lost earnings fairly once the business is on its feet? Any ideas?

Thanks

 

[Jayne]

Hi,

welcome to the forum, lots of help on here

Jayne

 

[creospace]

Welcome to the forum. Sounds interesting what type of business are you starting?

Gary

 

[uksbc]

hello & welcome to the forum,

i am sure there will be some people who can offer some advice but unfortunately i am not one of them

as a golden rule i stay away from partnerships. from experience about 10 years ago - 2 partners on 2 different ventures - both ended badly with me feeling like i was doing 95% of the work for 50% of the profit

good luck finding out the info you need though and with your new business

 

Entertainment and leisure

 

[Alpha]

I presume that by 'lost earnings' you mean the difference between what you feel you should take for working in the business and the low start off salary.

With any partnership I would get drawn up a comprehensive partnership agreement (please don't try to do it yourselves, use a solicitor the extra cost may well be invaluable in the long run)

as part of that agreement just put in a clause which acknowledges that your salary for working in the business should be x per month of which y will be deferred for payment when the business is making at least z profits after allowing for partners salary.

 

[www.sitepal.co.uk]

Hi

My wife and I plan to start a business with another couple who are both very business savvy with both sides planning to invest 50%. We plan to work there and of course take a low pay to get the business off the ground and having all the graft, whilst they will offer advice and support. What is the best way to recoup the lost earnings fairly once the business is on its feet? Any ideas?

Thanks

My advice start the business with just you two.

It will be better in the long term!

 

[Hayles]

Sorry to be negative but have to agree with the above posts. No matter how well you think you get on now, with the usual stresses of any business, partnerships are really, really difficult - yours even more so as there are four people involved.

Best of luck

 

[SuffolkDesigns]

Sometimes partnerships are essential for either running or financing a business. If no-one had partnerships there would be alot less companies around......

 

[gj]

I try to get people in this situation to evaluate what each is bringing to the party. The 3 factors are:

Money
Time and effort
The concept or vision

If it is a joint concept, and both couples are putting in equal time and effort and money, a straight 50:50 split is sensible. The problem arises where some of these are not equal.

You indicate that both couples are investing the same amount of money, so you can ignore that from the "fairness" calculation.

Whose concept is it? Do both couples accept that you jointly "own" the concept? If so, ownership of the business should be 50:50 and that means 50% of the profits - after a fair "salary" for the time and effort.


So you need to discuss and agree what your time and effort are "worth" to the business. Don't forget that you will put in time over and above the actual normal working hours, which probably cancels out any time the other couple put in in terms of advice and support. Having agreed what is a "fair salary" for what you will do, that should become the first tranche of the profit and any shortfall is rolled forward into the next year and so on. Only when you have been paid for your time and effort at the agreed rate should there be any question of a share of the remaining profits.

You might think about a limited company for the business - it has various benefits anyway, and you might all find it clearer to think in terms of you and your wife being employees and therefore receiving a salary (albeit that some of that salary may have to be deferred until the company can afford it) and both couples are shareholders, who will get a dividend only if there is a profit after paying the salary.

As Alan says, get a partnership agreement drawn up (or a shareholders agreement if it is a limited company) by a solicitor - I have dealt with a number of cases where partners have fallen out and it all gets nasty - but they were the best of friends when the business started.

In fact, you may find when you discuss the value of your time and effort, that the two couples have very different ideas about that value - better to fidn that put now, than in a year or so's time when you are expecting to get the income you think you have foregone in the early stages, and the other couple don't think you are entitled to any!

Hope that helps

GJ