Start up partnership business shares

[Auto_work]

Hi, I'm new here. This is my first thread so go easy on me if I do anything wrong or the question has already been asked.

My business partner approached me to start a small business together. I will be investing in almost all the capital and my skillsets are web design, branding, online booking, online marketing.
I'll be doing admin side of things while she will be providing the services to customers. She has people skills and some connections so she believes she can get the business started and build up overtime. She just doesn't have the money to ship in just now but may be later or in instalment.

As I'll be investing in the business, I won't be able to pay myself wages. My partner wants hourly wages plus half of the profits. So I'm working out the best way to split as you can see I'll be working for pretty much free while setting everything up until we have enough business to cover the costs and eventually take the profits. If the business makes a loss, I'll lose my capital that I invested in.

Another thing to point out apart from risk is my partner seems to think the costs of the website, branding, online booking platform suppose to be low costs. When I listed down the costs, she seems to think they are suspiciously high and she doesn't seem to count the work I put in. So to make any earning out of my work is a little challenging.

This is her idea so I think it makes sense that she has some shares but I can't work out what's fair. Can anyone give me some suggestions how to split shares in this case?
I'm not entirely sure if I go into another free web design job but I'm quite prepare to take risk!

 

[BusterBloodvessel]

Run away. Run away as fast as you possibly can. And if I haven't been clear enough. RUN. A. WAY. from this "friend".

So, she wants you to put in capital and not take a wage, so that she can immediately take an hourly wage? She literally wants to take your money from you.

Hi, I'm new here. This is my first thread so go easy on me if I do anything wrong or the question has already been asked.

My business partner approached me to start a small business together. I will be investing in almost all the capital and my skillsets are web design, branding, online booking, online marketing.
I'll be doing admin side of things while she will be providing the services to customers. She has people skills and some connections so she believes she can get the business started and build up overtime.

What is the business actually doing? How good are these people skills that they justify you gifting her half of a business?

She just doesn't have the money to ship in just now but may be later or in instalment.

If she's so desperate for cahs right now that she has to take an hourly wage immediately, where is she going to find the money to invest later? She isn't.

If the business makes a loss, I'll lose my capital that I invested in.

Yeah, and she loses the square root of f*ck all!

Another thing to point out apart from risk is my partner seems to think the costs of the website, branding, online booking platform suppose to be low costs. When I listed down the costs, she seems to think they are suspiciously high and she doesn't seem to count the work I put in. So to make any earning out of my work is a little challenging.

So she wants you to stump up your own money, work for free whilst paying her, and then she doesn't even value the work you're doing?

She's in cloud cuckoo land and looking for a free ride.

 

[finleydesign]

If the above response wasn't clear enough can I just say RUN and RUN quickly, you are being taken advantage of, it's always someone who comes up with these great ideas of setting up a business, puts nothing in, takes no risk but whats all the return!

Tell her to get a secured loan against any assets she has, then see how quickly she runs from the idea, that will give you your answer about how this should work!

 

[thetiger2015]

Echoing above - run away or ask her to get a loan for equal investment.

If she's doubting your costs already, it's never going to work.

I never partner with people now, never, ever, for anything! I lost over £10k of my savings the last time I did. Run for the hills and don't be afraid to tell her the figures don't work for you, so you're out. Too much risk!

 

[fisicx]

Another vote of no confidence.

This isn't an investment, it's a money pit. You will lose every penny you give her.

 

[Mark T Jones]

I'll temper the above just slightly because:

1. This is half the story and

2. You don't appear to have properly talked it through.

If either of those is inaccurate, then get running.

If there is more to it, nd if you sense there is a real business opportunity here, it's time to engage in intelligent, balanced discussions about roles, responsibilities and rewards.

Starting with:

Either equal capital contribution, or your contribution as an interest-bearing, repayable loan.

Each party to be rewarded equally for time & skills.

If you can't get consensus on those basics, then get running...

 

[Joyous]

Wow! Doesn't sound like an even partnership to me. Sounds more like you're using your time, money and expertise to set her up in business and then paying her while she gets her business off the ground. If she does well you might get something, if not then you lose your investment and she walks away scot free. All the risk is on your side. I second the suggestion from @finleydesign about her getting a loan to pay her share. It would show some commitment on her part. If she won't do it then run (not waalk) away.

 

[Ditata]

I'm all for partnerships and bootstrapping to get an idea off the ground but this seems like too much of a one sided "partnership".

You're providing funding, time and skills with no immediate or guaranteed return, whilst she wants paying from day one to make her contribution + 50% of any upside in the future.

To me this sounds like a recipe for disaster and if the project is anything other than a roaring success you'll be the one out of pocket.

I'd be really keen to know more about what sort of service / product the business is based around and how she justifies her value so much that you should have the privilege of paying her to be your business partner.

If she is so entirely sure it will be a success then she should be comfortable taking on some debt (loan, credit card, etc...) to go in pound for pound with you to fund the set-up.

For set-up fees, what are we talking? thousands? tens of thousands? more?

If you walked away and took your skill set with you could she easily carry on without you to success? If she walked away, how easily could her skill set be replaced?

A very well written partnership agreement is a must if you do anything.

 

[AlanJ1]

Run away. Run away as fast as you possibly can. And if I haven't been clear enough. RUN. A. WAY. from this "friend".

So, she wants you to put in capital and not take a wage, so that she can immediately take an hourly wage? She literally wants to take your money from you.

What is the business actually doing? How good are these people skills that they justify you gifting her half of a business?


If she's so desperate for cahs right now that she has to take an hourly wage immediately, where is she going to find the money to invest later? She isn't.





Yeah, and she loses the square root of f*ck all!



So she wants you to stump up your own money, work for free whilst paying her, and then she doesn't even value the work you're doing?

She's in cloud cuckoo land and looking for a free ride.

I will as well say. RUN. A. WAY.

 

[pentel]

I used to run an injection moulding company and would regularly get people approach me with a "fantastic idea" which they would be willing to let me make prototypes and tooling and product for.

They never had any money to pay for these expensive processes. They would then sell the product and would split the selling price with us.

We went along with this exactly zero times. Why would we? We would be taking all the risk and if they didn't sell any product they could walk away having lost nothing.

If you want to be in business with this person they need to have the same amount of skin in the game as you do. If they are not prepared to invest in this business why should you?

Let them take a second job, mortgage their house, sell the flash car and get a £200 banger, max out their credit card etc etc.

 

[WaveJumper]

I used to run an injection moulding company and would regularly get people approach me with a "fantastic idea" which they would be willing to let me make prototypes and tooling and product for.

They never had any money to pay for these expensive processes. They would then sell the product and would split the selling price with us.

We went along with this exactly zero times. Why would we? We would be taking all the risk and if they didn't sell any product they could walk away having lost nothing.

If you want to be in business with this person they need to have the same amount of skin in the game as you do. If they are not prepared to invest in this business why should you?

Let them take a second job, mortgage their house, sell the flash car and get a £200 banger, max out their credit card etc etc.

And its funny how much more focus you get when it’s your house on the line ….. don’t run SPRINT

 

[pentel]

And its funny how much more focus you get when it’s your house on the line

This

If they want a free ride at your expense .... Run like the wind...... And then some more.....

 

[Auto_work]

Run away. Run away as fast as you possibly can. And if I haven't been clear enough. RUN. A. WAY. from this "friend".

So, she wants you to put in capital and not take a wage, so that she can immediately take an hourly wage? She literally wants to take your money from you.

Thanks for suggestion! Much appreciated and will take into account!

The reason I can't take my wages is because the business can't afford my wages at the start. I'll have to put money in to pay myself so it doesn't make sense, whereas her wages will be paid when we have customers booking in, pretty much like labour. Other works like forming a team, training, free consultation, she doesn't take her wages.

What is the business actually doing? How good are these people skills that they justify you gifting her half of a business?

It's a cleaning business. The costs to get started is pretty low to be honest just web hosting, domain name, booking plugin, online payment fees, ads, cleaning kits and she'd like a uniform. She has experience as a cleaner and has a few people interested to join our team. No customers yet but I think customers will come from effective online marketing and ads.

If she's so desperate for cahs right now that she has to take an hourly wage immediately, where is she going to find the money to invest later? She isn't.





Yeah, and she loses the square root of f*ck all!

True! This is the part that I try to make it fair for both! lol

So she wants you to stump up your own money, work for free whilst paying her, and then she doesn't even value the work you're doing?

She's in cloud cuckoo land and looking for a free ride.

I think it's just that she doesn't understand some technical details like web hosting, domain name etc and she wasn't aware about commercial licenses and online payment fees.

Echoing above - run away or ask her to get a loan for equal investment.

If she's doubting your costs already, it's never going to work.

I never partner with people now, never, ever, for anything! I lost over £10k of my savings the last time I did. Run for the hills and don't be afraid to tell her the figures don't work for you, so you're out. Too much risk!

Thanks for suggestion. Much appreciated!

I'll temper the above just slightly because:

1. This is half the story and

2. You don't appear to have properly talked it through.

If either of those is inaccurate, then get running.

If there is more to it, nd if you sense there is a real business opportunity here, it's time to engage in intelligent, balanced discussions about roles, responsibilities and rewards.

Starting with:

Either equal capital contribution, or your contribution as an interest-bearing, repayable loan.

Each party to be rewarded equally for time & skills.

If you can't get consensus on those basics, then get running...

Thanks for suggestions. Noted!
We've been talking about business plan and partnership agreement for 2-3 weeks now. We can't seem to work out our fair shares.

 

[Auto_work]

Wow! Doesn't sound like an even partnership to me. Sounds more like you're using your time, money and expertise to set her up in business and then paying her while she gets her business off the ground. If she does well you might get something, if not then you lose your investment and she walks away scot free. All the risk is on your side. I second the suggestion from @finleydesign about her getting a loan to pay her share. It would show some commitment on her part. If she won't do it then run (not waalk) away.

I'm all for partnerships and bootstrapping to get an idea off the ground but this seems like too much of a one sided "partnership".

You're providing funding, time and skills with no immediate or guaranteed return, whilst she wants paying from day one to make her contribution + 50% of any upside in the future.

To me this sounds like a recipe for disaster and if the project is anything other than a roaring success you'll be the one out of pocket.

I'd be really keen to know more about what sort of service / product the business is based around and how she justifies her value so much that you should have the privilege of paying her to be your business partner.

It's nothing that controversial really just a cleaning business. As she will be cleaning, I think it's fair to pay her hourly wages. Other works like business idea, building a team, training, she wouldn't take her wages.

If she is so entirely sure it will be a success then she should be comfortable taking on some debt (loan, credit card, etc...) to go in pound for pound with you to fund the set-up.

For set-up fees, what are we talking? thousands? tens of thousands? more?

The set-up fees are pretty low compare to most businesses, just web hosting, domain name, booking platform, cleaning kits, uniforms, insurance. We're talking under a thousand in the first year. Another thing to add is these costs come up every year. So if we keep going for a few years, it might be my costs add up x2, x3. haha.

If you walked away and took your skill set with you could she easily carry on without you to success? If she walked away, how easily could her skill set be replaced?

A very well written partnership agreement is a must if you do anything.

She won't be able to afford a website but I think she can carry on without me by old-school phone calls booking style and manage team schedule offline in a book. Without her, I might not stick with this type of business just because I prefer more passive type business.

Yep, we're working on partnership agreement. When we first discussed the business, she only want her wages but in partnership agreement, she put down half profits for return hence I'm trying to work out what the fair point would be. Thanks for input. Much appreciated.

 

[kantanLiving]

Best of luck with the venture if you go ahead.

1. Write down each persons contribution and then just ratio it. If your putting in equal work and capital, then 50/50, clearly you are putting in more work and money so 60/40 if your happy with that. or 70/30 you get the idea.

2. How much do you reckon you will be investing. Talk it through, in the beginning, as company share holders you can also draw a certain amount of dividends rather then do paye, as you want any income you make to be re-investing in the business. Your partner wants to be on PAYE for what main reason? likely tax purposes,

3. but you should probably best consult an accountant before even starting your business. When i started my business, i found that speaking with the accountant and asking every question and scenario was so invaluable it is a must. It will help you plan your finances and likely save you money overall.

4. Is your cleaning business aimed at residential small clients or bigger clients like companies, offices etc? Again speak to your account see how much they charge to do your VAT return. If your starting a business and have a few significant purchases ,you may find that you registering for VAT in the beginning even for 1 year might save you a lot of money. VAT registration is compulsory if your business generates over 80k, or its voluntary whenever you want before generating 80k. When i started my business, because i was importing container of products from japan and had to purchase equipment it made sense for me to VAT register for 1st year to save. It was also a good lesson help you understand it and how other providers charge you VAT.

 

[Auto_work]

Hey! Thanks for suggestions folks. Much appreciated. Just how creative everyone is for typing Run Away! Haha.

I just want to ask if these scenarios would make any difference?
1. If she decides to lower her wages for the first number of jobs until she meets with half of total investment. Would that make it fair for 50% shares? I will still take no wages and risk investment upfront.

2. If she is ok to take no wages same as me but no investment. Would that be fair to split profits 50/50?

3. I'll ask her to take a loan to invest ( like everyone suggested). Assuming she takes a loan and contribute 50% and take her wages. Should I start taking my wages too and then we're 50/50?

I just can't get my head around the value of capital vs wages. What do we value more?

Thanks!

 

[Auto_work]

Best of luck with the venture if you go ahead.

1. Write down each persons contribution and then just ratio it. If your putting in equal work and capital, then 50/50, clearly you are putting in more work and money so 60/40 if your happy with that. or 70/30 you get the idea.

2. How much do you reckon you will be investing. Talk it through, in the beginning, as company share holders you can also draw a certain amount of dividends rather then do paye, as you want any income you make to be re-investing in the business. Your partner wants to be on PAYE for what main reason? likely tax purposes,

3. but you should probably best consult an accountant before even starting your business. When i started my business, i found that speaking with the accountant and asking every question and scenario was so invaluable it is a must. It will help you plan your finances and likely save you money overall.

4. Is your cleaning business aimed at residential small clients or bigger clients like companies, offices etc? Again speak to your account see how much they charge to do your VAT return. If your starting a business and have a few significant purchases ,you may find that you registering for VAT in the beginning even for 1 year might save you a lot of money. VAT registration is compulsory if your business generates over 80k, or its voluntary whenever you want before generating 80k. When i started my business, because i was importing container of products from japan and had to purchase equipment it made sense for me to VAT register for 1st year to save. It was also a good lesson help you understand it and how other providers charge you VAT.

Thank you! Precious input!

 

[kantanLiving]

Hey! Thanks for suggestions folks. Much appreciated. Just how creative everyone is for typing Run Away! Haha.

I just want to ask if these scenarios would make any difference?
1. If she decides to lower her wages for the first number of jobs until she meets with half of total investment. Would that make it fair for 50% shares? I will still take no wages and risk investment upfront.

2. If she is ok to take no wages same as me but no investment. Would that be fair to split profits 50/50?

3. I'll ask her to take a loan to invest ( like everyone suggested). Assuming she takes a loan and contribute 50% and take her wages. Should I start taking my wages too and then we're 50/50?

I just can't get my head around the value of capital vs wages. What do we value more?

Thanks!

Why go for a paided website in the beginning anyway? why not create an instagram, tiktok or facebook page, then link to a freewebsite like wix.

consider the following:

1. Create social media business account. Use tailwind to make posts on multiple accounts simultaneously.

2. Create a free website which can also be published, like wix. you just dont have .co.uk or .com endings but wixs own. it is harder to google, unless the person specifically types in your website address but its free or pay for cheap domain name.

3. Why dont your partner secure a few actual paided orders/business first. Spread the word and then when you got a few reoccuring and some income then setup the proper website. They are lots of free calender apps now that allow people to book your calender slot so does not have to be a paid app. Plus social apps have chat functionality already so can instantly engage enquiries.

if you can reduce this main cost down, is it easier for you and your partner to value contribution and then share value?

Do you have another job besides this new business. If you go on PAYE with your new business whilst in another job, your just paying more tax. Hence why i mentioned you should speak to accountant and look at drawing dividend as your mini earning for now in the beginning. Plus some accountants charge to do PAYE so ask.

 

[BusterBloodvessel]

What's the goal with the "business"? Small residential cleaning jobs, or large commercial contracts? Basically something to employ you and her, or are you looking to build a large team?

Why do you need an online booking platform?

I can't help but think that, perhaps, you're looking for a business here that doesn't exist, or certainly a partnership of skills that isn't needed...

 

[fisicx]

@Auto_work, Your partner doesn’t need any of this.

A GBP and a phone number will get them leads. Buy the materials from a discounter. No need for a uniform.

When they do the cleaning they get paid so why the need for wages.

Nothing for you to invest.

 

[Joyous]

If you go on PAYE with your new business whilst in another job, your just paying more tax. Hence why i mentioned you should speak to accountant and look at drawing dividend as your mini earning for now in the beginning. Plus some accountants charge to do PAYE so ask.

It's a partnership so any money he takes will be drawings and not wages - and so not subject to PAYE. Not dividends either as it's not a limited company.

 

[Michael Barnes]

I don't know what your relationship is like with your partner but this would be a huge NO from me. Yes it's her idea but the idea is useless if she can't fund it. If she's insisting on a wage, then you need to have the same. You should also be looking to get a return on your investment which will come out of the profits, meaning there likely won't be any profit for her to share in until you've been fully repaid your investment at which time you'll be on an equal footing.

Her investment in the business is the idea, your investment is capital, meaning she has nothing to lose if the business fails whereas you lose your investment. Plus if the business doesn't bring in enough profit to cover her wages, then your investment is essentially being used to pay her wages. I'd also be concerned about her commitment to getting the business growing, considering she has nothing to lose.

 

[eteb3]

I just can't get my head around the value of capital vs wages. What do we value more?

I would suggest thinking in terms of contributions to the business and the compensation extracted in exchange.

Also better to think in terms of "capital risk" as well as "capital". The cost of capital at the risk-free rate is currently around 4.5%. That's what you'd have to make to be doing better than putting it in Treasury bonds, which are effectively zero risk. In your case, you obviously need to exact a premium for the capital risk you're taking: can the business give you fair compensation for that risk? If not, put your money elsewhere.

I wouldn't think in terms of "wages" (a cost), either, but in terms of labour contributed. Cleaning is a saturated market with oodles of public offers, so benchmarking the value of what your partner is contributing should be very easy.

The hardest to pin down is what "enterprise" you'll each contribute (innovation, go-get, know-how) and how to reward that. Disputes are all too likely, but at least if you agree what compensation the risk and the labour are entitled to, you only have the enterprise element to argue over.

 

[Chris Ashdown]

What happens when her name gets around, you get more work and have to employ extra staff so PAYE and all the rest come into play, plus the preverbal cashflow problems and probably high insurance costs plus maybe transport.

Once up and running why does she need anything but a simple 3 page website

I think you both need to really consider where this is realistically going, do some spreadsheets of the plan and i doubt there is any reason to have you earning 50%, she gets setup and can leave at any time with her now established clients