To split or not to split, that is the question.

[thebreakfastclub]

Apologies, long one. I know I need professional advice on this but interested in different views and perspectives on this first, pro’s and con’s from your experience.

I started a company on my own in January this year, the lead up took a few months, planning, building a website, registering with professional bodies, serviced office, marketing etc, approx £5k in so far. I was approached by an ex-employee who was very enthusiastic to play a part. I should add, this chap was a top 10% sales performer, personality wise someone I worked well with too. He offered to help out on a part time basis, a few hours a week here and there. Great.

The business is Estate Agency, so from instruct, to agreeing a sale, to completion & receiving the first paycheck can take 6 months or more. I made it clear I couldn’t pay him until we started making some money but would split the commission on any deals he’d participated in. He’d essentially be doing this on a self employed commission only basis. Not ideal but it is what it is.

We have a few deals in the works now that I’m happy to pay him a split on. Great.

However, a few months in and he's been getting a lot more involved and it’s become clear he wants to be a formal partner. He would be an asset to the company, and I would like him involved, but I’ve worked so hard and put in all the upfront cost to get this started, I’m not looking at giving half of it away before it’s even grown legs. Plus, I’m the only one with a professional qualification, and experience running companies. He’s essentially just a very good salesman and employee I know and trust.

I’ve told him I want to avoid a partnership like the plague, I’ve worked for two failed partnerships in the past. I’ve left it that I’ll look at options and come back to him.

Obviously I want to get this resolved asap, I’ll pay him commission on work done so far, and I do want him involved in the company, but I don’t want him to be under false pretences that we’ll be splitting the company 50/50 moving forward. He may walk if I go back to him with an offer of just employment. Plus I do genuinely see him running a branch or two in the future, so he can help the company grow on that front too.

My thinking is to offer him to stay on as self employed commission only at this point, then set up a new ltd or llp business for the new office with him as joint shareholder, but 75% - 80% split of profits to him, I can give him the professional structure he needs for his office to flourish, similar to a franchise.

Thoughts on this set up? Maybe there’s a better solution?

 

[japancool]

Why does it need to be 50-50? You could offer him a smaller shareholding. 10%-15% or something.

 

[thebreakfastclub]

@japancool A small shareholding did cross my mind, although he’s been a crucial help in these first months, to be brutally honest I’d rather not give any other the main company away, hence my thoughts on setting up a separate company with the new office. IYO what would be the pro’s and con’s of a small shareholding vs a separate company?

 

[WaveJumper]

You already answered you own question above:
"I’ve told him I want to avoid a partnership like the plague, I’ve worked for two failed partnerships in the past"

Why would you want to put yourself through something similar again ok he's an asset look after him fair wage / commission if some day you expand the business he can be manager of a new office if he walks there's plenty of other 1st class sales people out there.

 

[MarkOnline]

What does your gut tell you? I, personally, would just shore up his commission structure and overiders in the future when it grows some more. and he can earn off other sales staffs' sales too (sales manager type role) He left it a bit late for a share, if he's good he will make good money with you (and you reward him for the value he brings.) He may even get a flashy company car too, estate agent sales people seem to love a bit of flash, sometimes more than the money.

 

[Mr D]

Giving share is a big step.

Wages, bonuses, profit share - great. But share is a bigger step by far.

Not unknown for people to get share and simply stop - they already have a portion of the business, the can sit and wait for the money to flow in.

 

[Opinion87]

but I’ve worked so hard and put in all the upfront cost to get this started

Four months and £5,000 is hardly a huge amount of time nor money. I'm not really sure what the issue is- this guy has been getting a lot more involved (off his own back?), is going to bring considerably more sales than you could yourself, you get on with him and you trust him?

 

[MarkOnline]

Four months and £5,000 is hardly a huge amount of time nor money. I'm not really sure what the issue is- this guy has been getting a lot more involved (off his own back?), is going to bring considerably more sales than you could yourself, you get on with him and you trust him?

I have met some really good sales people who can knock the ball out of the park. Run a business, they wouldnt last 2 minutes IMO. Sales people can be a strange breed sometimes. As you know there are more than just sales skills needed to build a successful business. The guy has put some work in, fair enough, he's getting paid what was agreed. If it had gone pear shaped in those 4 months would he have put £2500 plus half of whatever other debts had accrued. We can all ask for a share when we can see how well its seems to be going, even at this early stage. I dont think the guy had anything else more important to do at the time, otherwise he would have been doing it.
Possibly make him a director, provided he's not a dodge pot of course.

 

[japancool]

@japancool A small shareholding did cross my mind, although he’s been a crucial help in these first months, to be brutally honest I’d rather not give any other the main company away, hence my thoughts on setting up a separate company with the new office. IYO what would be the pro’s and con’s of a small shareholding vs a separate company?

Well, look at it from both his and your point of view.

If you establish a new company, what does that give him? How does it benefit you? Would he be in competition with you? If he's as good as you say he is, what would stop him from pinching all the main company's potential business?

I'd say giving him some sort of stake in the main company would keep him a lot more motivated

 

[patientlady]

Have you asked him, where he would like to be or just assumed? Would he want to take on the responsibilities of directorship. Would he really expect 50%?
You are in for £5K now, but further down the line, if you are planning to expand £5K will not be the only outlay.
I think a chat with him to see what thoughts and ideas he may have, as ultimately they may or may not be what you think.

 

[Frank the Insurance guy]

You need to find out what will motivate him

- if its the kudos of being a partner/director, you need to decide if that is what you want!

- If its financial reward, thats easier, just make sure its clear what his earnings/commission share is.

From what you've said he's a great sales man but has little or no experience in running a business - as such I would advise caution on giving him a partnership or shareholding. Try and go through the valued employee route with a visible role and potential earnings/commissions that will keep him interested in growing the business - yes he will be growing it for you, but will see the direct benefits in his salary/bonuses!

 

[ToppaFounder]

I think you need to ask him what he wants, he may want shares or he may want a higher % of the sales. The share split doesn't have to be 50/50. I built Toppa on a sweat for equity basis, it has been good and also a pain in the backside too. If he is working hard and bringing in revenue/adding value then it is worth looking at how you can incentivise him to keep doing that. I would make a decision early on before the business grows and it becomes a different conversation.

If I were you, I would speak to him and confirm what he wants. If shares are an option then start with a small shareholding and increase it based on performance/what he brings to the business. Ensure you get good shareholder agreements in place that include good and bad leaver clauses too. The other advantage (early on) of issuing shares is that you're not having to pay him commission which means more money in the business to reinvest and scale.

Good luck with your venture