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LocalDelivery
06-09-2011, 04:23 AM
I'm entering a partnership in a messenger service. I have 15 years of experience in the industry, but I'm new to the partnership and business side of things. My partner has a successful Air Courier company, and wants to start a messenger service in Los Angeles that he will fund. He wants to know what I have in mind in terms of the partnership? What percentage should I request? 60/40? And what questions should I ask to protect myself?

Spider
06-09-2011, 09:04 AM
If your partner is going to provide all the money for this venture, I think the main question is, What are you going to do to protect him? If he is carrying 100% of the risk, he ought to be getting 100% of the reward. So, before you can determine what percentage you might ask for, ask yourself, What am I contributing ot this partnership?

What will you be contributing to the partnership?

LocalDelivery
06-09-2011, 02:10 PM
My contribution will be service/work. I'm supplying our initial clients, and will be responsible for sales, and the entire operation. I'm trying to settle on an idea of what would be fair to both, in this situation. Thanks for replying Spider.

Spider
06-09-2011, 02:28 PM
The initial clients to whom you refer - do you have them already? Like, are they currently paying clients you are serving right now? If so, how many are there? And what is the total number of regular clients you feel would be necessary for a robust business?

LocalDelivery
06-09-2011, 03:25 PM
These are personal relationships with the decision makers of (8) companies (4) Film post-production (2) Legal Firms (1) Advertising Traffic (1) Architectural Firm, who have commited to our service upon opening.

Spider
06-09-2011, 04:26 PM
I count that as 16 future clients. No clients currently. Unfortunately, LD, it seems you are not bringing much of value to the table. You are not going to invest any money, from what I hear. You have no actual clients to bring. You have 15 years of experience, that is good. I am going to guess that you will need 300-400 clients for this business to be profitable. It depends how often they use you, I suppose.

The only thing you have is your experience. Everything else is future - the 16 anticipated clients, the work you will do, advertising to get more clients - it's all in the future. You partner is going to provide 100% of the funds, if I understand you correctly.

What's going to happen if the business runs for a while, doesn't grow as expected and dies. Your partner loses everything. You lose nothing. The only thing you are bringing is 15 years of experience, and if the business dies, you still have your experience. You walk away with your 15 years experience intact. Your partner loses everything he invested. If the 16 future clients are personal contacts as you say, you will probably keep your 16 personal contacts with which to start another delivery service. But your partner doesn't have what he brought to the table. It's gone! Do you see?

If I was your partner, I would ask you very specifically - What are you going to bring to the table to justify any percentage? If I invest $100,000 and you invest $100,000, then we can split the profits 50/50. If the business needs 300 clients to be profitable and you are bringing 100 paying clients, then we could split the profits 34/66 (34% for you and 66% for me.)

Unless you have some skin in the game - something you will put into the business that you could lose if the business fails, then I would not be prepared to give you any share of the profit, I'm afraid. In fact, what you are describing here isn't a partnership. I see no basis for a partnership in the details you have provided. Sorry.

My suggestion is, figure out something you could provide that you could lose that the business needs. Money is an obvious answer, but it has to be your money, not borrowed money. 100 paying customers would be a good offering, if you could figure out how to get them on board before starting the business. (Purchase order with deposits, for example.) Necessary equipment, vehicles, premises, licenses, and so on. Value them against the value of the investor's contribution, for your percentage split.

Until you have something to offer your friend, I don't see how you could expect any share of the profit. Sorry.

tylerhutchinson
06-09-2011, 06:22 PM
I think Spider hit it spot on. I have invested and been asked to invest in several companies. I put a value on the company and where it will be and how it will grow. I also look at what the other person is bringing to the table. I put value on the risk they are taking with the partnership as well.

In this situation if I were your partner I would put a value on what you will do for the company. If I put all the money up BUT you agree to design and get the company going and do all the initial marketing I would put a value on your time to do that. I would also take your clients you are bringing on board with the launch as well. So say I put 250k up front and get it going. I could use your time your putting in at first and put a value of say 50k for the first year. Assume that as an imaginative salary. Then I value your starting clients at another 50k for the first year. That is all money that can be put right back in and offer referrals out off owners and people they know.

So that gives you a 100k share in a 350k start-up (since I put up 250k of my own) That gives you roughly a 29% share. So I would think based on a logic to that 70/30.

Obviously you would have to calculate it yourself with actual figures. But that is one way to determine AND it will help justify it to the other person. If he feels you will not be an asset or if he thinks your asking for too much he may decide he can cut you out and just offer a "finders fee" for those initial people. Honestly if I were him that is probably what I would do.

Hope that helps.

vangogh
06-09-2011, 08:54 PM
If I'm understanding right your partner will be putting up the initial investment to get things going and you'll be doing all the work. None of us can really tell you what would be a fair split, since we don't really know how much money is involved and how much of the work you'll be doing. I disagree though that you aren't contributing anything. On day one it's true that your partner will have put in most everything in the form of money, but each day thereafter you'll be catching up by doing the work.

If your partner could run the business by himself he would. If he only wanted to hire you to run it he would do that. He approached you with the idea of a partnership so he clearly thinks you'll be contributing to the business.

As far as what's a fair split here are some questions you need to ask and answer.

How much is your partners investment going to be? Will he be investing more as needed or is this a one time investment? The more he's willing to invest in the future the more of the company he deserves in the split. If this is only a one time investment then at some point in the future you'll be the one who's contributing more in your time and effort. Perhaps there's a way to start with one split where your partner makes more in the beginning and then over time some of the company works it's way back over to you. How long and how much is again something you'll have to work out.

As far as your contribution what will you specifically be doing? Are you going to be in charge of employees delivering the messages? Are you the one who'l be delivering the messages? What kind of experience do you bring and how hard would that experience be to replace?

From what you've said you do have clients already. They're future clients mainly because you haven't opened for business yet. What kind of a commitment do you have? Is it simply a promise or are there contracts in place? Have you gotten a deposit? A retainer? Some kind of money up front? Has money been talked about and agreed upon? If you haven't talked money or contracts then you really just have a promise and its possible some or all of those promises will fall through. If you can get something more than a promise you've brought someone more to the business. You'll have brought money in to offset what your partner is investing.

Again you'll have to figure out what a fair split is, but you should think not only of what each of you contributes today, but what each of you will be contributing tomorrow and next year, etc. In the beginning your partner is probably contributing more, but unless he continues to fund the company your share continues to increase. You need to offer him a fair amount of the business since you need him to get started, but not so much that in time it's a company where you're putting in 100% while his contribution is long into the past.

Hope that helps.

LocalDelivery
06-09-2011, 10:46 PM
Spider and Tyler, point taken. I understand that from the perspective of someone looking for an investor, or trying to invest. However, my partner has two other divisions within his corporation, Air Freight and Trucking. Both are very succsessful. I was approached, and presented a partnership opportunity in starting a Messenger division. The (8) clients I mentioned earlier are clients I provided to his Air Frieght division. They are current clients that have needs for a messenger service. With that being the case, and the fact I would be doing the work to build the business, I wasn't able to settle on an appropriate percentage. After being asked "What type of percentage do you have in mind."

Spider
06-09-2011, 11:12 PM
...my partner has two other divisions within his corporation, Air Freight and Trucking. Both are very succsessful. I was approached, and presented a partnership opportunity in starting a Messenger division... This is a very important distinction. If the messenger "Division" is to be a division of the existing company, I cannnot imagine the legal complications (if any) that would present vis-a-vis the whole company. You'll need an attorney to determine that. In a nutchell, as I see it - and I am not an attorney - I wonder how you could be a partner (part owner) of a part of a company.

If the Messenger Service is to be a separate and independent company, you could be partners in that and your partner's company would hire your joint messenger company when needed. But then it would not be a division of your partner's other company. If it was going to be a division of your partner's company, it sounds as if you would be an employee, possibly with profit-sharing, not a partner.

I think it is necessary to understand what your legal status is going to be before you can contemplate what percentage share of profits you can ask for.

greenoak
06-10-2011, 08:36 AM
looks to me like your network of contacts is what you are bringing to the table....that sounds pretty major....
i would probably go for a small percent of the business...and a big sales comission to you....
hopefully the 2 of you can get real clear on this and get it down right.....and with a lawyer...
if someone could add a big side business for me , even with all my money at the start , i would think a half and half split of the profits would be a sweet deal.....i kind of like the big commission approach better....because of the diffficulty of pinpointing what profit means....
other questions...does the new business pay back his investment? and do you get paid before any profits come in?
the ideal will be if you 2 reach a win win agreement then can get it on paper right....your first thought of 60/40 sounds reasonable to me...
sounds like he has a lot of confidence in you...
i would try to see what he thought was fair ...