Welcome to the Small Business Ideas Forum! We are a community of over 100,000 small business folks with over 163,000 posts for you to browse. We pride ourselves on being the friendliest forum you will find and we'd love to have you as a member of our community. Please take a moment and register for a free account. If you need any help, please contact Chris Logan.

Small Business Ideas Forum

Small Business Ideas Forum

A friendly place to share small business ideas and knowledge, ask questions, find help and encourage others that are involved in the small business industry. Topics include small business marketing, generating revenue and small business computing.

Go Back   Small Business Ideas Forum > Generating Revenue, Insurance, Taxes, Etc. > Small Business Finance
Register Search Today's Posts Mark Forums Read

Reply
 
Thread Tools
Old 23rd July 2007, 03:06 AM   #1
kenwood
Member
 

Join Date: Jul 2007
Posts: 2
Default Investors Cash And Sweat

Hello,

I have a situation and I cannot figure out how to setup %'s for profits, appreciate approches you have seen used/pros & cons:

Starting up a company, will make and sell a product, 51% of the company goes to the founder, the other 49% will be split between
  • 4 cash investors who will do *no* work in the company but contribute 20k or more
  • 1 sweat equity investors who will do all the marketing, operations, accounting, etc), but will give *no* cash investment but has been put in charge of all operations/sales/marketing work in a VP role

Any ideas how to figure out a percentage for the one non cash investor? I have seen salary estimates used, e.g. VP makes 200,000 so it is as if the VP is putting in 200K, etc. Need to see if there are other methods.

(Looking at making the company and LLC with an agreement to the % for draw and exit clauses so if the co does well and someone bales, we can buy them out and continue. Don't want to deal with shares, payroll, etc. right now).

Thx in advance

kenwood is offline   Reply With Quote
Register or log in to remove this ad.
Old 25th July 2007, 08:12 AM   #2
Raise Capital
VIP Contributor
 
Raise Capital's Avatar
 

Join Date: Oct 2006
Location: Houston, TX
Posts: 165
Default

How much each person is putting in the company. I am doing a similar deal right now. I am putting in majority of the financing, but I am giving up shares for sweat equity. I decided to give 30% of the company up in sweat equity, and then splitting the rest between the people working in the company at the beginning.

Raise Capital is offline   Reply With Quote
Old 28th July 2007, 09:37 AM   #3
SeattleCPA
VIP Contributor
 

Join Date: Apr 2007
Location: Seattle, Washington
Posts: 203
Default

I think you need to start your thinking about questions like this with real numbers. E.g., figure out what the business may be worth best guess, worst case, best case, etc. Then, using those valuations, calculate what return on investment your cash investors are getting paid (as an annual ROI)... and calculate what salary your sweat equity guy is getting paid.

A couple of comments: Appropriate ROIs for venture deals are very high. I remember once talking with an older VC not long after I get out of business school with my MBA in finance. "Henry," I asked, "What annual return do VCs expect?"

He smiled and said, "Something unconscionable..."

__________________
Steve Nelson, Publisher, www dot llcsexplained dot com and www dot fasteasyincorporationkits dot com.
SeattleCPA is offline   Reply With Quote
Old 28th July 2007, 03:38 PM   #4
JGAviator
Member
 
JGAviator's Avatar
 

Join Date: May 2006
Location: Long Island, NY
Posts: 99

Default

One system I saw recently looking like this (based on profits of the company):

15% to founders team(started the company)
25% to management team (sweat equity)
60% to investment team (capital)

One person could actually be a part of all 3 teams and would receive a nice compensation package. The %'s actually change once the investment team received their capital back and would look like this:

15% to founders team(started the company)
60% to management team (sweat equity)
25% to investment team (capital)

I know it seems like a lot to the management team, but without them constantly focusing on the bottom line, the whole pie would be smaller. Plus it allows for a key manager to step back a little bit after say 5 years with plenty of room for enticing a new manager to focus just as hard.

__________________
-Jim
Affordable Hosting, SSL Certificates Get your business on the web.
JGAviator is offline   Reply With Quote
Old 30th July 2007, 11:27 AM   #5
Raise Capital
VIP Contributor
 
Raise Capital's Avatar
 

Join Date: Oct 2006
Location: Houston, TX
Posts: 165
Default

JG,

That was a smart way to lay everything out. Now, everyone involve has to agree to those terms. Kenwood, if you decide to do anything, make sure you have agreements done. There should be an exit plan for everyone involve.

Raise Capital is offline   Reply With Quote
Old 2nd August 2007, 10:41 PM   #6
kenwood
Member
 

Join Date: Jul 2007
Posts: 2
Wink thx guys

Great information from everyone, especially like the % change and its purpose, and yes we do need signed agreements

thanks again!

kenwood is offline   Reply With Quote
Old 2nd August 2007, 11:56 PM   #7
JGAviator
Member
 
JGAviator's Avatar
 

Join Date: May 2006
Location: Long Island, NY
Posts: 99

Default

Raise Capital,

Does your system work for any type of business?

Thanks,
Jim

__________________
-Jim
Affordable Hosting, SSL Certificates Get your business on the web.
JGAviator is offline   Reply With Quote
Old 12th August 2007, 10:38 AM   #8
Raise Capital
VIP Contributor
 
Raise Capital's Avatar
 

Join Date: Oct 2006
Location: Houston, TX
Posts: 165
Default

Its not mine, I am just part of the program. And, it does work for everyone.

Raise Capital is offline   Reply With Quote
Reply   

Bookmarks




Thread Tools

Get Updates
RSS Feeds:
RSS Feed for Small Business Finance RSS for this Category Only: Small Business Finance

RSS Feed for Small Business Ideas Forum RSS for Entire Forum
Forum Rules


Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump


Small Business Ideas Forum


 
At Your Business - Small Business Directory
Free Business Forms - Prewritten Documents
 
Search Engine Guide
Small business guide to search marketing

 
Small Business Brief
Fetching the Best Small Business Info


Free Links - Free Advertising
Free Guide - Online Directory



Advertise your business here
Contact us for more details!


Semantic Juice
Register now to access free Quick SEO service!


Rocket Lawyer
Sign up for free 7 day trial. Boost your biz!


Buy UPC Codes
Get your products listed online!




All times are GMT -5. The time now is 05:25 AM.


Powered by vBulletin® Version 3.7.3
Copyright ©2000 - 2020, Jelsoft Enterprises Ltd.
Copyright 2004 - 2018 - Privacy