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Old 1st May 2011, 10:23 AM   #1
aesoj2
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Join Date: May 2011
Location: Chicago, IL
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Question New Small Business, Ready To Expand & Friend Wants In..

So I finally put my head to what I have always wanted to do and started my own company last year (retail sort-of). It has really taken off and is starting to get to where it's more than I can handle on my own. I recently hired a personal assistant and that has helped tremendously, however I'm on the 'artistic/creative' side and seriously lack what is needed to run the financial part of my company. With that also goes anything that has to do with numbers.. invoices, accounting, web site labor/updating, etc...
So I started looking to hire someone part time, with an accounting background just to set a foundation for me to work from, and then a friend that works in that field (quite successful) offered to help. He's been bored with his job for a long time and thinks what I have going has great potential and wants to be a part of it.

Obviously this position would be part time and he will keep his day job. My initial thoughts were great! Then he comes along with a different idea and I'm not sure how to move forward. He is willing to help out financially right now with anything I need to take the business to the next level. So that includes advertising, web design, hire a company accountant, etc... and in return, he would like to have something set in the way of % in advance, on the small side, but with an interest and/or option to "buy in" more moving forward. So he isn't looking for any immediate compensation.

I know that he would help me out in a great way and take over a very important part of the company that I simply am not good at, but at the same time I don't want to create something now that I can't get out of later. Just to note, it's my creativity that is making the money so in the future the last thing I want is friend or an investor that can take over and buy me out.

Is there a safe and diplomatic way to go about this situation or has anyone has an experience similar?

The first thing I need to do is change from my DBA and form either an LLC or S-Corp, but would this be some type of partnership?
Any recommendations on that would be helpful as well...
Thank you!!!

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Old 2nd May 2011, 07:59 AM   #2
jvance
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Quote:
Originally Posted by aesoj2 View Post
So I finally put my head to what I have always wanted to do and started my own company last year (retail sort-of). It has really taken off and is starting to get to where it's more than I can handle on my own. I recently hired a personal assistant and that has helped tremendously, however I'm on the 'artistic/creative' side and seriously lack what is needed to run the financial part of my company. With that also goes anything that has to do with numbers.. invoices, accounting, web site labor/updating, etc...
So I started looking to hire someone part time, with an accounting background just to set a foundation for me to work from, and then a friend that works in that field (quite successful) offered to help. He's been bored with his job for a long time and thinks what I have going has great potential and wants to be a part of it.

Obviously this position would be part time and he will keep his day job. My initial thoughts were great! Then he comes along with a different idea and I'm not sure how to move forward. He is willing to help out financially right now with anything I need to take the business to the next level. So that includes advertising, web design, hire a company accountant, etc... and in return, he would like to have something set in the way of % in advance, on the small side, but with an interest and/or option to "buy in" more moving forward. So he isn't looking for any immediate compensation.

I know that he would help me out in a great way and take over a very important part of the company that I simply am not good at, but at the same time I don't want to create something now that I can't get out of later. Just to note, it's my creativity that is making the money so in the future the last thing I want is friend or an investor that can take over and buy me out.

Is there a safe and diplomatic way to go about this situation or has anyone has an experience similar?

The first thing I need to do is change from my DBA and form either an LLC or S-Corp, but would this be some type of partnership?
Any recommendations on that would be helpful as well...
Thank you!!!
First, talk to an accountant and a lawyer before you make any promises to your friend. I would set up a corporation before going to far as well.

If you move forward bringing him into the company, make sure you have a shareholders agreement in place to deal with any issues that may arise IF things don't go as planned (a lawyer would help with this).

Taking on partners is tricky business...it is even more tricky when you know the person as a friend. There have been more than a few relationships lost (marriages, families, friendships) due to conducting business together. Be VERY careful.

I have current businesses where I am the sole owner, and another with 2 other partners (in business 13 years with partners). The one with partners is WAY more difficult to conduct business in, as there are three opinions around the table when it comes to important decisions.

One of the easiest ways to let someone in on the company is to provide them with non-voting shares, or even a profit sharing arrangement (preferred). (lawyers and accountants will let you know which may be best). Under these arrangements, they aren't full partners, and don't necessarily have a say in how you run your company, but you can structure it in such a way that if things go well, they are rewarded for their "risk" in coming to work alongside you. These structures usually mitigate the risk of being "bought out" as well.

My 2 cents.

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Old 4th May 2011, 12:42 PM   #3
Shesmyremotepa
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Quote:
Originally Posted by aesoj2 View Post
So I finally put my head to what I have always wanted to do and started my own company last year (retail sort-of). It has really taken off and is starting to get to where it's more than I can handle on my own. I recently hired a personal assistant and that has helped tremendously, however I'm on the 'artistic/creative' side and seriously lack what is needed to run the financial part of my company. With that also goes anything that has to do with numbers.. invoices, accounting, web site labor/updating, etc...
So I started looking to hire someone part time, with an accounting background just to set a foundation for me to work from, and then a friend that works in that field (quite successful) offered to help. He's been bored with his job for a long time and thinks what I have going has great potential and wants to be a part of it.

Obviously this position would be part time and he will keep his day job. My initial thoughts were great! Then he comes along with a different idea and I'm not sure how to move forward. He is willing to help out financially right now with anything I need to take the business to the next level. So that includes advertising, web design, hire a company accountant, etc... and in return, he would like to have something set in the way of % in advance, on the small side, but with an interest and/or option to "buy in" more moving forward. So he isn't looking for any immediate compensation.

I know that he would help me out in a great way and take over a very important part of the company that I simply am not good at, but at the same time I don't want to create something now that I can't get out of later. Just to note, it's my creativity that is making the money so in the future the last thing I want is friend or an investor that can take over and buy me out.

Is there a safe and diplomatic way to go about this situation or has anyone has an experience similar?

The first thing I need to do is change from my DBA and form either an LLC or S-Corp, but would this be some type of partnership?
Any recommendations on that would be helpful as well...
Thank you!!!
No, No, NO and absolutely HECK NO! First, how does he go from being a part time employee to business partner. Donít do it and if you fall for this trap, please please seek an attorney first thing smoking. This sounds like a bad idea from the start particularly if he is handling the finances. In addition your profits will be shared as oppose to what you care accustomed to. If you are not legally careful this could backfire on you to the point he takes your business right from under you. While, I know you are creative, you are going to have to take some courses and become more familiar and comfortable with how to handle the finances. Itís really not that hard once you learn it. An accountant should be your checks and balance, more like a supervisor not the manager. This is the fastest way to get ripped offville and be emptied even with friends. So make it your business to take a night class. You should be able to understand the central and an advance level of how things work.

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Old 9th May 2011, 08:12 AM   #4
Marquise152
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Default New business start-up

I'm going to start a hot dog vending business in Jacksonville and I need all sorts of advice - particularly about licenses, permits and commissaries. Thanks.

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Old 11th May 2011, 10:19 AM   #5
phanio
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If all you need is someone to manage the business/financial side - then you don't need a partner and all that hassle. Plus, it seems that your partner is getting more long-term up side then you are getting in return.
You can either hire a manager or look for an accounting firm in your area to handle that side of the business.
Just by you posting here and your doubts, I think you already know the path you want to take.

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Old 12th May 2011, 09:14 PM   #6
AngelBiz
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My advice is to think long and hard before moving into partnership with a friend. I have seen cases where you end up losing not only a good friend; but also money and business.

I had written several articles on this topic on my blog. You can find them here -

http://www.angelbusinessadvisors.com...your-business/

If you do decide to go ahead with partnership these couple of article might be useful:

http://www.angelbusinessadvisors.com...f-partnership/

http://www.angelbusinessadvisors.com...tnership-work/

Good luck.

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Old 17th May 2011, 02:05 PM   #7
Portal
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Location: Baltimore, MD
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Quote:
Originally Posted by jvance View Post
First, talk to an accountant and a lawyer before you make any promises to your friend. I would set up a corporation before going to far as well.

If you move forward bringing him into the company, make sure you have a shareholders agreement in place to deal with any issues that may arise IF things don't go as planned (a lawyer would help with this).

Taking on partners is tricky business...it is even more tricky when you know the person as a friend. There have been more than a few relationships lost (marriages, families, friendships) due to conducting business together. Be VERY careful.

I have current businesses where I am the sole owner, and another with 2 other partners (in business 13 years with partners). The one with partners is WAY more difficult to conduct business in, as there are three opinions around the table when it comes to important decisions.

One of the easiest ways to let someone in on the company is to provide them with non-voting shares, or even a profit sharing arrangement (preferred). (lawyers and accountants will let you know which may be best). Under these arrangements, they aren't full partners, and don't necessarily have a say in how you run your company, but you can structure it in such a way that if things go well, they are rewarded for their "risk" in coming to work alongside you. These structures usually mitigate the risk of being "bought out" as well.

My 2 cents.
Well said my friend. Hiring an outsourced business is not too expensive and extremely helpful. Although I'm a CFO Consultant, I know several business consultants that specialize in small businesses and start-ups.

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