Partnership ideas?

[patieboy41]

Hello,
New to the forum. Wondering if this is the best area to get advice on a partnership agreement.
My wife and I are looking to start a home care business and I have an old business associate who's interested in investing. This third person would be completely hands off. I have no clue on how to structure the capital contributions and profit sharing.
My wife and I will be doing all the day to day and we plan to hire a sales person the first year (so we'll be carrying a salary)
Let's say the business cost $45K up front and $5K a month for the first 12 months or until we reach profitability. What should I ask for in terms of capital and ongoing expense coverage? Any ideas?
Thanks much.

[vangogh]

Welcome to the forum patieboy41. Sorry no one responded to your thread. Occasionally a few fall between the cracks. Hopefully you're still checking in and I can help your thread become active.

Good questions. I don't that there's a definitive answer. It'll probably be something you have to work out that seems fair to everyone involved. One question I'd ask is do you need the investment? The $45k and then the $5k each month. Is that money you can pay without the investment? If so what's the investment for? I'm asking in part to see if maybe what you could sooner use is a loan. I'm guessing this partner would like to own part of the business though.

I guess think about all the expenses you'll have and how much money you'll need to pay those expenses. That should give you an idea of what kind of an investment you want. Figure out how much that's worth to the business and for how long you'll need future investment. Do what you can to understand how much your partner is helping the future success of your business and how long you'll need that help.

From there you can work out a deal. Will the investment be a one time thing? Will your partner provide money for a certain length of time. Short term you need the money to survive so it's very important. Long term the business should be supporting itself so that investment isn't as important. What does it contribute to the life of the business. You can start by think since there are 3 of you, your partner's investment is worth 33%. It might actually be worth more on day one and less a few years down the road. How much of your business down the road are you willing to give up now for the short term help.

You can also set up something so the % of ownership varies over the years. Perhaps early your partner gets more and some of that ownership reverts back to you and our wife. Keep in mind some of the return from your partner's investment won't come in right away so you shouldn't reduce ownership too much too soon.

Sorry again your thread went unanswered and hope I've managed to help a little. This is one of those questions I don't think has easy answers.