Fair Profit Split

[moerod]

I left a firm at which i worked at for 15 years and had a very large client offer to follow me when they heard i was leaving. I worked out an exit strategy with my previous employer and agreed to pay him back a percentage of his loss in profits due to the client following me.

I could not totally go out on my own because i am not a licensed professional in the field that i am in so i joined forces with a colleague i knew who is licensed and has an unlicensed partner. They currently have their own company and we agreed that we would start a separate company to which i would bring my client and expertise. they would assist in funding the company for 6 months. Its been six months and they've funded me till no and they have just been paid back every penny and i can carry myself. The licensed partner only reviews documents for about 1 hour a week and the unlicensed partner has put about 30 hours into the company in the last 6 months. Our original agreement was that i would have a salary (they don't get one because they have a separate company which they make a salary from) then i would pay my old employer first before splitting profits, then they would get each 50K and the rest of the profits would be split 50% me and 25% and 25% for each of them. We are now about ready to get into the partnership agreement and discussions about long term, since i will technically not need them once i'm licensed in 3 years, so i told them it should be 70% for me and they split 30% once i'm licensed and that i should be running the new company since they have a separate company that they are running.

I'm being accused of being greedy, but the way i see it is i could have gone to any other licensed professional but they could not have had the opportunity to make about 100K a year each for just carrying me and assisting me for 6 months.

am i wrong, should i continue with them knowing their mindset or just agree to move on once im licensed.

[Paul]

Not sure what the split should be because I don't know what they funded and at what risk. On the surface it seems way too much for them.

Two things pop out at me 1) why are you paying your old employer? Did you have to buy out of a non-compete agreement? 2) why are you negotiating 3 years down the road. I would suggest negotiate the best deal for now and then in 3 years you can turn the tables on them. They don't need to know your plans. Plan your exit quietly.

[moerod]

Not sure what the split should be because I don't know what they funded and at what risk. On the surface it seems way too much for them.

Two things pop out at me 1) why are you paying your old employer? Did you have to buy out of a non-compete agreement? 2) why are you negotiating 3 years down the road. I would suggest negotiate the best deal for now and then in 3 years you can turn the tables on them. They don't need to know your plans. Plan your exit quietly.

In their mind their was a risk but they were pretty much a credit card. What they invested in a given month was paid back within 4 weeks once an invoice was paid by the client. That went on for 4 months and now it's over.

1. I did have a noncompete which I bought out.
2. I'm very honest to my dismay sometimes so I would not just lead them on.

[Paul]

Sounds like they risked very little, especially since you brought what was essentially a guarantee in the form of your client.
You certainly owe them for their investment and confidence. if I understand, you get a salary and then they get $ 100,000 and then you get 50% of the remaining. If your salary is $ 100,000+ then it is somewhat reasonable.

Honesty of course is a virtue. But, it doesn’t require forfeiting a negotiating position. If you are not happy with their offer you have every right to strategically position yourself for the best possible outcome for yourself. Think fairness, not honesty. If you have a flush in your hand, honesty doesn’t mean you have to tell them before you play it. Remember, YOU brought in the deal. Just my own opinion.

[The Coach]

I understand your issue ... I was in a similar position at a moment.
Totally agree with Paul and keep YOUR fairness for yourself. 3 years could be used to plan/develop a great exit.

[alwaysinterested]

I would set a split for the 3 years that makes them happy then make sure you can be on your own free and clear in 3 years and completely self sustainable. Then after 3 years its yours and you keep a 100% of the profits cause its your business and they are out completely. Is all they did was help you get started basically with a loan and from what you have said a very small amount of input/work. Unless they are going to make your business more profitable you dont need them and it sounds like your being more than fair unless you left something out.

Side note: Also Its from what I read technically both of your business's so they obvioulsy need to be paid back then added on profit for their investment. After they are paid back with interest, they either A- have to start acting like a partner and do half the work or B- break off and take their profit and move on.

By the way 3 years sounds way to long and is much more than I would give. Its business and nothing else, its all about the money in the end so make yours while you can and make them earn theirs if they want half the profit.