Pecentage Split for Investor / Partner ( 2 Owners )

[BeachBum]

Hello,

New to this forum but not new to Small Biz. I retired as a Police Officer 11 years ago in 2000 and currently own 2 businesses, one which I had prior to retiring since 1995 and the 2nd for the last couple of years..but am considering a new business venture down a whole new road that I do not have any knowledge in.

Here is my situation..

I know a close friend for 11 years who has a burger joint and has had this successful business now for the last 10 or so years.. my friend is now wanting to branch out into the Mobile FOOD TRUCK craze that is now seriously taking off like crazy here in So. Florida. This truck will be a 'Mobile' version of my friend's current burger joint which is well known and gives 5 guys a run for their money as it across the street and my friend goes tit for tat every weekend with them...and my friend's place holds it own very well.

My friend has the truck already .. has the experience.. knowledge .. etc.. as I personally do not know anything about the food industry.

What my friend does not have is the Financial backing that I possess to build out this truck to make it into a food truck (adding kitchen and what not inside and wrapping exterior with design / logos).

The truck build is approx. $70,000 to modify.

I was offered to be an Investor / Owner and put in my $35,000 Cash (Half of the money) up front needed to build the truck's interior with the necessary kitchen / cooking / propane equipment needed to operate such a mobile food truck.

My friend and I sat down to go over the numbers that were to be involved with the business from estimated payout expenses .. licensing .. vehicle maintenance, gas , propane ..basic business operation costs like supplies, food, payroll costs..pretty much ..etc.. after all was said and done as a worse case scenario after all expenses and Total Profit for the first year would be lets say approx. $30,000 ..

My friend explained to me that this was just an extreme low ball worst case scenario and that the profit would be way greater than this example shown to me..more like $100,000+ (but there is no guarantee that it will do these #s) My friend will be working this business venture along with paid employee(s) (cooks, drivers etc..) I would say 75% my friend and me 25% working on the truck (Driving, taking orders, handling the cash) as I have other businesses that I currently need to attend to as well.

anyways .. looking past the potential money amount to be made ... my friend offered me 10% return monthly of profits on my 50% cash investment ($35,000 of $70,000) for the truck build out my friend will be putting the other half in for the truck.. now as a current business owner.. I ask myself "WHAT IF" this new business venture only does the worse case scenario profit as my friend described to me ??.. as there is no "GUARANTEE" to making money in any business especially the first couple of years....

at a 10% profit monthly for myself ,, if only $30,000 is made at the end of the year.. this leaves us at $2500 a month .. and my profit take at 10% would be only $250 measly dollars.. at this rate it would take 140 months or 11 1/2 years to recoup my initial investment.. Not a Good Deal at all!! .. but then these are #s at the Worst Case Scenario .. but that is what I have to look at as an investor / business owner.. also how long will this Food Truck Phenomena last .. this could fizzle out in a few years leaving me in the hole and out of alot of cash that could of been invested in money markets, stocks or other potential interest money making places.. I honestly feel I should be offered NO LESS than 25 - 30 % of the business profits monthly..this way I have a faster guarantee / return on my investment and can see a potential profit somewhere down the lonely road of having a small business partnership.. What is your take on this ? Am I right for thinking 25 - 30 % is the better % to ask for and if my friend refuses ..and the offer still remains stuck at 10% then I should just respectably walk away ?

What are your thoughts ? Any input will be appreciated ..Good or Bad.. ( Remember now I did not sign anything yet or commit to this deal yet..so thats why I am throwing this out there. I want to make a smart move and if it can not be then I will walk away very fast ..and find something else to do like go to Happy Hour and keep my $35,000 in my pocket and continue to live my life happily ever after..

Now my question to you the Guru's - I honestly believe that this business willsucceed and will do well. I have $35,000 liquid cash about to be tied up in a business where I would like to see my return quicker then 3..4..5..6. years .. if my friend is taking 90% of the profits that would put my friend in the Liquid / Profit Stage within the first or even second year and leave me still recouping my initial investment for a much longer time to come..

Thanks for your time in lending some helpful advice..

[MyITGuy]

I'd go for a higher rate of return. Your putting up 50% of the funds and 25% of the labor (Meaning the partner has additional expense on labor, but not much in my opinion). I'd personally like to see at least a 35-40% return.

Additionally, I would want to ensure that I have some form of ownership of the vehicle/equipment (Either via the partnership that is established or as an individual). This way if things go south you can sell the vehicle as a whole or part out the equipment to recoup any losses, rather than the truck being parked by the shop for advertising or future use.

[ArcSine]

Random thoughts...


It's typical for the "know-how" partner to assume more of the early-stage, "feasibility" risk, than the money partner. He's the one wth the expertise in this particular sandbox; he should be willing to back up his rosy projections by giving you a higher %-age return until such time as your net investment at risk has been substantially reduced. Argue for a higher slice of the pie until your payouts have returned X% of your investment. Then you could have it reset to 90 / 10 if you feel that's fair.
As an additional safety net you could couple the above mechanism with a guaranteed minimum. I.e., you get the greater of $Y or X% of the net pie each month.
Make double- and triple-sure that the van has and maintains sterling insurance coverage.



The idea is to get a cash return of some healthy portion of your investment within a reasonably short time frame, then settle in for a 10% cut of what'll hopefully be a decent little cash flow machine, long term.

Cheers!

[Spider]

Let me make sure I have this right -

1. Cost of vehicle - you didn't say but let's allow $30,000

2. Cost to modify - $70,000

3. Total cost of vehicle - $100,000 or thereabouts.

4. You will be contributing $35,000. That is 35% of the cost of the vehicle.

5. I would want 35% return AND a 35% ownership in the vehicle. (Joint title, maybe, or other arrangement.)

6. I would also expect to get paid at least the same as other driver/cooks for every hour I was working in the van.

7. Your lack of knowledge in the food industry is of no consequence to the financial arrangement. Your friend has the experience and will, no doubt, manage the operation. He is already getting paid his salary for his management input.


Personally, I would not be happy with 10% return and zero ownership of the vehicle.

[BeachBum]

I'd go for a higher rate of return. Your putting up 50% of the funds and 25% of the labor (Meaning the partner has additional expense on labor, but not much in my opinion). I'd personally like to see at least a 35-40% return.

Additionally, I would want to ensure that I have some form of ownership of the vehicle/equipment (Either via the partnership that is established or as an individual). This way if things go south you can sell the vehicle as a whole or part out the equipment to recoup any losses, rather than the truck being parked by the shop for advertising or future use.
I totally agree and thank you for your input... I will have to have another sit down with my friend... I doubt this will happen and it looks like I would rather walk away and still be friends rather than create an enemy..

[BeachBum]

Random thoughts...


It's typical for the "know-how" partner to assume more of the early-stage, "feasibility" risk, than the money partner. He's the one wth the expertise in this particular sandbox; he should be willing to back up his rosy projections by giving you a higher %-age return until such time as your net investment at risk has been substantially reduced. Argue for a higher slice of the pie until your payouts have returned X% of your investment. Then you could have it reset to 90 / 10 if you feel that's fair.
As an additional safety net you could couple the above mechanism with a guaranteed minimum. I.e., you get the greater of $Y or X% of the net pie each month.
Make double- and triple-sure that the van has and maintains sterling insurance coverage.



The idea is to get a cash return of some healthy portion of your investment within a reasonably short time frame, then settle in for a 10% cut of what'll hopefully be a decent little cash flow machine, long term.

Cheers!
I was actually thinking about this .. I either get 10% of the profits or $2000 a month whichever is greater.. or something along this thinking...


Random thoughts...


It's typical for the "know-how" partner to assume more of the early-stage, "feasibility" risk, than the money partner. He's the one wth the expertise in this particular sandbox; he should be willing to back up his rosy projections by giving you a higher %-age return until such time as your net investment at risk has been substantially reduced. Argue for a higher slice of the pie until your payouts have returned X% of your investment. Then you could have it reset to 90 / 10 if you feel that's fair.
As an additional safety net you could couple the above mechanism with a guaranteed minimum. I.e., you get the greater of $Y or X% of the net pie each month.
Make double- and triple-sure that the van has and maintains sterling insurance coverage.



The idea is to get a cash return of some healthy portion of your investment within a reasonably short time frame, then settle in for a 10% cut of what'll hopefully be a decent little cash flow machine, long term.

Cheers!

Another helpful input I will take under advisement.. Thank You !!!

[BeachBum]

Since I posted this .. I spoke with a friend I bumped into at Happy Hour.. he is a self made millionaire.. and I explained what I said here in the thread and he said RUN .. and RUN FAST .. I will heed his advice and everyone here that offered input..

I own a Jetski Rental Business / Beach Chair & Umbrella rental on the beach since 1995 before I even retired from the Police Dept..I also 2 years ago got into the Bail Bond business and now instead of putting the bad guys in the jail I get them out which seems to make more money .... so my money is flowing ok .. thank god.. I am not struggling nor do I want to with investing in a business that will kick me in the butt...

I get a phone call while at happy hour.. and a close friend's brother was arrested for a ticket he failed to pay while fishing and caught an undersized fish.. and had an active warrant.. I come to find out my buddy needs 1 more investor in a Bar / Restaurant that is projected to gross $5 million the 1st year.. and for 5% of the business $50K investment I am in .. forget about the Food Truck as this new offer sounds alot more promising than a cheap friend with half the money to invest and make that friend 90% .. I will keep you all posted.. as to where my choice and decision goes to... ONE DOOR CLOSES and ANOTHER OPENS,,, life is good like that ..

Thank You again for everyone's input .. I appreciate all your info ..

[cbscreative]

I was hoping Frederick (Spider) would chime in on this thread since he is very knowledgeable about these things. David (Business Attorney) will also have some good input if he sees this thread.

[Spider]

Thank you, Steve - I did chime in but it seems our beachbum friend had a change of heart before he go to my post. But now we have another consideration -

A $50,000 investment into a bar/restaurant for 5% "of the business" (which I take to mean 5% shareholding.) That values the bar/restaurant at $1 million.

Gross $5 million in the first year. I must ask "gross" what? "Gross" without a descriptor is often used to mean Total Sales. Or it could mean Gross Profit. What our friend needs to know is Net Profit After Taxes and similar charges.

While it is possible, of course, I wonder how optimisitic is $5 million in the first year? If that is $5 million in sales, that represents $14,000 a day (360 days - I assume the place will be open pretty near 7 days/week.) If it is $5 million in gross profit, allowing a 50% markup on costs, that represents $15 million in sales which is $42,000 per day in bar receipts and meals.

On the face of it, I am not convinced that a bar/restaurant that is only worth $1 million could generate figures anything like these. And I'm even more skeptical that it could be done in the first year.

Much studying and due diligence is called for! In any case, we still need the Net Profit figure, because it is from net profit that our friend will receive his return on investment.

[BeachBum]

Thank you, Steve - I did chime in but it seems our beachbum friend had a change of heart before he go to my post. But now we have another consideration -

A $50,000 investment into a bar/restaurant for 5% "of the business" (which I take to mean 5% shareholding.) That values the bar/restaurant at $1 million.

Gross $5 million in the first year. I must ask "gross" what? "Gross" without a descriptor is often used to mean Total Sales. Or it could mean Gross Profit. What our friend needs to know is Net Profit After Taxes and similar charges.

While it is possible, of course, I wonder how optimisitic is $5 million in the first year? If that is $5 million in sales, that represents $14,000 a day (360 days - I assume the place will be open pretty near 7 days/week.) If it is $5 million in gross profit, allowing a 50% markup on costs, that represents $15 million in sales which is $42,000 per day in bar receipts and meals.

On the face of it, I am not convinced that a bar/restaurant that is only worth $1 million could generate figures anything like these. And I'm even more skeptical that it could be done in the first year.

Much studying and due diligence is called for! In any case, we still need the Net Profit figure, because it is from net profit that our friend will receive his return on investment.

Thank You .. I will be meeting with the people involved this Wednesday after the Labor Day weekend and will have a better 'Feel' and knowledge of the #s I threw out there in the above post. This Bar/Restaurant will be Located in the Heart of South Beach, Miami FL.. on the major strip and is pretty large in space...(square footage will be posted later as well) The start-up guys have numerous successful venues already booming in the Miami Beach / South Beach area .. and their intentions after the first year - two years is to open a 2nd establishment as well...I will ask these questions as I go into the meeting next Weds. and will be taking notes to throw at you all so I can come to my final decision..

[huggytree]

you now own 2 businesses and are retired and you want to start a 3rd and drive a food truck????eh???? this is your great retirement????

go ahead and invest, but stay out of the business.....i dont get at all why your friend needs you???? he's got a successful business, so why cant he just get a loan?....it doesnt make any sense.............he's got this great successful business and he cant come up with another $35,000???? shouldnt he have $35,000 just sitting around somewhere???? i dont get it...he is not very successful if he doesnt....he should have $100,000's sitting around if he's been in business for 10 years........ive been in business for almost 5 years now and i could come up with $70,000 tomorrow...

go ahead and invest if you like, but id just set it up like a loan...you get 50 percent of profits until its paid back and 8 percent interest....

when i retire i dont plan on driving a food truck...you obviously have money....dont you want to enjoy your last few years on Earth??? is driving a food truck an enjoyable thing....worrying if your going to get your money back or not

your friend is making financial promises on some best case scenario's.....my gut says he isnt that confident in reality or why else would he want to split anything with you???? you share the profit, but you also share the downfall too...thats what he's covering

i vote to skip the whole deal and go walk your dog or go golfing or something.....volunteer your time somewhere to help kids

[Spider]

Well, there is a lot of wisdom in what Dave just said. Mind you, some people (and I'll bet Dave will be one of them, eventually) that don't want a retirement that consists of walking the dog, playing golf and sitting on the front porch.

[huggytree]

Well, there is a lot of wisdom in what Dave just said. Mind you, some people (and I'll bet Dave will be one of them, eventually) that don't want a retirement that consists of walking the dog, playing golf and sitting on the front porch.

your right Spider...i wont be one of them(but most people are).....but i wont be driving a food truck...0 chance of that unless im living under a bridge or something...i wouldnt be doing it unless i was poor and needed a job.....not as an investment....running 2 businesses while being retired is awesome...i dream of it......i wont be starting a 3rd by driving a taco truck

[BeachBum]

you now own 2 businesses and are retired and you want to start a 3rd and drive a food truck????eh???? this is your great retirement????

go ahead and invest, but stay out of the business.....i dont get at all why your friend needs you???? he's got a successful business, so why cant he just get a loan?....it doesnt make any sense.............he's got this great successful business and he cant come up with another $35,000???? shouldnt he have $35,000 just sitting around somewhere???? i dont get it...he is not very successful if he doesnt....he should have $100,000's sitting around if he's been in business for 10 years........ive been in business for almost 5 years now and i could come up with $70,000 tomorrow...

go ahead and invest if you like, but id just set it up like a loan...you get 50 percent of profits until its paid back and 8 percent interest....

when i retire i dont plan on driving a food truck...you obviously have money....dont you want to enjoy your last few years on Earth??? is driving a food truck an enjoyable thing....worrying if your going to get your money back or not

your friend is making financial promises on some best case scenario's.....my gut says he isnt that confident in reality or why else would he want to split anything with you???? you share the profit, but you also share the downfall too...thats what he's covering

i vote to skip the whole deal and go walk your dog or go golfing or something.....volunteer your time somewhere to help kids

Yesterday sat down with my friend and said I would rather remain friends and walk away from the Food Truck Del deal.. and all was fine.. I am sure my friend inside didnt want to hear that but oh well. You are right.. I am financially ok.. Bills paid and can go out for a beer when I want or a nice dinner as well. Nothing wrong with making some more money if an opportunity presented itself but as you said why work for it ..Good advice from all and this Bar / Restaurant deal meeting is set for this week to discuss.. so lets see what that offers.. other than that I need to run to the Jail to post a Bail Bond for a Client.. its more money taking them out of jail then when I was a cop putting them in..:D

[cbscreative]

its more money taking them out of jail then when I was a cop putting them in..:D

There's a funny irony.

[huggytree]

Yesterday sat down with my friend and said I would rather remain friends and walk away from the Food Truck Del deal.. and all was fine.. I am sure my friend inside didnt want to hear that but oh well. You are right.. I am financially ok.. Bills paid and can go out for a beer when I want or a nice dinner as well. Nothing wrong with making some more money if an opportunity presented itself but as you said why work for it ..Good advice from all and this Bar / Restaurant deal meeting is set for this week to discuss.. so lets see what that offers.. other than that I need to run to the Jail to post a Bail Bond for a Client.. its more money taking them out of jail then when I was a cop putting them in..:D

good decision....you could invest in my plumbing business....i need a guy to dig my sewers for me...for a $35k loan you could dig the sewers while keeping an eye on your investment...the job pays $10 per hour cash....how much were they going to pay you to drive the Taco Truck?

[LFinkle]

Well in reading this I wouldn't say run but I surely wouldn't advise you to take this deal. If your friend really believes this is going to be such a huge success he should be willing to provide you with a greater return on your investment than 10%. While the idea sounds good and he clearly has the experience what if you loose your $35K or most of it because the truck doesn't make enough money the first couple of years and he closes things down? What if he closes the truck down for other reasons and you aren't able to realize your ROI?

Another thought...being in business with friends is risky. Many friendships have been ruined by business relationships. Be extra careful how you approach this relationship and make sure you and he are in complete alignment with expectations. For instance if the business is not making enough money and you want to make changes can you as an investor? And make sure to see an attorney before you do anything