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foxy80
10-17-2012, 05:25 AM
A few months ago I came up with the idea to open a business in my area. I did the research, found a good franchise, and then told my family about it. My brother wound up taking an interest in it. I was hesitant at first, but reality set in and I need his half to afford starting the franchise.

I was recently accepted into medical school, and if I accept, I will be starting next august. Or store is projected to open late November or early December. In those 9-10 months, I would primarily run the entire store without my brother's assistance. After I left we would likely hire a manager to take over.

My brother is proposing that we split the business 50/50 up until I leave. At that point, he wants to do a 90/10 split. His reasoning is that for the rest if my life I will be earning 10% on a business expected to take home about 300k/yr for my initial investment of about 80k. He also said I would get 5% of profits from additional stores opened, even if I had no involvement in them, and I could have an option to buy back into the other stores at any time.

I'm not entirely sure I'm ok with the arrangement for a few reason. I'm not sure if this is legitimate for wanting a bigger cut, but I feel like the fact that it was my idea and I did all of the research and inquiring on the franchise prior to his involvement is worth something. In addition to that, the franchise predicts we lose profits for few months and slowly start breaking even and eventually start making decent profits around the later months. So, my 50% ownership falls under a period where the profits aren't there, and I'm essentially building up the store. I'm also unsure of why he should earn 90% of the profits if we're going to have a manager running things. His reasoning is that because he will have to deal with the headaches while I'm removed from the businesses.

Am I being unreasonable in wanting this to be closer to an even partnership, even when I'm gone? I want this to be fair for both of us. I'm thinking an equal splitting of profits would be more fair if we also assigned a dollar amount to hours worked. That way, any hours he puts in will be compensated before the profits are split. I suggested this and he thought it was still unfair as I should not be earning more than 10% if I'm removed from the businesses. I feel like it being my idea, half of my funding, splitting the risk, as well as solely building up the store in the beginning while he maintains his other job should entitle me to equal or near-equl partnership.

Do you folks have any opinions on this, or suggestions for ways we can do this? Any suggestions for how we should deal with future stores? For the record, it's likely I'll be undertaking medicine and won't be working in these stores, only providing capital for the additional stores to be built.

Thanks guys and gals

Freelancier
10-17-2012, 07:56 AM
And what if you find that med school isn't for you? What then?

I think a sliding scale might be better... 50/50 until you leave... then it drops slowly as the months go by and you stay in med school. Yes, even if you hire a manager, someone has to do the books, interact with the vendors, make sure the manager actually shows up on time, show up at 5 am if the manager gets hit by a car. That's not going to be you. So, yes, there's value (to the business) in what he's doing that's greater than the value of what you are doing going forward. What you already did is a sunk cost, you can't recover the hours you spent researching it. All you can hope for is to recover some of it via your partnership/corporate shares.

I think you have to stand back and ask why this is really bothering you and how it could be structured to not bother you... and then ask yourself why that is. And it's not about the work you put into it already, because if the business doesn't open, you don't recover any of that anyway.

And this is also about the value you place on the relationship with your brother.

nealrm
10-17-2012, 09:13 AM
I think his offer is more than fair, it is generous. To be honest, you haven't done much. An idea and a some research don't amount to much, it is putting the idea into practice that is hard.

The last line does worry me. If both owners are working in medicine, then who is running the business. You can't put a business on autopilot and expect it to do well.

foxy80
10-17-2012, 08:19 PM
I'm not saying that my idea and research entitles me to 50/50. I'm saying my idea, research, 50% split of the 160k upfront cost PLUS the liability of signing a 5 year, 75k/year lease agreement, and my ~10 month investment in time by working 100% of the time while my brother works his other job and doesn't contribute to this store entitles me to more than 5% of the profits (his new proposal). Once I leave, yeah, I concede that my brother will have to put in more effort than I will to look over books and whatnot while a manager manages the store. That's why I think it's appropriate that he draws an hourly salary before any profits are split, which again, I'm not saying will be 50/50, but close to that that 90/10 or 95/5. I don't think a 90/10 or a 95/5 (his latest proposal) is fair considering what I have to put into the company as well. If that's unreasonable, then I suppose I have to question whether or not I want to risk this kind of capital and time for such a meager stake in the company.

huggytree
10-17-2012, 09:36 PM
this is why partnerships typically fail

neither side thinks they are getting the good deal....ill bet your brother thinks he's not getting the best deal either


i personally think the deal % is fine....your getting $$ for doing nothing for the rest of your life (if it succeeds)

i would not do a partnership
i would DEFINITELY not do a partnership with my brother or any other family member

i know of very few long term partnerships...they all fail....and they all think the other guys screwing them....

if you cant afford the store yourself you should have waited...or borrowed from someone

i find it strange you want to start a business and then a few months later go to college.....i think you should pick 1 or the other...not both

Freelancier
10-18-2012, 09:05 AM
i would DEFINITELY not do a partnership with my brother or any other family member

I wholeheartedly agree. Brothers are for life. Business partners are transient and immediate-need-based.