Business Partner - Splitting revenue

**HouseOfAtlas** · 09-28-2007 06:37 PM

Hey everyone!

I have an idea for a website and its in the process of being made. A friend of mine wants in on it, but we never talked about how to split the revenue (if it comes in LOL!)

First off, I came up with the original idea, paid for a vBulletin forum, I'm talking to the designer and spending my nights coming up with text to put on the website, coming up with more ideas and paying for the VPS hosting every month. But, he is going to be funding most of it and will help me advertise.

Once it gets going, we both will share the same responsibilities on moderating everything and we will both be advertising (flyers, brochures, business cards, etc.)

My question is, how am I suppose to come up with a fair way of splitting everything? Should it be 50/50? 60/40? 70/30?

Any help or opinions are welcomed!

Thanks in advance for reading all of this

**Cole Taylor** · 09-28-2007 09:38 PM

There are several ways you could do it. In the end it comes down to what both of you think is fair and what you can negotiate.

First, I'd take a real look at what you have, what its value is, and what type of capital you're going to need to get things off the ground. This is the amount your friend/partner should be willing to contribute. How much you give him in return is, again, what you can negotiate and depends on the realistic upside of the project.

here are a couple of ideas...now keep in mind I have no idea how much money you need, etc:

-Your friend loans the company X dollars which in repaid over Y period of time. In this situation you can justify owning a higher percentage of the company if the money is to be repaid. After all it was your baby. example 70/30, 60/40 (you/him).

- Your friend contributes X capital to the company for an equity stake. Now, this is money that is not going to be repaid. In this situation look to a number closer to 51/49 if you can get it. If your friend wants in as you say, he's already bought into the idea so the 1% tiebreaking percentage shouldnt be an issue.

Also, we may be saying the same thing in different ways, but once you work out the ownership percentages you need to work on salaries not revenue splits.

The salary you end up paying yourselfs should be based on the amount of work you do, not what percentage of the company you own. It's very possible to own more and make less.

Which leads to another point...What is your friends motivation? Does he want to make a salary? If so, perhaps you can get away with a smaller percentage. Does he feel that you guys will be the next google and make millions on the sale of stock at IPO? Then he's probably more concerned with his percentage of the company.

FWIW, ask some of your friends, parents perhaps if your friends are not at that level yet, to reccomend an attorney. You'll want to spent the couple hundred bucks on having all of your contracts drawn up.

**HouseOfAtlas** · 09-28-2007 10:23 PM

Cole,

Thanks for the reply. I really appreciate it

After looking things over, I don't see "start up costs" as being more than $1000-$1500 for now. Honestly, I'm looking at less than $1000. So it is not like he is going to invest a ton of money compared to what it would cost to start up most other businesses.

My only goal is to make it big enough where I (or I should say we) could make a decent income and be able to work at home and maybe work a part-time job if needed.

He wouldn't mind just making a living on it, but he is "thinking big" since he thinks its a good idea, but he has never tried starting something big, getting his hopes up, and having them die (like I have). So I'm more conservative, but I still have the drive

So since the amount of money isn't that great, does that change the split. To be honest, in about a month or two, I could probably fund the whole thing myself, but I thought I'd let him on it, also.

Any other input would be appreciated!

**Driven29x** · 09-29-2007 10:26 AM

Atlas,

It seems like you and your partner should really talk about it. What it comes down to is that you don't want any tension once you find success. Talk about it now while you are still in the process to make things clear. Come up with a contract as well where you both agree on everything and possibly have a lawyer check it out. Good luck!!!!

Driven 29 times

**christopher.pokorny** · 09-29-2007 11:04 AM

I would suggest taking a look at picking up a Accounting text book from your local college or bookstore. This will give you insights on how to deal with money. But for your instance, you want to focus on "Sharing Profits and Losses and Partnership Drawings".
You can do it a proposed 4 ways.
"1. Sharing based on a stated fraction for each partner, such as 50/50 or 2/3 or 1/3 or 4:3:3 (which means 40% to Partner A, 30% to Partner B, and 30% to Partner C)

2. Sharing based on each partner's capital contribution

3. Sharing based on each partner's service to the partnership

4. Sharing based on a combination of each partner's stated fraction, capital contribution and service."

pulled from ISBN 0-13-143596-5 (can be bought for as cheap as 7 bucks off amazon)

Remember, Business is Business. Friendship should not be taken into account here. I would def suggest a lawyer in this instance if you are serious.

**HouseOfAtlas** · 09-29-2007 03:37 PM

Thanks for the help, guys

I guess what I'm trying to get at is what is my case for saying "I want 60%" or "I deserve X amount", etc.

I'm just trying to figure out how one would weigh what someone should get, etc.

Again, this is probably different than if someone was giving in $50k, $30k, and 100k. We are dealing with smaller amounts.

**christopher.pokorny** · 10-02-2007 12:35 AM

Well. You could split it as a set amount (for example, $1000 a month per partner no matter what is made) and a percentage of the sales that you all make every month (on top of the $1000 no matter what the sales are, 30% of total profit for you and 70 for him) Again my man, I would suggest Accounting or Business Law book. Its all on what you two agree as fair. If your serious, hook with a lawyer and have em draft up a contract.

**Dylan Phelan** · 10-02-2007 03:21 AM

I think that if you're gonna both be in this for the long run, will have equal responsibilities and devote equal amounts of time then you should consider going in 50/50.

You could get into all kind of fancy NPV calculations, forecast and analysis, but having a 50/50 partner will HELP ensure that you remain equally committed to the project in the long term...

Is an extra 10% for you worth the trouble that it could cause in the long term... Also, you're the only one that knows your partner and his personality and how potential problems may arise and be resolved.