Partnership Profit Sharing

[XuXu]

Hello everyone! This is my first post on this forum and i hope you guys can help me out!

Im currently starting up a business with a family friend and the business will be soon on its way.

My partner is investing all of the money to start the business and i'm inputing all the ideas and daily store operations. My question is how should we come up with the profit sharing, since i'm not putting any money but my time and ideas. She wanted me to come over in the a couple of days so we can finalize everything, but i just want some feedback from you guys what you think is fair. Obviously she should have more percentages over me since the money is all her, but if it wasnt for all my ideas and time put in it then the business would be non-existent. So if you guys can help me figure out a good percentage to put down on the table that'd be great! Hope to hear from you guys soon!

[mcfarldr1]

Are you being paid in any way for the time you put into running the store?

If so, you may want to split profits 75 for your friend and 25 for you. If not, a 60/40% split seems adequate.

That's just my opinion. You and your friend need to both agree to the terms of the business and have it all in writing. Make sure you both agree and sign the paper so that no problem arise later.

[XuXu]

Thanks for the reply!

And yeah my thoughts were along the lines of 60/40 also because i believe i'm not going to get paid. However we still haven't talked about the profit sharing yet so i may be getting paid. But what you stated sounds reasonable. And i'll make sure everything is in writing!

Any other inputs anyone?

[YoungCA]

I am in a similar situation.

So in my situation, we are sharing ideas but I came with the original idea and also I am going the work of getting the business incorporated, attending start-up business training sessions, and also putting in the money.

However, my partner is making the website and website is the crucial key of our business since it will be a web-based business. He is expert web designer and will put in many hours making this website work.

Should we share profit 60/40 or 65/35..? I am leaning towards 65/35 but I know that I am being greedy here..or should we do 60/40 and ask him to put some money in as well?

What do you guys think??

[akula]

Thanks for the reply!

And yeah my thoughts were along the lines of 60/40 also because i believe i'm not going to get paid. However we still haven't talked about the profit sharing yet so i may be getting paid. But what you stated sounds reasonable. And i'll make sure everything is in writing!

Any other inputs anyone?

hi
yea...
1. all this advice you're getting is wrong.
mcfarldr1, you don't know what you're talking about, and your way of thinking about the issue causes very serious problems to entrepreneurs
2. this has been covered ad nauseum
the correct approach is detailed here
http://www.youngentrepreneur.com/for...-up-11389.html
http://www.youngentrepreneur.com/for...res-27045.html

essentially, the goal of a profit split is to reward people fairly
an arbitrary split like 60/40 does not achieve that because it does not take into account the changing nature of an individual's contribution to the business over time
the result is that often partners agree to an arbitrary split, then it turns out one partner changes his mind and goes fishing for a year...the other partner goes "wtf this is unfair" and the venture dies

to avoid the problem, pre money valuations and vesting schedules are used
...although alternatives are available which do not require incorporation

[akula]

I am in a similar situation.

So in my situation, we are sharing ideas but I came with the original idea and also I am going the work of getting the business incorporated, attending start-up business training sessions, and also putting in the money.

However, my partner is making the website and website is the crucial key of our business since it will be a web-based business. He is expert web designer and will put in many hours making this website work.

Should we share profit 60/40 or 65/35..? I am leaning towards 65/35 but I know that I am being greedy here..or should we do 60/40 and ask him to put some money in as well?

What do you guys think??

no...any arbitrary split like that is wrong
the correct way is to put a value on your individual contributions to the business, then work out the overall value of the business and work out the fractions from there...but it's a little bit more complicated
try following the links i've posted