how to share profits with business partner??

EPjnr

I have a business idea that i want to set up and run, problem is i don't have the finance, a friend of mine has the finance and is willing to invest so problem solved. My question is, if he finances my idea and i run it would a 50/50 split in profits be fair?

YouProduce

That depends upon what percentage of the business his investment is worth, its between yourself and your friend.

Make sure you set down the rules of the partnership from the get-go. If your the boss, build that dynamic into the business no matter what the percentages are.

PCPhoto

you could make it a partnership - but the other partner needs to know exactly how much funding is required and how much of a return on investment is expected.

have you done all your market research - will the business work - and make a profit.....chances are you will be doing all of the work and your partner gets to share in the profits.

is the partner willing to be a silent partner or does he want to actually be involved with the business.

is there any possibility of getting funding from a government agency or bank loan ?

EPjnr

If he funds 100% of the business and is a silent partner. I do all the work and work full time at it. Do I pay myself a wage/salary and split profits 50/50. I know this depends on the business profits etc. But say we forecast profits of 40k in year one and his investment is 100k .... and the business will be expected to earn 50k in profits in the coming years. I know there are a lot of if's and buts here, but some people give me the impression a lot of these businesses are often work like this; one person comes up with the idea and is going working full time at it and a friend/family member invests as a silent partner and all profits are split 50/50.
Government is unlikely.... and the banks :rolleyes:

antoinolachtnai

That's all fine, but just because you have profits, it does not mean there will be money available to pay a dividend. If you are successful, you will want to reinvest the profits in the business, for example by buying more stock or otherwise expanding. You also need to consider who will have the ultimate decisionmaking power. And how do you unwind this if you decide to go your separate ways?

A partnership legal structure is a dangerous thing to enter into, especially for your partner.

PCPhoto

if you have projected profits of 40K a year I would suggest you create a percentage divide of profits:

say guarantee €10K per year to partner (for X amount of years - until initial investment is paid back) - maybe 15-20% of yearly profits to financial partner, 20-25% to you and the remainder into a fund for the business expansion and next years bills.

I assume partner is not going to bank roll the business constantly - so it will need to be capable of paying its own bills after year 1.... the partner will know that he will get all his initial investment back and make a profit - if he can cover year 1....and assist the business in getting started.