Offered Partnership

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I have worked for my friend for 2 years now. I came on when we were doing ~$400k per year in revenue. We are now on pace for $1.38m if we do not grow. I have practically been a business partner as I've helped make a lot of decisions and been a part of all aspects of the growth. We have 52 employees that work for us. I have been bringing up the option of being a partner for the last year as I want to build to my future, not someone else's.

The company was professionally valued around $700k. I have been under the impression that all the work and expertise I've brought would get me a portion of the business but I have misunderstood him apparently. He sent me an offer to be 8% of the company for $50k. This is a slight discount based on valuation price, but as someone who has virtually been a managing partner, this feels like a slap in the face. Due to how valuable I've been I felt like I should have been offered at least 40% for that price due to how small we were when I started. I also think I have the skills to build my own business of this nature, which I have not considered before this but now am.

Am I crazy for being a bit offended by this offer? I've created the marketing materials, the website, attended marketing events, done everything I could to grow this business and I do not believe it would be doing as well without me. 

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Employment and partnership are different. You're describing how you were a good employee and using that to say you shoul... (more)

marginoferror (Feb. 27, 2017 @ 2:33p) |

OP wasn't 'offered'. OP asked for it.

forbin4040 (Feb. 27, 2017 @ 2:53p) |

$50k worth of stock that vests immediately...can you afford the income tax on it?

user1337 (Feb. 28, 2017 @ 4:40p) |

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How much have you been paid over the years. Were you well paid for your efforts?

I sure hope that's not your real name there.
You want to be a 50% partner, how much have you spent of your funds there? How much did you get paid? Owners / partners almost never make any real cash flow the first few years because they are putting their own capital to start it up. Who paid for the computers? Who paid the lights , insurance, salaries each year?

Without knowing the Financial Statement, I cannot tell you even if 8% is worth 50k

What industry is the company in, partnership offers can vary significantly by industry

No offense meant here, but I have to question your numbers.  Based on the information you provided, your employer can afford to pay each person $26,500 yearly, if they are all full time.  That doesn't include benefits, taxes, overhead, etc, etc, etc.  If this is true, I don't know if I would want to be a partner.  Any future business loans may require that anyone holding interest in the company list their personal assets as collateral in case you default on the loan.  That could put you in a precarious position.

What is it? Restaurant? Banana stand?
52 employees with 1.3M revenue and 700k value sounds like a restaurant or similar kind of business.
What is the 700k value from? Real estate? Equipment? Inventory? Who paid for that stuff? Whos idea was this business? What risk did you take if the business failed?


No you shouldn't be offended. You had it in your mind you were on track to own 1/2 the business or something. He figured to sell you a fractional stake of 8%. Unfortunately you two had a misunderstanding. There is no common "guy who works hard gets to own half of the company" rule to the game. Its his business. He doesn't have to give you any stake. I'm assuming nothing is in writing about any obligation and there wasn't even a explicit verbal agreement.


You may be overestimating the impact you've had. Can't other people create websites and attend marketing events and work hard?
Maybe you're very good and did a great job and significantly responsible for the business success. But we don't know you from Adam.

snnistle said:   No offense meant here, but I have to question your numbers.  Based on the information you provided, your employer can afford to pay each person $26,500 yearly, if they are all full time.  That doesn't include benefits, taxes, overhead, etc, etc, etc.  If this is true, I don't know if I would want to be a partner.  Any future business loans may require that anyone holding interest in the company list their personal assets as collateral in case you default on the loan.  That could put you in a precarious position.
  
that was the first thing I did too.  Basically each employee is bringing in $26,500 of revenue, which assumes the OP and his partner bring in zero.  Sounds like it has to be a bunch of W2 contracts that make a few grand each.

tante said:   
snnistle said:   No offense meant here, but I have to question your numbers.  Based on the information you provided, your employer can afford to pay each person $26,500 yearly, if they are all full time.  That doesn't include benefits, taxes, overhead, etc, etc, etc.  If this is true, I don't know if I would want to be a partner.  Any future business loans may require that anyone holding interest in the company list their personal assets as collateral in case you default on the loan.  That could put you in a precarious position.
  
that was the first thing I did too.  Basically each employee is bringing in $26,500 of revenue, which assumes the OP and his partner bring in zero.  Sounds like it has to be a bunch of W2 contracts that make a few grand each.

  
Yeah thats why I'm thinking restaurant.

Lots of part time employees making minimum wage especially in a state with low wait server minimum of $2.13

 

I have been on a graduated salary range and now make 60k so I'm paid well enough. 

This is a social services company, our only expenses are rent. We work off of our own laptops. The employees are hourly workers ranging from 8 hours per week to over 40. 

The cash flow for owners is there already, I know what the draw potential is based off of our profit and profit and loss statements.

Startup of a company like this takes under 20k, so there was no original large investment to get off the ground. You may not believe me and that's fine but I do know the numbers. We also don't have to offer benefits due to this being a low wage industry. 

vertebraille said:   I have been on a graduated salary range and now make 60k so I'm well paid. 
  what kind of restaurant? fast causal ? mid range?

vertebraille said:   Am I crazy for being a bit offended by this offer? I've created the marketing materials, the website, attended marketing events, done everything I could to grow this business and I do not believe it would be doing as well without me. 
  So?  It makes you a good employee.  Nothing more, unless there were something agreed to in the beginning.  

There are always pitfall working for or with a friend.  Your case is a shining example of it.  Looks like there will be hurt feelings no matter what because neither of you clearly communicated their expectation.

rufflesinc said:   
vertebraille said:   I have been on a graduated salary range and now make 60k so I'm well paid. 
  what kind of restaurant? fast causal ? mid range?

  Sorry, updated above. Social services, no restaurant.

ZenNUTS said:   
vertebraille said:   Am I crazy for being a bit offended by this offer? I've created the marketing materials, the website, attended marketing events, done everything I could to grow this business and I do not believe it would be doing as well without me. 
  So?  It makes you a good employee.  Nothing more, unless there were something agreed to in the beginning.  

There are always pitfall working for or with a friend.  Your case is a shining example of it.  Looks like there will be hurt feelings no matter what because neither of you clearly communicated their expectation.

  Yeah. It makes sense. I should have been more clear from the beginning. Both of us always referred to each other as our business partner so that is likely a source of my confusion. But it's definitely my fault.

vertebraille said:   
rufflesinc said:   
vertebraille said:   I have been on a graduated salary range and now make 60k so I'm well paid. 
  what kind of restaurant? fast causal ? mid range?

  Sorry, updated above. Social services, no restaurant.

  is that a euphenism for a whorehouse?

rufflesinc said:   
vertebraille said:   
rufflesinc said:   
vertebraille said:   I have been on a graduated salary range and now make 60k so I'm well paid. 
  what kind of restaurant? fast causal ? mid range?

  Sorry, updated above. Social services, no restaurant.

  is that a euphenism for a whorehouse?

  Hahaha. That would have even less overhead than we have. 

Home health.

The additional information helps.  I recommend negotiating.  Thank him for considering what you have wanted all along, and then make a counteroffer based on his original, but ask for a larger share for the same $50, and tell him why you think your offer is fair.  See where it goes.  But, if you are happy with your current salary, don't push too hard, unless you can go somewhere else and make the same or similar salary tomorrow.

One more detail. We are 3 years in and based off of the financials he showed me for the audit, he is on pace to make ~160k this year. That is a very sustainable number for him at this business pace. My problem is that I like my job and I'm well paid, but if I know how to do all of this and have the possibility to move on to making some real money as well as establishing something that I could sell off, it's pretty tough for me to sit back and just take a salary.

vertebraille said:   One more detail. We are 3 years in and based off of the financials he showed me for the audit, he is on pace to make ~160k this year. That is a very sustainable number for him at this business pace. My problem is that I like my job and I'm well paid, but if I know how to do all of this and have the possibility to move on to making some real money as well as establishing something that I could sell off, it's pretty tough for me to sit back and just take a salary.
  
As I wrote a few minutes earlier, negotiate and let him know where your head is.  If he agrees with the value you bring, he will reward it. If not, make a business decision and move on.  Remember, it's BUSINESS, and if he is a businessman, he shouldn't be offended or upset that you are doing what is in your best interests, because that's what he would do.

vertebraille said:   I also think I have the skills to build my own business of this nature, which I have not considered before this but now am.If you think you can, might as well.

Look at it from his side. Up to this point he has taken all the risk. You were given a paycheck every pay period. He would only get paid if the company made money, and could be at risk of loosing money if things went bad.

He could easily view you as just a great employee, who he is paying a market wage for the work you do. He might have never looked as you as a potential partner in the business. You also need to consider how much you want to keep that job. He has no moral/legal reason to give you part of his company. You were a paid employee, not a partner up to this point. All the work you have done to this point is owned by the company, due to them paying you a salary to produce it. If he so decides he can cut ties with you, and keep all the work you have already done, and not feel bad about it at all.

Haven't you answered your own question? You're offended by your friend's offer of 8% of the business. Your friend clearly wants to keep his business..well, his. You are resentful (even if not consciously so) and are considering jumping ship (regardless of what you'd do after). The fact that you're considering becoming his competitor compounds the fact that you are resentful and think something is owed to you, or had some misconception about what you'd get down the road. Not trying to be a jerk, but I think you don't need to waste any more of your time here. Either take the plunge and jump ship to create your own business (and compete with your friend), take him up on (or negotiate up a bit) the 8% offer, or status quo.

There really aren't many other options. Sucks that it got this far without any formal discussion and documentation/agreement, but as Zen said about working with/for friends: it never really turns out great because there's generally always some misconception or misunderstanding.

daw4888 said:   Look at it from his side. Up to this point he has taken all the risk. You were given a paycheck every pay period. He would only get paid if the company made money, and could be at risk of loosing money if things went bad.

 

  Why do you assume the owner hasn't been drawing a paycheck?

rufflesinc said:   
daw4888 said:   Look at it from his side. Up to this point he has taken all the risk. You were given a paycheck every pay period. He would only get paid if the company made money, and could be at risk of loosing money if things went bad.

 

  Why do you assume the owner hasn't been drawing a paycheck?

  The owner has made more every month than I have. Not that he shouldn't but there isn't risk because I was not brought on until there was enough work to split for 2 people. This is an extremely stable business we have established.

jaytrader said:   Haven't you answered your own question? You're offended by your friend's offer of 8% of the business. Your friend clearly wants to keep his business..well, his. You are resentful (even if not consciously so) and are considering jumping ship (regardless of what you'd do after). The fact that you're considering becoming his competitor compounds the fact that you are resentful and think something is owed to you, or had some misconception about what you'd get down the road. Not trying to be a jerk, but I think you don't need to waste any more of your time here. Either take the plunge and jump ship to create your own business (and compete with your friend), take him up on (or negotiate up a bit) the 8% offer, or status quo.

There really aren't many other options. Sucks that it got this far without any formal discussion and documentation/agreement, but as Zen said about working with/for friends: it never really turns out great because there's generally always some misconception or misunderstanding.

  I'm not necessarily wanting to be a competitor to "stick it to him", it's just a business I know and have contacts in. I maybe shouldn't have said "offended", it's his business. I should have just been more clear.

I have a potential job offer as a Financial Advisor should my business not flourish in the way I hope. 

The other part of this puzzle is that I cannot do this until next April, as the biggest marketing event of the year happens then and due to slow state approvals I will not be licensed quick enough to register in time for it as that deadline is in a week. This is all info I probably should have included in my initial post but I wrote it quickly and had to go do something.

So what, exactly, is the question here--for the FWF community?

jaytrader said:   So what, exactly, is the question here--for the FWF community?
  Just any advice or thoughts on the situation as I'm very scattered right now. I realize I'm not being perfectly cogent.

If you feel that you are that 'valuable' to him, and should get the partnership, then discuss more.
If you feel that he doesn't value you and all you need is '20k' to start up a competitor, then do so. (Because you need 50k to join with him)

You might find out he spent more of his time / money than you did to start up.

I've seen this with Auto Repair shops, the main mechanic feels that they should get a partnership, and eventually leaves and starts a competing business, usually by taking some the clients with him.

BTW you title is misleading, you weren't 'offered' a partnership, you feel that you 'deserve' a partnership.

vertebraille said:   I have been on a graduated salary range and now make 60k so I'm paid well enough. 

This is a social services company, our only expenses are rent. We work off of our own laptops. The employees are hourly workers ranging from 8 hours per week to over 40. 

The cash flow for owners is there already, I know what the draw potential is based off of our profit and profit and loss statements.

Startup of a company like this takes under 20k, so there was no original large investment to get off the ground. You may not believe me and that's fine but I do know the numbers. We also don't have to offer benefits due to this being a low wage industry. 


If it only takes $20k to start up a company like this and you have helped to run and grow it so well, why not just leave and start up a competitor? If you have all the ideas you can just out compete him.

vertebraille said:   
Am I crazy for being a bit offended by this offer? I've created the marketing materials, the website, attended marketing events, done everything I could to grow this business and I do not believe it would be doing as well without me. 

  Yes. you're being crazy for being offended by this offer. If you ever wanted an ownership stake,  you needed it in writing before you did the work. You've always been an employee.

My 2 cents, if you like what you do,  you're good at it, you already know what it takes to grow revenue 200% in 2 years, and it's a $20k investment to get started - I would save $20k and start my own company. You've already done all the work, just do it again with a different company name.

Unless you managed to sign something with him that included a non-compete clause.

ETA: offer to pay current employees you like 5% more/hour to jump to your ship

vertebraille said:   I have been on a graduated salary range and now make 60k so I'm paid well enough. 

This is a social services company, our only expenses are rent. We work off of our own laptops. The employees are hourly workers ranging from 8 hours per week to over 40. 

The cash flow for owners is there already, I know what the draw potential is based off of our profit and profit and loss statements.

Startup of a company like this takes under 20k, so there was no original large investment to get off the ground. You may not believe me and that's fine but I do know the numbers. We also don't have to offer benefits due to this being a low wage industry. 

  
If this is the case it seems you should just branch out and start your own company in a nearby area that doesn't compete.  You know the business model and you can get it going for 20K plus still have 30K to live on and own 100% of the company.  Do it right and you even stay friends with the guy (by not competing in his backyard).

However :  "We also don't have to offer benefits due to this being a low wage industry."  Is BS.  The low wage workers need benefits even MORE than well paid ones.  And people wonder why the US is tanking.   THAT is why your "boss" is taking home $160K a year in a business that starts up for $20K.  It would be silly to pay that much, really.  

Another option : Suggest to your current boss that you and he cooperate to expand to a 2nd location. You take a high stake in the 2nd operation which you'll manage and be responsible for. Get the details in writing.

They're probably signing people up for Medicaid in Kentucky.

vertebraille said:   I was not brought on until there was enough work to split for 2 people. This is an extremely stable business we have established.
 

does not compute. your boss established this. he brought you in later. you helped, but it doesnt belong to you.

consider it this way: you missed the very first "seed" round of investment, and came on as an employee. now you have another shot in this round. if you think there's room to grow still and the numbers work for you, go for it. otherwise don't.

you havent said if your salary will stay the same after you get partial ownership. also - i would negotiate for maybe X% to start, then Y% each year i work, up to Z% max.

jerosen said:   They're probably signing people up for Medicaid in Kentucky.
  They're providing home healthcare to elderly and disabled using the state funding.  So, they sign up the needy people, hire min wage employees who take care of two or three elderly/disabled people per day and pay those employees min wage. Then send the bill to state for higher amount  and pocket the difference after paying for overhead.  The only caveat is that some states such as IL are notorious for paying claims late so you need to have cash on hand to cover the employee payroll and overhead while the state processes the claims. 

ach1199 said:   
jerosen said:   They're probably signing people up for Medicaid in Kentucky.
  They're providing home healthcare to elderly and disabled using the state funding.  So, they sign up the needy people, hire min wage employees who take care of two or three elderly/disabled people per day and pay those employees min wage. Then send the bill to state for higher amount  and pocket the difference after paying for overhead.  The only caveat is that some states such as IL are notorious for paying claims late so you need to have cash on hand to cover the employee payroll and overhead while the state processes the claims. 

  sounds like the state could cut out the middle man the pocket the difference for the taxpayers. 

rufflesinc said:   
ach1199 said:   
jerosen said:   They're probably signing people up for Medicaid in Kentucky.
  They're providing home healthcare to elderly and disabled using the state funding.  So, they sign up the needy people, hire min wage employees who take care of two or three elderly/disabled people per day and pay those employees min wage. Then send the bill to state for higher amount  and pocket the difference after paying for overhead.  The only caveat is that some states such as IL are notorious for paying claims late so you need to have cash on hand to cover the employee payroll and overhead while the state processes the claims. 

  sounds like the state could cut out the middle man the pocket the difference for the taxpayers. 

  state would hire full-time workers @ twice min. wage  and loads of bureaucrats @ $100k+.  of course, everybody would get generous benefits, including pensions.  add in all of the stupid, overpriced purchasing decisions that bureaucrats would make, and you're looking @  2x-3x what the same program costs under a for-profit provider.

vertebraille said:   I have worked for my friend for 2 years now. I came on when we were doing ~$400k per year in revenue. We are now on pace for $1.38m if we do not grow. I have practically been a business partner as I've helped make a lot of decisions and been a part of all aspects of the growth. 

 I have been under the impression that all the work and expertise I've brought would get me a portion of the business but I have misunderstood him apparently. He sent me an offer to be 8% of the company for $50k. This is a slight discount based on valuation price, but as someone who has virtually been a managing partner, this feels like a slap in the face. Due to how valuable I've been I felt like I should have been offered at least 40% for that price due to how small we were when I started. I also think I have the skills to build my own business of this nature, which I have not considered before this but now am.

Am I crazy for being a bit offended by this offer? I've created the marketing materials, the website, attended marketing events, done everything I could to grow this business and I do not believe it would be doing as well without me. 

  that's how business works.  bring on A players and tell them something vague about what they'll get later on for their contributions.  when later on shows up, be cheap AF, hoping A players will stick around for "something," rather than quitting and admitting they were played. 

if you want to get rich, start your own company and do onto others what was done to you. 

 

I can understand why you feel it's deserved. But at the end of the day, you are an employee. You just didn't take the same amount risk, even though you think it's low risk.

Had you approached your friend when the business had low revenue and not making money, perhaps even losing money, he might have taken on a partner. But you don't really get to be paid a salary, and then later on when the business does well, expect that you get to be an equity partner as well.

Do you have it in you to branch off and start your own business or a competing business? If you do, and once you do, I don't imagine when the business is successful, you'll just offer an employee a significant equity stake.

yizazar said:   
rufflesinc said:   
ach1199 said:   
jerosen said:   They're probably signing people up for Medicaid in Kentucky.
  They're providing home healthcare to elderly and disabled using the state funding.  So, they sign up the needy people, hire min wage employees who take care of two or three elderly/disabled people per day and pay those employees min wage. Then send the bill to state for higher amount  and pocket the difference after paying for overhead.  The only caveat is that some states such as IL are notorious for paying claims late so you need to have cash on hand to cover the employee payroll and overhead while the state processes the claims. 

  sounds like the state could cut out the middle man the pocket the difference for the taxpayers. 

  state would hire full-time workers @ twice min. wage  and loads of bureaucrats @ $100k+.  of course, everybody would get generous benefits, including pensions.  add in all of the stupid, overpriced purchasing decisions that bureaucrats would make, and you're looking @  2x-3x what the same program costs under a for-profit provider.

  
Yeah my home town has a ton of those sort of guys, and my stepmother worked for one for a while and got absolutely NO benefits.  There is a space between "no benefits" and "generous benefits, including pensions" that nobody wants to fill.  

I bet almost all his "employees" are in the "full subsidy zone" of ACA too.    

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