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Advice on a new opportunity - % Profit

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Dura

New Member
HI all,

First time poster, I hope you will be able to help me make sense of an offer I recived of late.

I work in the public sector in a full time position. A private company (friends of a friend) have approached me and asked me for support with part of their business. It is something I am experienced in and can can value to. It's also in a sector I would like to move into ultimately and one that I am particularly interested in.

They are asking me to lead on the coordination and development of this business area. It is a part of their business that they have lost focus on and due to other business opportunities aren't really interested. They have considered just running out the existing contracts and focusing on the other areas of the business. The down side to this for them is that the contracts also generate income in other business areas and letting them down could cause them to go elsewhere.

They know I am intersted in starting a business but not too keen on taking the risk entirley on my own.

The offer is to run this part of the business almost in its entirety in return for a % of the Profit (yet to be agreed. No slalry, no retainer just % profit) on everything they make from this end of the business. in return they dont need to think about it.

Little risk to them as they were planning to close down that part. Little risk to me as its thier liability and I only bill them for the % profit each month that we agree. I will continue initially with my full time employment and work on this project in the evenings and weekends. with a view to developing this part (there seems to be scope to do this, market research pending). If its very successful i would consider re negotiating my terms and moving into this full time.

Does this all sound a bit too good to be true?........ hense seeking advice. I have never worked for a "% profit share" given the scenario (little risk to me other than time invested) does this sound like a terrible idea? I mean I think they are trust worthy people and I enjoy spending time with them. I'm also quite keen to try something out in this industry.

Should I go for it? What should I negotiate the % profit based on? What details shold I try to firm up before making a decision?

Thanks in advance and apologies for the long post.
 
L

lookingforadvice

Member
Verified Member
There are a few different issues to take into consideration here: –

1. You don't mention taking a share of the business? So you spend all of your time building up a business they were going to close down for a small percentage of the profit and they keep the company?
2. You would not be able to use this income if you applied for a mortgage in the future.
3. Surely the coronavirus has opened your eyes? What if we were to go through a similar situation again and all of your hard work led to no payment?

Personally, I would look at a basic salary and a percentage of profits on top.
 
S

Szymon

New Member
Verified Member
Further to the above post, if you do go down the % profit route, make sure you have a clear agreement in place as to the definition of the Profit e.g. what costs are included in the calculations. Sometime ago I dealt with a client of mine who agreed to buy a business based on the business profits (I wasn't involved in the deal negotiations BTW). Needles to say, the definition of Profits was loose and so the business owners inflated the profits by not including things like repairs etc, thus inflating the sale consideration.

I would also go down the route of basic salary (or your "management" fee) plus a reasonable split of leftover profits. Good luck!
 
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