Starting up business with a friend
Discussion
Hi all,
I would be grateful for some objective advice and observations from people who have been in similar situations (business start-ups)
A relative of mine left the civil service four years ago and started a new business for himself a year after leaving. He made the investment in to assets required to get it off the ground and running. Spent the time finding customers and generating the business to keep growth at a level where it was worth increasing effort.
At the inception of the idea, he discussed with a friend who lives quite close who, when retiring from his job, would invest £10k from his lump sum and "go 50/50" with the original money invested by my relative. Further, he was willing to (and did) fill in while they went away on holiday that was booked before things started growing, as well as doing other things required by the business (but none that had to be carried out specifically by him) and refused any recompense but instead to "keep it on paper" and build an equity in the business which would qualify as an investment by virtue of it not having to be paid out.
Two and a bit years later, it has grown to a level where work comes to them instead of searching for it and they will be moving to a Ltd company with a subsequent valuation with new contracts coming in, making a potential value of £250k by 2016. The friend has still not retired (and not invested anything save for his "on paper" contribution but is expecting his original off hand agreement of £10k for 50% to stand.
I have explained to him that betting on a football match after you know the result never happens and the risk taken should match the reward received should the idea succeed.
He is in two minds about whether to honour the informal, non-specific deal that was made over after dinner drinks one night and I wondered what others' views may be.
Thanks for reading, any advice most appreciated.
Edited for grammar
I would be grateful for some objective advice and observations from people who have been in similar situations (business start-ups)
A relative of mine left the civil service four years ago and started a new business for himself a year after leaving. He made the investment in to assets required to get it off the ground and running. Spent the time finding customers and generating the business to keep growth at a level where it was worth increasing effort.
At the inception of the idea, he discussed with a friend who lives quite close who, when retiring from his job, would invest £10k from his lump sum and "go 50/50" with the original money invested by my relative. Further, he was willing to (and did) fill in while they went away on holiday that was booked before things started growing, as well as doing other things required by the business (but none that had to be carried out specifically by him) and refused any recompense but instead to "keep it on paper" and build an equity in the business which would qualify as an investment by virtue of it not having to be paid out.
Two and a bit years later, it has grown to a level where work comes to them instead of searching for it and they will be moving to a Ltd company with a subsequent valuation with new contracts coming in, making a potential value of £250k by 2016. The friend has still not retired (and not invested anything save for his "on paper" contribution but is expecting his original off hand agreement of £10k for 50% to stand.
I have explained to him that betting on a football match after you know the result never happens and the risk taken should match the reward received should the idea succeed.
He is in two minds about whether to honour the informal, non-specific deal that was made over after dinner drinks one night and I wondered what others' views may be.
Thanks for reading, any advice most appreciated.
Edited for grammar
Edited by LandingSpot on Thursday 26th June 21:19
Im in a similar situation.
Friend is wanting to buy in and was several months ago for £10k for xx%, he waited... however the business didnt and is picking up speed very quickly and soon the £10k will not be needed (weeks/month), but it will be nice to have his expertise to join the team.
However he is savvy and can see the opportunity he had is now gone and is looking at ways to get involved that mean no money and a vastly smaller percentage than we were going to offer.
His flaw was waiting to see what was going to happen and leaving it too late, especially after I just secured several new resellers and means a nice easy reliable income for the foreseeable future, that once up and running (month or so) is going to be well into 5 figures a month in pure profit for a company that was only setup and running properly less than 10 months ago.
Friend is wanting to buy in and was several months ago for £10k for xx%, he waited... however the business didnt and is picking up speed very quickly and soon the £10k will not be needed (weeks/month), but it will be nice to have his expertise to join the team.
However he is savvy and can see the opportunity he had is now gone and is looking at ways to get involved that mean no money and a vastly smaller percentage than we were going to offer.
His flaw was waiting to see what was going to happen and leaving it too late, especially after I just secured several new resellers and means a nice easy reliable income for the foreseeable future, that once up and running (month or so) is going to be well into 5 figures a month in pure profit for a company that was only setup and running properly less than 10 months ago.
Du1point8 said:
...... after I just secured several new resellers and means a nice easy reliable income for the foreseeable future, that once up and running (month or so) is going to be well into 5 figures a month in pure profit for a company that was only setup and running properly less than 10 months ago.
Do share, imitation is the most sincere form of flattery and all that..... :-) So the friend never invested the £10,000? But now wants 50% less the £10,000 he never invested?
So had the business not done well and gone done the tubes would he be inputting his £10,000 now?
He might morally be entitled to x% for his time but he never stuck to his initial deal I suggest.
So had the business not done well and gone done the tubes would he be inputting his £10,000 now?
He might morally be entitled to x% for his time but he never stuck to his initial deal I suggest.
dave_s13 said:
Du1point8 said:
...... after I just secured several new resellers and means a nice easy reliable income for the foreseeable future, that once up and running (month or so) is going to be well into 5 figures a month in pure profit for a company that was only setup and running properly less than 10 months ago.
Do share, imitation is the most sincere form of flattery and all that..... :-) Something that we debuted at IHS this year and now after Grow London last weekend we are in talks with the following:
Blue Diamond group
The White Company
Crocus.co.uk
2-3 dozen other upmarket Garden centres
several interior design shops in Surrey
Dozen or so small design/boutique shops spread out the rest of the UK.
Royal Horticultural Society
Then several other designers.
Look at grow london website to work out which is the Nordic product, Im not going to break the rules by advertising on here.
We have been or will be advertised in:
ITVs Love your garden (this season)
The times
Build It
Time out London
Elle
Country and garden
several online blogs.
So not bad after 10 months... not paid for any of the adverts or product placements (other than give furniture to ITV)
Friend sounds like he's taking the piss. My worry would now be - would you want someone like that as a business partner, I certainly wouldn't?
If the business is really doing well without him I'd just be looking to pay him off and get rid. How many hours work has he actually "invested"?
If the business is really doing well without him I'd just be looking to pay him off and get rid. How many hours work has he actually "invested"?
If I can offer any advice then it is don't do business with friends or family. There's a reason why this saying is famous, and I've been burnt on both fronts.
Tricky situation you are in but it sounds like he is a bit of a pi$$ taker. I wouldn't want him in the business and in telling him where to go, he may not stay mates either.
Tricky situation you are in but it sounds like he is a bit of a pi$$ taker. I wouldn't want him in the business and in telling him where to go, he may not stay mates either.
I agree. The business has grown and what it was then is not what it is now. £10k may only be worth 5% for example. It's standard investment practice that you get rewards based on risk. At the start he would have risked his £10k on a new start up and 50-50 would have been fine potentially but he can't expect 50% for £10k for a thriving company in a much safer/more secure position. Quite simply the business is worth much more.
what are the time scales involved in this? eg from said party offering £10k for 50%, to them carrying out the work but not taking payment for it?
my take on it (and may be wrong in the way i'm picking it up) is they offered to invest £10k, for a 50% split. they did not invest a cash payment/ lump sum, but instead carried out work (dont know what value of work was done??) and said they didnt want paid for it but instead leave the cash value of what they could/should have been paid, as their investment to the company.
dunno if this is how the deal was offered/done, but certainly seems confusing and could cause a falling out either way!
my take on it (and may be wrong in the way i'm picking it up) is they offered to invest £10k, for a 50% split. they did not invest a cash payment/ lump sum, but instead carried out work (dont know what value of work was done??) and said they didnt want paid for it but instead leave the cash value of what they could/should have been paid, as their investment to the company.
dunno if this is how the deal was offered/done, but certainly seems confusing and could cause a falling out either way!
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