Should I take on a new person/partner???

[ed22]

Hi all

Wondering if anyone could give me some advice!

Have recently started a promotional company......... 50/50 split in shares in the Ltd company with my business partner who looks after the Graphic Design side, while I look after sales..........

Its going fine for a start up (on target so far!)

To have another salesman would increase the company's earnings potential significantly. The majority of the costs are fixed so margin increases significantly with each product sold.

My main issue is resource at the moment; I need someone to make appointments (and ideally do some selling)

Now, I know a guy who would be great at selling my product; he can build rapports with people in a pretty uncanny way. He actually enjoys cold calling!! Its a crazy world out there, you know.

He's currently working but has spoken to me about coming on board.

His g/f is reasonably well off so he'd be willing to work for a lowish wage whilst the company was growing. If he did that then no doubt he'd want some stock..(!).. which does have some merit as he'd be able to make the company grow much faster, and 90% of <lots> is worth a sight more than 100% of <little>.

Both my business partner and I have been very unwilling to reduce our capital for obvious reasons. But it *may* be worth it in this instance.

So, brainy PH business types, what would be your advice? How much stock (if any) would you be willing to part with? My initial thought is to have an agreement whereby his percentage could be determined by auditable performance to an agreed maximum. any nasty pitfalls I should be aware of?

As you may be able to tell, first time for having a company so kind of want to get these big decisions pretty spot-on.

cheers

Ed

[srebbe64]

Interesting dilemma. It all comes down, in my view, of how much you rate the bloke! In my experience, the 'level' of equity, to the employee, is less important than the emotional idea of partly owning the company of which you are employed. As such, if I were in your shoes, and I seriously rated the bloke, I'd probably offer 5% equity and see his reaction. From your perspective, don't look desperate to employ him as it will probably send the wrong signals. Also, I've found it's easy to give away equity in the early days, only to regret it years later. So, don't be too tempted to give too much away of the golden goose!

[davidy]

I agree with screbbe, but if you intention is to only have a small company then 'giving' away 5% of the shares as reward is neither here nor there, as the shares are effectively worthless on the open market, but they will give the employee a feelgood factor. The shares are only worth what someone will pay for them and in my experience in small companies thats not a lot!

Make sure that your articles still enable full control of the company by the directors and that minority shareholdings can be overridden in the case of merger, sale, acquisition etc. Usually there are also clauses in there about who the minority shareholder must offer them to first in the event of a sale, ie existing shareholders, bought back the company etc. The latter is often for a 'fair' market value for which an accountant will have to value the company for, note this can cost quite a bit of money.

I've personally found small shareholders a bit of a pain and if you are ever thinking of selling the company on, they can put off potential purchasers (just because the acquisition process becomes morepainful)

Personally, I would incentivise through uncapped commission/bonus's if he's selling then make him work for it but reward him well (if he's growing the business then you 'should' have the money to pay the bonus/commission) , if that goes ok for a few years then consider stock options. A good salesman is a real asset to a business and one that enjoys cold calling even more so!

Plan carefully though so that the business can cope with the increased sales, otherwise you'll be chasing your tail. Also remember that staff take up your time so you won't be as efficient now.

I've gone full circle, grown some businesses, merged them etc, but now very happy in a two man company doing stuff I enjoy and maximising the profit, there is a lot to be said for it, the lack of staff induced stress is amazing!!!

davidy

[billsnemesis]

Main problem with giving someone a share holding is how you get rid of them if things go wrong. If you sack them you still have a minority shareholder but now you have one with a fire in their belly and an axe to grind.

Profit share would seem a better short term reward, perhaps with the possibility of a future shareholding based on performance.

[markinsurrey]

ed22 said:

I need someone to make appointments (and ideally do some selling)

I know of a company that will just make appointments and on a results only basis.

[vex]

I have exactly the same dilema!

Although for me to but a sales guy on the road will cost me 50K which I cetainly don't have.

Wify said I am better at selling than being sat in the office generating the calls, processing the paper work etc.

So I have gone the otherway, looking for a technical sale office person (I have one in mind) while I go out and build the sales contacts and relationships. That way if the sales guy buggers off he doesn't take his friends with him (thats what I did to set this company up)

Now all I have to do is find a business angel so that I can grow and put more stock on the shelf.

VEX

[nightmare]

vex said:

Now all I have to do is find a business angel so that I can grow and put more stock on the shelf. VEX

how much are you looking for?

re: partner - tend to agree with Daviddy - offer rewards for results in bonus payments. That way you have no future troubles re: minority equity holders and the better he does, the better you all do. If security is important for him then you could also agree a basic wage sliding increase yearly dependong on results again