Contract to permie maybe minor shareholding/director
Discussion
Current client is a relatively small business, in a very niche technology market. They have 4 directors. The majority of shares are held by the founder and his wife. The others by his university friends brother.
And a silent angel investor.
They have managed to get contracts bigger than they are so need to grow. I've been doing 2 things. Project Managing 2 projects and procedures. With an aim.to get some certificates on the wall. They have nothing. The reason they've been successful is partly because of their can do attitude. Or maverick. Pull it out of the hat at the last minute attitude.
Whilst this makes project management "fun" it's clear that for each project they should have gone out and got more people. The founder doesn't delegate too well, becuase he's a live wire and technically brilliant.
I don't know why but I'm really enjoying working for them. They are 140 miles away so mostly from home. Although I have a second property about 40 miles away.
Anyway they had a board meeting and they woukd like to discuss me going permanent.
They would also be open to the the package including shares, larger pension contribution, (I'm 54, so if they paid s
tless into pension, I could benefit from that in a tax free way in the nearish future, car, declaring my normal place of work as home etc.
They also suggested that if I wanted to invest, that potentially was an idea (my LTD company is sitting on a small buffer, plus the Bounce back loan that I took out when I could in May. )
Obviously I could put my head in the sand, and stay contracting for another 11 years, but After 11 years, the market is changing, and IR35 is causing volatility.
So I could probably get a contract renewal, and keep going with them for a year or more.
The problem with going permie, is they want me to pitch what I want.
If I just compare my net salary, net pension and net dividend, the in the hand figure over the last 5 years has been about £50 to £65k but at current rate is 57k.
Now if I reverse that, manipulate the pension so i stay in the 20% tax bracket. It needs a salary plus pension contribution of £80k
But that costs them closer to £90k.
So effectively they pay £70k now, and for me to maintain the same lifestyle, it would cost them £20k more.
So if there's a possibility of investing, what's it worth now?
As far as I can see, the assets aren't of high value. The workshop is rented. Some expensive electronic equipment, but guessing not more than £50k
The value is in the potential. And that comes with risk. The IP is all in the founders head really. Okay you could take the things they've been paid to develop them, but the company isn't big enough for it to have much value without him.
The projects I'm managing result in a turnover of £500k. But potentially woukd result in a 10 year product life of £500k a year with a decent margin, with spinoffs into other customers costing very little to apply it to thier problem.
The other projects they have probably have a combined turnover of £200k, but have a very high margin.
The plan seems to be, to become £5m turnover company with 20 employees, and get a big player to buy the technology once it's proven.
A bit dot com bubble. Value is in the potential.
Anyway, just looking for ideas.
As an aside. I applied for a contract in Oct 2019, and eventually it has come through, so,
I'm holding in my back pocket a contract at a massive defence company, SC clearance is now through, but they now say it's inside IR35, So the rate after tax is a bit st for the hassle of the commute. And working away.
They know about it because I told them, I've now got SC clearance and that will help them in future, once I can get it transferred.
And a silent angel investor.
They have managed to get contracts bigger than they are so need to grow. I've been doing 2 things. Project Managing 2 projects and procedures. With an aim.to get some certificates on the wall. They have nothing. The reason they've been successful is partly because of their can do attitude. Or maverick. Pull it out of the hat at the last minute attitude.
Whilst this makes project management "fun" it's clear that for each project they should have gone out and got more people. The founder doesn't delegate too well, becuase he's a live wire and technically brilliant.
I don't know why but I'm really enjoying working for them. They are 140 miles away so mostly from home. Although I have a second property about 40 miles away.
Anyway they had a board meeting and they woukd like to discuss me going permanent.
They would also be open to the the package including shares, larger pension contribution, (I'm 54, so if they paid s
tless into pension, I could benefit from that in a tax free way in the nearish future, car, declaring my normal place of work as home etc.They also suggested that if I wanted to invest, that potentially was an idea (my LTD company is sitting on a small buffer, plus the Bounce back loan that I took out when I could in May. )
Obviously I could put my head in the sand, and stay contracting for another 11 years, but After 11 years, the market is changing, and IR35 is causing volatility.
So I could probably get a contract renewal, and keep going with them for a year or more.
The problem with going permie, is they want me to pitch what I want.
If I just compare my net salary, net pension and net dividend, the in the hand figure over the last 5 years has been about £50 to £65k but at current rate is 57k.
Now if I reverse that, manipulate the pension so i stay in the 20% tax bracket. It needs a salary plus pension contribution of £80k
But that costs them closer to £90k.
So effectively they pay £70k now, and for me to maintain the same lifestyle, it would cost them £20k more.
So if there's a possibility of investing, what's it worth now?
As far as I can see, the assets aren't of high value. The workshop is rented. Some expensive electronic equipment, but guessing not more than £50k
The value is in the potential. And that comes with risk. The IP is all in the founders head really. Okay you could take the things they've been paid to develop them, but the company isn't big enough for it to have much value without him.
The projects I'm managing result in a turnover of £500k. But potentially woukd result in a 10 year product life of £500k a year with a decent margin, with spinoffs into other customers costing very little to apply it to thier problem.
The other projects they have probably have a combined turnover of £200k, but have a very high margin.
The plan seems to be, to become £5m turnover company with 20 employees, and get a big player to buy the technology once it's proven.
A bit dot com bubble. Value is in the potential.
Anyway, just looking for ideas.
As an aside. I applied for a contract in Oct 2019, and eventually it has come through, so,
I'm holding in my back pocket a contract at a massive defence company, SC clearance is now through, but they now say it's inside IR35, So the rate after tax is a bit s
t for the hassle of the commute. And working away. They know about it because I told them, I've now got SC clearance and that will help them in future, once I can get it transferred.
This reads as quite an exciting prospect.
You’re right to pause and do your due diligence.
What comes to my mind is your own risk appetite.
Is this worth a punt, or are you risk averse and just want to continue as you are.
If you take a punt, I’d have no qualms in upping your figure to take account of that risk. They’ll either say yes or no, so not much to lose?
Keep us posted!
You’re right to pause and do your due diligence.
What comes to my mind is your own risk appetite.
Is this worth a punt, or are you risk averse and just want to continue as you are.
If you take a punt, I’d have no qualms in upping your figure to take account of that risk. They’ll either say yes or no, so not much to lose?
Keep us posted!
rog007 said:
This reads as quite an exciting prospect.
You’re right to pause and do your due diligence.
What comes to my mind is your own risk appetite.
Is this worth a punt, or are you risk averse and just want to continue as you are.
If you take a punt, I’d have no qualms in upping your figure to take account of that risk. They’ll either say yes or no, so not much to lose?
Keep us posted!
I think there's also my wife's attitude to risk, which is possible as low as you can go. You’re right to pause and do your due diligence.
What comes to my mind is your own risk appetite.
Is this worth a punt, or are you risk averse and just want to continue as you are.
If you take a punt, I’d have no qualms in upping your figure to take account of that risk. They’ll either say yes or no, so not much to lose?
Keep us posted!
I'm not about to start borrowing money to buy shares, (although my wife woukd argue that by not paying off the Bounce back loan and not using spare cash to pay off mortgage on a Buy to let, I'm effectively risking money that is borrowed)
Ah yes…. That old one…. bread today – jam tomorrow….
Do you know what the current directors earn? In total, not just a salary and some divvies. The total package, pension, expenses etc.…. I would be surprised if they would pay you within 70% of what they get. Who knows?
Are they capable of going forward without your skills? How much is it, they need you compared to you needing them…
Invest, hmmmm…. have they given you any idea as to what level of investment is required, £10K to show willing, £50k to show you are really serious or is your house going to be on the line?
“The IP is all in the founders head really.”
This line concerns me, what happens if he drops dead tomorrow-ish? Is your investment from above, now down the swanny?
Can they grow to a £5m company if all the IP is in the founder’s head? Is he capable of letting others run with this, so he can become the proper MD?
Is the founder willing to accept that he is a techy guy and may need to step down/aside for when the business gets real? You may be lucky and he has both a tech head and a business head on his shoulder - it’s rare though.
What are their timescales for a possible sell out, 2 years? 5? 10?
“With an aim to get some certificates on the wall” - will this actually make any difference? I suppose it might to some but if they are project management certificates, really? Surely people will be judged on .....
“Was it on time?”
“Was it on budget?”
“Who did we ps off enough so they won’t talk to us again?”
Etc.…
If they want you to go into their business, they must be offering you a carrot. You have SC which is a key attribute in getting work just now, although IR35 may well temper that. Some fall out is happening with certain areas of defence which means IR35 is being quietly side-lined for some, but not others. The job I had was determined as non IR35, but the CAD guy next to me was.
As above, break down what the numbers are, and what your bottom line is to jump in with them. If they won’t match it, clear off to pastures new. As above – not much to lose really.
Do you know what the current directors earn? In total, not just a salary and some divvies. The total package, pension, expenses etc.…. I would be surprised if they would pay you within 70% of what they get. Who knows?
Are they capable of going forward without your skills? How much is it, they need you compared to you needing them…
Invest, hmmmm…. have they given you any idea as to what level of investment is required, £10K to show willing, £50k to show you are really serious or is your house going to be on the line?
“The IP is all in the founders head really.”
This line concerns me, what happens if he drops dead tomorrow-ish? Is your investment from above, now down the swanny?
Can they grow to a £5m company if all the IP is in the founder’s head? Is he capable of letting others run with this, so he can become the proper MD?
Is the founder willing to accept that he is a techy guy and may need to step down/aside for when the business gets real? You may be lucky and he has both a tech head and a business head on his shoulder - it’s rare though.
What are their timescales for a possible sell out, 2 years? 5? 10?
“With an aim to get some certificates on the wall” - will this actually make any difference? I suppose it might to some but if they are project management certificates, really? Surely people will be judged on .....
“Was it on time?”
“Was it on budget?”
“Who did we p
s off enough so they won’t talk to us again?”Etc.…
If they want you to go into their business, they must be offering you a carrot. You have SC which is a key attribute in getting work just now, although IR35 may well temper that. Some fall out is happening with certain areas of defence which means IR35 is being quietly side-lined for some, but not others. The job I had was determined as non IR35, but the CAD guy next to me was.
As above, break down what the numbers are, and what your bottom line is to jump in with them. If they won’t match it, clear off to pastures new. As above – not much to lose really.
80K salary for your skills and the contribution to the company doesn't sound crazy. With the potential to roll the product out to other customers you could consider a lower salary and a revenue-linked bonus payment scheme perhaps. As far as buying shares goes, I wouldn't personally, but that's because I tend to prefer counter-investing.
The big red flag to buying shares is the IP being in the owner's head. One thing I'd be wanting is a roadmap to an exit, which would include a plan of normalising the IP in some way. Also how well is he insured?
The big red flag to buying shares is the IP being in the owner's head. One thing I'd be wanting is a roadmap to an exit, which would include a plan of normalising the IP in some way. Also how well is he insured?
bucksmanuk said:
Everything bunksmanuk says
I've been trying to think how to articulate my thoughts on this and bucksmanuk does it for me!I've been involved a few scenarios similar to that you've described.
Something I've learned (the hard way) is that if an idea is really that good, the owners of that idea do not need or want the investment of employees to make it happen and should rather reward employees when (if) it does.
It's not the worst deal I've seen and if you were in your 20's I'd be saying yeah - go for it! But you're in your early 50's with what seems to be a nice financial cushion and some useful skills that could bolster that further. You've no doubt worked bloody hard to get to that point so if they want you, they need to pay you - in money. Sure, take some shares as an added incentive but that should not be 'the' incentive.
Up to you of course but the scenario you've described, to me, positions the risks too greater for the reward.
I think you're in a similar position to me.
I've only been contracting a short while - Since Sept 2018 - and whilst I am confident of my IR35 status (Contracts & Working Practices independently reviewed, deemed outside, insurance backed, contracting into an SME that allows me to self determine, etc etc). I have decided that I want to go perm.
I have been offered what I think is a good package, and thus I shall be taking that from the beginning of April. It feels like a shame, but at the same time I honestly don't have the energy for the fight and hassle.
I too had to put together the package I wanted, and I simply asked for exactly what I thought I was worth to them.
I'm happy with what I've got. For me however my total cost doesn't (currently) exceed my billable rate in the previous role I did for them - this is a new role however.
I focused on an overall package rather than chasing a mad salary. That includes an equity ladder that I can achieve over a period of years, and that is detailed and agreed in my contract of employment.
I'm incredibly lucky that the chaps I'm joining are absolutely brilliant and share my excitement and enthusiasm for the future. Great to be part of a project that I can offer real value to.
I've only been contracting a short while - Since Sept 2018 - and whilst I am confident of my IR35 status (Contracts & Working Practices independently reviewed, deemed outside, insurance backed, contracting into an SME that allows me to self determine, etc etc). I have decided that I want to go perm.
I have been offered what I think is a good package, and thus I shall be taking that from the beginning of April. It feels like a shame, but at the same time I honestly don't have the energy for the fight and hassle.
I too had to put together the package I wanted, and I simply asked for exactly what I thought I was worth to them.
I'm happy with what I've got. For me however my total cost doesn't (currently) exceed my billable rate in the previous role I did for them - this is a new role however.
I focused on an overall package rather than chasing a mad salary. That includes an equity ladder that I can achieve over a period of years, and that is detailed and agreed in my contract of employment.
I'm incredibly lucky that the chaps I'm joining are absolutely brilliant and share my excitement and enthusiasm for the future. Great to be part of a project that I can offer real value to.
Well it all went a bit quiet, and they decided to employ 2 permies. An Engineering manager and a "Sheldon", it was clear that they'd take me on as a permie, but the pay would be sub £50k and there's not a possibility of becoming a shareholder......
and then...
Out of the blue...long story short, I've accepted a permie job, on a salary that is equal to the average of my Turnover for the last 3.5 years.
If you factor in the pension, and commuting costs, I'll be on less money. But the actual job is much more in my comfort zone.
Wife isn't happy as she thinks it will be longer hours and less working from home. (She's right).
and then...
Out of the blue...long story short, I've accepted a permie job, on a salary that is equal to the average of my Turnover for the last 3.5 years.
If you factor in the pension, and commuting costs, I'll be on less money. But the actual job is much more in my comfort zone.
Wife isn't happy as she thinks it will be longer hours and less working from home. (She's right).
Pit Pony said:
W
Wife isn't happy as she thinks it will be longer hours and less working from home. (She's right).
The first part of that sentence - when is she?Wife isn't happy as she thinks it will be longer hours and less working from home. (She's right).
The second part of that sentence - sounds like a very healthy way of inserting some distance without the downsides of being a rat and leaving her.
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