How to Invest in a Small Business
Discussion
Long story short.
A family member is being made redundant as his boss winds up his Tree Surgery business. They are busy and profitable but the owner has his finger in other pies and has built the training and consultancy side of the business to a point where he feels running a team of lads, pricing jobs, looking after vans and machinery etc... is not worth his time. Fair enough.
My family member is considering going solo and is confident he could pick up a good chunk of custom from his old boss, thanks to a good relationship between them both and the customers - family member is/was the lead guy on site most days so dealt with more than trees.
Unfortunately, he's not got the capital to buy the tools, machinery, van, insurance etc... that he would need to get going.
My position - I'm in a well paid job but not doing something which I want to do forever, so have been setting myself up an exit plan over the last few years with various investments here and there. I know nothing about tree surgery/arborists or even small businesses, really.
My idea, which I've floated with my wife but not with my family member, is that I stump up some/all of the cash to buy the machinery and bits he'd need to get started.
My worry - how can I do this in a way that neither of us get burnt or destroy the family
I don't want a gentleman's agreement where I hand over £x and just tell him to give me back £x+10% a year... but I don't want to get so legal with it, that I end up running the business or putting (too much) pressure on him.
This must go on every day; what are my options? How could a return be structured? Am I best buying a xx% stake in the business and sitting back and leaving him to it? With a handful of meetings a year to keep on top of things? Or would getting my capital back +x% a year over x years, be better for either/both of us?
Any points I need to consider are welcome. Early days so just brainstorming.
A family member is being made redundant as his boss winds up his Tree Surgery business. They are busy and profitable but the owner has his finger in other pies and has built the training and consultancy side of the business to a point where he feels running a team of lads, pricing jobs, looking after vans and machinery etc... is not worth his time. Fair enough.
My family member is considering going solo and is confident he could pick up a good chunk of custom from his old boss, thanks to a good relationship between them both and the customers - family member is/was the lead guy on site most days so dealt with more than trees.
Unfortunately, he's not got the capital to buy the tools, machinery, van, insurance etc... that he would need to get going.
My position - I'm in a well paid job but not doing something which I want to do forever, so have been setting myself up an exit plan over the last few years with various investments here and there. I know nothing about tree surgery/arborists or even small businesses, really.
My idea, which I've floated with my wife but not with my family member, is that I stump up some/all of the cash to buy the machinery and bits he'd need to get started.
My worry - how can I do this in a way that neither of us get burnt or destroy the family
I don't want a gentleman's agreement where I hand over £x and just tell him to give me back £x+10% a year... but I don't want to get so legal with it, that I end up running the business or putting (too much) pressure on him.
This must go on every day; what are my options? How could a return be structured? Am I best buying a xx% stake in the business and sitting back and leaving him to it? With a handful of meetings a year to keep on top of things? Or would getting my capital back +x% a year over x years, be better for either/both of us?
Any points I need to consider are welcome. Early days so just brainstorming.
The story doesn’t quite add up to me. While I understand he may want to remove the headache of running a part of the business, why just close it down instead of trying to structure a buy out for that part of the business? It sounds like your family member is ideally positioned to do this.
Is there some element of the parts he’s retaining that is subsidized the tree surgery business? For example, does he do consultancy for Stihl meaning he doesn’t have to buy chainsaws or sharpen chains? I.E. something that makes him cheap to his customers (therefore busy) but not realistic (therefore not suitable to spin off)?
Is there some element of the parts he’s retaining that is subsidized the tree surgery business? For example, does he do consultancy for Stihl meaning he doesn’t have to buy chainsaws or sharpen chains? I.E. something that makes him cheap to his customers (therefore busy) but not realistic (therefore not suitable to spin off)?
Notwithstanding comments above about some of this not quite adding up; some say don’t!
https://www.cbsnews.com/news/5-dangers-of-doing-bu...
If family member wishes to buy out, then they generate capital themselves; bank loans, credit cards, re-mortgage etc.
If you want to invest in a business, consider anything but a fellow family member’s business. When things go wrong in those circumstances, they usually go horribly wrong.
https://www.cbsnews.com/news/5-dangers-of-doing-bu...
If family member wishes to buy out, then they generate capital themselves; bank loans, credit cards, re-mortgage etc.
If you want to invest in a business, consider anything but a fellow family member’s business. When things go wrong in those circumstances, they usually go horribly wrong.
ColdoRS said:
Long story short.
A family member is being made redundant as his boss winds up his Tree Surgery business. They are busy and profitable but the owner has his finger in other pies and has built the training and consultancy side of the business to a point where he feels running a team of lads, pricing jobs, looking after vans and machinery etc... is not worth his time. Fair enough.
As others have noted, this doesn't make sense. If it's so busy and profitable but suffering from a large dose of CBA, you don't wind up the business, you get a manager to, err, manage it all so you can get on with other stuff while still keeping the money flowing in.A family member is being made redundant as his boss winds up his Tree Surgery business. They are busy and profitable but the owner has his finger in other pies and has built the training and consultancy side of the business to a point where he feels running a team of lads, pricing jobs, looking after vans and machinery etc... is not worth his time. Fair enough.
Alarm bells would be ringing for me. Also, family members + business = very high likelihood of ending in tears/more aggro than it's worth.
PH4555 said:
As others have noted, this doesn't make sense. If it's so busy and profitable but suffering from a large dose of CBA, you don't wind up the business, you get a manager to, err, manage it all so you can get on with other stuff while still keeping the money flowing in.
Depends, if it's his name on the door and his reputation, he may not consider it worthwhile. Especially if there are other parts of the same business doing well; he's not winding down the whole business, but equally he doesn't want to sell half his business with his name on it. As above business and family,more bother than it's worth,however,if you were to stump up the cash for equipment,do so through a ltd co,you then 'hire' the equipment to him,if he goes down,your capital,allowing for depreciation still has some worth,just handing over the money,even with an agreement in place you'd just end up a creditor to a likely potless firm?
Thanks all, some food for thought! and PM sent Al Gorithum.
Noted on the bosses reasons for getting out - this is just what i've been told; as I say, I haven't mentioned my idea to my anyone other than my wife, otherwise it is likely to grow legs and get out of hand before i've done my due diligence.
Also with regards to getting involved financially with family members and such - totally understood and that is probably my number 1 concern at this point.
Noted on the bosses reasons for getting out - this is just what i've been told; as I say, I haven't mentioned my idea to my anyone other than my wife, otherwise it is likely to grow legs and get out of hand before i've done my due diligence.
Also with regards to getting involved financially with family members and such - totally understood and that is probably my number 1 concern at this point.
Whilst I would echo the concerns regarding entering into business with family members, this should be balanced with recognition that they can succeed.
One of the more regular causes of grief in business is the lack of any formal written agreement between the owners. This applies to non-family businesses too. So whatever you do, make sure there exists written agreement between all parties on obligations, liabilities and the like right from the very off.
And unless you are keen to take a hands-on role in the business, I would recommend you give consideration to this:
One of the more regular causes of grief in business is the lack of any formal written agreement between the owners. This applies to non-family businesses too. So whatever you do, make sure there exists written agreement between all parties on obligations, liabilities and the like right from the very off.
And unless you are keen to take a hands-on role in the business, I would recommend you give consideration to this:
TCX said:
As above business and family,more bother than it's worth,however,if you were to stump up the cash for equipment,do so through a ltd co,you then 'hire' the equipment to him,if he goes down,your capital,allowing for depreciation still has some worth,just handing over the money,even with an agreement in place you'd just end up a creditor to a likely potless firm?
PH4555 said:
ColdoRS said:
Long story short.
A family member is being made redundant as his boss winds up his Tree Surgery business. They are busy and profitable but the owner has his finger in other pies and has built the training and consultancy side of the business to a point where he feels running a team of lads, pricing jobs, looking after vans and machinery etc... is not worth his time. Fair enough.
As others have noted, this doesn't make sense. If it's so busy and profitable but suffering from a large dose of CBA, you don't wind up the business, you get a manager to, err, manage it all so you can get on with other stuff while still keeping the money flowing in.A family member is being made redundant as his boss winds up his Tree Surgery business. They are busy and profitable but the owner has his finger in other pies and has built the training and consultancy side of the business to a point where he feels running a team of lads, pricing jobs, looking after vans and machinery etc... is not worth his time. Fair enough.
Alarm bells would be ringing for me. Also, family members + business = very high likelihood of ending in tears/more aggro than it's worth.
Selling the business seems obvious but not to many business owners. I was chatting to a guy who had worked for the largest kitchen installation company in the UK. The owner got bored of it one day and just closed it all down! Stunning move that cost him millions in lost sale proceeds.
First, a 'gentleman's agreement' is not something I'd risk. There is no middle ground, you have to draw up an agreement you both agree to and sign - because s
t happens.
I think you have two choices. One is to give him some money and agree that he will give you X% of the profits in return. But he might not make any profit, and how will you police it? As I said, st happens.
The other is to lend him some money and agree that he pays you back over X years. Whether that includes a profit or not is up to you. But get it typed and signed because if and when st happens you need it to be legally enforceable.
In short, he may be a family member but hopefully he will respect you for wanting to do things properly. If he dosn't, run away. This is business after all, and if you want to be soft, only give him what you're prepared to lose.
t happens.I think you have two choices. One is to give him some money and agree that he will give you X% of the profits in return. But he might not make any profit, and how will you police it? As I said, s
t happens.The other is to lend him some money and agree that he pays you back over X years. Whether that includes a profit or not is up to you. But get it typed and signed because if and when s
t happens you need it to be legally enforceable.In short, he may be a family member but hopefully he will respect you for wanting to do things properly. If he dosn't, run away. This is business after all, and if you want to be soft, only give him what you're prepared to lose.
Ace Bentley said:
ColdoRS said:
Thanks all, some food for thought! and PM sent Al Gorithum.
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