Ok...whats the catch I'm not seeing.

[cazzer]

Ok, this is a bit complicated, so bear with me.

My situation is this.
I'm employed by company A which has 5 staff and a turnover of 250k a year but sod all overheads other than wages.

One of the directors of that company has started a new company (B) which has a decent potential ( so much so that I've bought into it to the tune of 10k for 35% of the shares). I've done this by reducing my salary from company A by 1k a month for the past umpty months.

I recon that, conservatively, Company B has a potention for a 1M turnover in 2 years (and sod all overheads too, the joys of software)...anyway....

The Director of Company A and Company B has decided that he's had enough of the corporate world (he's a buddist) and wants to chuck it all in within the next two years.

I can have all his shares in company B for nothing and all his shares in company A pro-rata what he paid for them (about 9k).

I would then be the Majority shareholder in both companies with an existing turnover of 250k and a potentiol of 1,24M in total, for a total outlay of 19K.

I can't see a catch, and I think it's mainly down to him being a buddist (and having 2M in the bank.....although I would have thought that mutually exclusive, but there you go).

Am I being nieve by being pleased about this? Am I looking a gift horse in the mouth? What pitfalls should I be looking out for?

Edited by cazzer on Tuesday 18th July 11:58

[percy flage]

Worst case - you lose the lot.

The degree to which you would miss the lot should give you an idea as to the attraction of said investment. It reads as if the pros outweigh the potential cons by some measure. I think I know what I'd do....

[fidgits]

bottom line...

Its going to cost you 19k


The extremes are you lose it all, and have to close the company (thus becoming unemployed) or, you make a couple of million off the companies (either through revenues or sale)... or something in between...


I'd say it depends whether your a gambler or not - you've already bet 10k, so the question is, do you think the company can achieve those goals with you at the helm? if so, whats stopping you?

[Eric Mc]

Do you know what the financial state of the company is?

Have you seen recent accounts?

Have they been formally audited by a qualified accountant?

Would you want an independent assessment of the accounts and business?

Edited by Eric Mc on Tuesday 18th July 12:25

[cazzer]

I think the problem is, He's been a bit of a mentor to me. (wish I'd met him at 20 rather than 35).
I think i may feel a bit rudderless without him in it.....

Also I'd need to employ someone to do the lead generation (cold calling stuff) cos I'm v bad at that.

I must admit, I can't really see a real downside (other than 19k).
But I think the fact I can't see one is whats worrying me

[GreenV8S]

Turnover is not the same as profit - how profitable are the two businesses, and how reliable is the future profit?

[cazzer]

The 250k turnover of Company A is more or less all profit after wages. Wages (including mine, but not including the guy who would be going) probably come to about 90k. After that its just phone bills and electic and stuff (and vat etc).
I'd estimate the profit to be around 100k or so.
But that is tenuous. It would be diminishing returns on that one. I'd guess 4-5 years before that has dried up (unless a lot of development effort is pointed at it)

Company B has no turnover at all at the moment, in or out. It's funded by A. We're releasing the product at the end of August. We have 6 firm orders for it from our eval sites for 60k (plus 30k a year recurrent support) and we're turning new business away (well asking them to wait till august anyway) as the product isn't quite ready for general release yet.

So really it's down to making Company B a success while slowly winding up A.

(Company A has a 50k facilty which it isn't using much at the mo)

The accounts look ok from where I'm standing, but I'll admit to being a layman on that score.

Edited by cazzer on Tuesday 18th July 12:28

[iaint]

cazzer said:

I think the problem is, He's been a bit of a mentor to me. (wish I'd met him at 20 rather than 35).
I think i may feel a bit rudderless without him in it.....

Also I'd need to employ someone to do the lead generation (cold calling stuff) cos I'm v bad at that.

I must admit, I can't really see a real downside (other than 19k).
But I think the fact I can't see one is whats worrying me

As majority shareholder you should recoup the outlay relatively quickly from the £250k/year company unless it makes NO profit! Are there other directors/shareholder you will have to work with and what's your relationship with them like. It's vastly important that you can deal with them effectively.

Definately get a fully audited set of accounts and have them double checked. Make sure there are no skeletons in the closet (e.g. loans/creditors/outstanding legal actions!!!).

Looks, from you account, like a great opportunity.

[ATG]

(this is a limited liability company, isn't it?)

[jaker]

Eric Mc said:

Do you know what the financial state of the company is?

Have you seen recent accounts?

Have they been formally audited by a qualified accountant?

Would you want an independent assessment of the accounts and business?

Edited by Eric Mc on Tuesday 18th July 12:25

^^^^^ What he said ^^^^^

What do you know about RUNNING a business? Get a good accountant and get him/her to take as much of the cr@p away from you as you can... imho...

[Eric Mc]

Get a professional to look over the accounts independently. My hunch is that they will not have been formally audited by the current accountants as the businesses are not large ebough to reach the Companies Act statutory thresholds.

[fidgits]

cazzer said:

I think the problem is, He's been a bit of a mentor to me. (wish I'd met him at 20 rather than 35).
I think i may feel a bit rudderless without him in it.....

Also I'd need to employ someone to do the lead generation (cold calling stuff) cos I'm v bad at that.

I must admit, I can't really see a real downside (other than 19k).
But I think the fact I can't see one is whats worrying me

Do you not know someone who may be willing to put up the 9k for a 50% share in both buisnesses and do that side of the buisness?

[Red V8]

Normally if things look too good to be true, then they normally are...

As per Eric's earlier post, get a professional to check it all out properly... and make sure solid contracts are in place for future protection, else, something might come back to haunt you..

[cazzer]

Thanks guys.
I'll take your advice about getting the accounts profesionally looked at. (yes they're both limited btw)

I don't need to do anything right away as it's going to be a few months away yet (he has to find his dream home in *insert wonderful location here* first)

I don't think he's trying to pull a fast one but thanks for confirming what I was thinking.....


Anyone looking for a commercial/sales manager position in the next few months?

[Touching Cloth]

cazzer said:

The 250k turnover of Company A is more or less all profit after wages. Wages (including mine, but not including the guy who would be going) probably come to about 90k. After that its just phone bills and electic and stuff (and vat etc).
I'd estimate the profit to be around 100k or so.
But that is tenuous.

Where do you guys do your work, surely there is rent and rates and all sorts to go on top of this, maybe you work in premises owned by this guy, if so will you have to relocate or pay him rent which are costs not currently being borne by the company. Not saying it isn't a goer but as already pointed out do look closely at what your REAL costs are going to be and that includes new costs that may start that will not currently show in the business accoutns.
I run a business with about the lowest overheads I could imagine, home based of office with staff based at airports with mobiles etc. I still manage to write out a seemingly endless amount of cheques......mostly to my accountant !!

As far as losing your boss as a mentor, I think some wind out period would be really useful, like 6-12 months with diminishing involvement. Or ask him to sit as a Non Exec Director so he can guide and advise that way.

Edited by Touching Cloth on Tuesday 18th July 14:17

[cazzer]

We all work from home and I maintain a 3 man office at my house although we very rarely need to use it.
I like the non-exec director idea though.

[mergli]

Ello'

Funnily enough I know an accountant......

[cazzer]

funny how people you've know for 22 years suddenly turn up on a forum you didnt know they read......

Lo Mergs ya lurker.

[_dobbo_]

Unless I've missed something I'm confused. You've taken a 1k a month pay cut (which means I guess that you make at least £24k before tax), boss is 2x millionaire there are 5 employees.

Wage costs are 90k? Who are you employing, paperboys at £1.50 an hour?

Employee costs will be lower if you are working from home but still, £90k doesn't seem right to me... Surely the cost of you and your boss to the company comes close to 90k before you even factor in the other 3 employees?

[cazzer]

the 90k doesnt include him.
There are two reasonable full time salaries.
One administrator on about 10k for a three day week.
And the guy who does all the books who only does 1 day a week.

Make more sense now