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New Business Startup Question
Posted on 3/21/19 at 8:36 am
Posted on 3/21/19 at 8:36 am
Looking to start a new Tire and minor auto repair business and have an investor willing to invest all startup capital (estimated $120,000) for 50% interest in company. I will need to borrow an additional $100,000 for shop equipment.
My question is, what is the norm in New business startup and would I be better served borrowing from the bank or is this even an option?
This person is in the business and will help getting it off the ground and give his expert advice/ best practices, but can not be involved in day to day operation.
Any advice would be appreciated.
I am currently involved in the industry, but do not work in a shop currently.
My question is, what is the norm in New business startup and would I be better served borrowing from the bank or is this even an option?
This person is in the business and will help getting it off the ground and give his expert advice/ best practices, but can not be involved in day to day operation.
Any advice would be appreciated.
I am currently involved in the industry, but do not work in a shop currently.
7
Posted on 3/21/19 at 8:51 am to LSUJay13
50% seems like a lot for advice
This post was edited on 3/21/19 at 8:51 am
Posted on 3/21/19 at 8:56 am to LSUJay13
Giving up 50% of your company before it exists is not a good idea. 50% means all decisions have to be made together and if you're ever at an impasse on something you're stuck. He also holds an advantage intially because he put the money up. Your position grows stronger as the business grows stronger and becomes about you and the relationships you build with your clientelle.
I'd structure it as a loan with payments not beginning for a predetermined period of time so the business has a chance to get on stable ground before taking on payments for debt. I'd also negotiate a much lower stake in the company for the investor.
I'd structure it as a loan with payments not beginning for a predetermined period of time so the business has a chance to get on stable ground before taking on payments for debt. I'd also negotiate a much lower stake in the company for the investor.
This post was edited on 3/21/19 at 8:57 am
Posted on 3/21/19 at 10:36 am to LSUJay13
Do you have a buyout? Similar to limited partnership. Buy him out with profits. But get a CPA involved because of tax issues.
Posted on 3/21/19 at 12:45 pm to LSUJay13
Talk to a lender that does a lot of SBA loans for new businesses. $100K you are going to have to have some personal collateral to bring to that deal.
For those of you who are saying he should treat the money from his "partner" as a loan, bear in mind that there aren't too many banks out there that are going to loan him 100K if the business is going to have another 120K loan on the books, and no one is putting up any of their own capital.
OP, what's your ability to come up with your own cash, not from a bank?
For those of you who are saying he should treat the money from his "partner" as a loan, bear in mind that there aren't too many banks out there that are going to loan him 100K if the business is going to have another 120K loan on the books, and no one is putting up any of their own capital.
OP, what's your ability to come up with your own cash, not from a bank?
Posted on 3/21/19 at 2:52 pm to LSUJay13
I would advise you to try and get a loan first. You can get the expert advice/best practices for less than half of your companies value.
If you end up going the investor route then consider structuring a way to buy them out sometime in the future at a predetermined rate ie. some multiple of earnings.
Look at it this way, you don't want to be a few years down the road and for every hour you work this person is getting the same amount as you with no end in sight.
The investor may be necessary if you can't get a loan on your own, but I think the terms are somewhat in their favor.
If you end up going the investor route then consider structuring a way to buy them out sometime in the future at a predetermined rate ie. some multiple of earnings.
Look at it this way, you don't want to be a few years down the road and for every hour you work this person is getting the same amount as you with no end in sight.
The investor may be necessary if you can't get a loan on your own, but I think the terms are somewhat in their favor.
Posted on 3/23/19 at 10:09 pm to LSUJay13
How strong are you financially and credit wise? You new business should qualify for a SBA loan which are typically 10% down with a term of 10-20 years on the repayment. Some banks will fund small business loans without the SBA too. I'd get a loan instead of giving up 50% equity.
If you go the loan route you may want o hire an accountant or finance firm to put together a business proposal for you with projections of your first few years revenue and such. Don't walk into the bank just spit-balling numbers. Be prepared with a plan on paper.
What are margins like in this type industry? Can you afford to give up 1/2 your income?
If you go the loan route you may want o hire an accountant or finance firm to put together a business proposal for you with projections of your first few years revenue and such. Don't walk into the bank just spit-balling numbers. Be prepared with a plan on paper.
What are margins like in this type industry? Can you afford to give up 1/2 your income?
Posted on 3/23/19 at 11:13 pm to LSUJay13
Get to revenue first, somehow. Investing startup capital before any proof of concept or revenue seems like an idiotic idea on his end. Do what you can to start as a side hustle and get your feet under you. You shouldn't be talking investment capital unless you've already hit on previous startups or you have revenues to validate the need for growth.
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