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The Ultimate Guide About Profit Distribution With Your Business Partner



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what percentage that I give my business

partner so I got a great question from

one of my Google+ readers love you guys

Korea s Etica who wrote in and basically

she has a business and wants him to come

in and be her business partner in the

company and is wondering do I have to

give up 50% of my company to this person

so here's the thing okay you can you can

skin this cat in a lot of different ways

there's no rule that says you have to

give up half your company to a partner

coming in for me the thing that you want

to look at one is how much value is this

person bringing is the person bringing

equal value to what you're bringing yes

or no and then to how long has this

company been around is this a just a

startup idea where you haven't done

anything yet or have you been around for

a little while and you've already built

up something that you know that person

hasn't contributed to so obviously

you've been around for a longer period

of time a new person coming in doesn't

deserve as much as you have already

built this thing up but if it's brand

new startup then they have a case for

wanting to have a bigger piece of the

pie regardless of the decision of how

much percentage you're going to give up

you have to make them commit to the

business this is so important I get that

it's exciting at the beginning okay

partnerships are always exciting because

at the start you're you're struggling

right you're feeling like I can't do all

this myself I don't have the skills and

this person has great skills that can

help and I don't want to do this alone

and it's just there's so much pain of

going it alone and so much excitement in

bringing somebody new on that all you

see is the good side not a lot of

partnerships will work out all the way

to the end and you want to make sure

that you're really getting the right

person on board it really is like

choosing a spouse okay you have to know

them like them trust them love being

around them and think that it's going to

work out for many many many years and

what do you do before you get married

you date and that's what you need do

with your business as well you need the

person to commit to the company

you just give them equity and that can

come in two forms one they buy in they

have to pay they have to pay for equity

in your company your business is worth

something you're not just going to give

it away they have to buy a certain

amount at a certain price the other way

is to earn in and so instead of just

giving them X percent of the company

they earn it when they hit milestones so

remember I had a software company when

we bring on a new salesperson who

started by myself and my business

partner we're bringing on a third

partner who's going to be our sales

person and he was joining relatively

early on but I didn't know him too too

well and I didn't want to just give him

a piece of my company because the last

thing you want to have happen in your

business is have a guy who owns a piece

of your company who's just a dead weight

who isn't doing anything for the company

and is it somebody you don't want to be

around and that can happen very often

with a lot of companies so we made them

earn in and you said ok we'll give you

up to whatever it was 20% of the

business you are in your first 5% if you

can close X number of deals within this

amount of time and we set milestones so

you get your first 5% when this happens

your next 5% when this happens and so it

shows it there they have to be committed

to the business and actually get results

for you before you're going to give them

equity so it encouraged you to have some

kind of benchmark to put in if they're

not going to be buying in and giving you

money for your shares the last thing I'd

encourage you to do is for anybody who's

bringing on a partner is have a

shareholders agreement it's so important

and make sure that you include a shotgun

cause a shotgun cause basically is

something that you write into your shell

hose agreement that allows one partner

to buy out another partner if it's not

working out you know for whatever reason

it's just not working out you're

fighting you're doing all the work and

this person is not you know doing

anything and they own 50 percent of your

business how do you get them out and a

shotgun Clause says I will buy your

shares at this price or you have to buy

all of my shares at the same price so

you get to pick the price

and the other person gets to pick either

accept the deal or buy you out so one

way or the other

somebody's getting bought out of the

business you have to be smart with what

price you set but it's important part to

have in your shareholders agreement

before you bring on a partner the other

thing you might want to look at is a

piggyback clause and that's basically

where if one person is a minority

shareholder if you decide to sell that

person can come with you so you know if

you're the majority shareholders if

somebody was a minority shareholder you

sell your business that person has to go

with it

so you don't have one person holding up

a deal so if you have a deal to sell

your company that minority shareholder

can cause a lot of problems for you and

prevent the sale of the business which

you know you don't want to have happen

so that person is dragged along with the

sale of the company anyway a few things

I think and think about get a lawyer

involved but you definitely don't have

to give up 50% of your business make

sure they're offering value make sure

they're either buying or earning in and

get your shotgun clause in your

shareholders agreement before they sign

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