Good or bad business decision? I’m stunned


#1

Ok so all of us look at the future with expansion and high hopes for our companies. Today I did a job for a 1.7 million dollar home exterior only and the owner approached me at the end with a proposition. He started asking a bunch of questions like how much could this company make if I had 3 or 4 trucks on the road, what is the average amount I make per day, how much is overhead and so on and so on. I asked him right away, why are you asking these things? He replied “you just made 1300 off of me in 5 hours, maybe I’m interested in this company” I then said well sir it’s not for sale. He said “I don’t want to buy the company I want to invest in the company for a percentage in the company as a silent partner” I asked him what he meant and he said he would invest 40K in the company for advertising, set ups, trucks and whatever i need and then pay three peoples salaries for the first year while I train them and get them working efficiently with their own set ups for 40% in the company. Sounds very appealing because it will bump me ahead 10 years in progress but is this a bad idea?? His investment could in turn make my personal yearly income travel upwards towards 150K for a tad more work within the first two years but honestly I’m a bit scared. He has called me twice since I left but I don’t know what to say to him. I never in a million years imagined this scenario but I don’t like the idea of a partner. I need some input honestly. This guy is very wealthy and already owns like 6 companies in construction and real estate. I’m at a loss for not only words but thoughts as well. Is this a good move or no?? Usually I’m good with decisions but this one isn’t easy.


#2

If something is too good to be true then it usually is.
I don’t know about investment companies or how much equity to give up without being taken. Remember, a persons first offer is never their final offer.
You would be well advised to seek the advise of a specialist in these types of things. If you pay that specialist for their advice they are (should) be bound by law to act in your interest since you are paying for their services.

Wouldn’t it suck if when the smoke cleared instead of 40% of your company a fair equity is 20%? I don’t know, and probably most on here do not know either. These kind of things require someone who specializes in what you are asking.

Just my 10¢.


#3

I started working for him about two months ago on a ccu job because he builds about 3 homes a month and he started using me. He stated that I was the best quality for the fairest dollar and was curious as to how I felt about expansion and possibly partnership. I found out very quickly that he was almost thinking of it as an income increase on top of a shortcut for his ccu hiring process. I don’t want my company to become majority ccu at his disposal regardless of the dollar amount I put in my pocket which is what has made me skeptical. It’s almost like a car lot that owns a mechanic shop, they use them for anything their car lot needs because it’s always money put back into their pocket at the end of the day with minimal output because they have all sides covered. I’m just skeptical 100% honestly but it’s appealing because my income would increase dramatically regardless the work. But I don’t want to feel like an errand boy in my own company. Ya know??


#4

^^ Concur. Definitely a good idea to get counseling from a professional business consultant. Your local Chamber of Commerce probably has someone on staff or retainer that could assist.

The big question: did the investor base his expectations on an anomaly ( $1,300 in 5 hours) or is this the normal $PMH for your company?

Some smaller questions: If your company had several vans and crews what their $PMH be?
How long would it take to recruit, train and retain several quality crews (growth management)?
What are the uncensored experiences of his partners in his other businesses? Would he and you be amenable to a pilot project with one van and crew to see if your business was ready for growth management issues?
Would his personal wealth and professional success lead to some good referrals?


#5

Or you just run your business and he buy your services at the same rate as everyone else.
i.e. is he trying to set up a deal where his is 40% owner of your company so when he needs CCU work done YOU don’t get paid what it’s worth? Seems a tad fishy on my radar. :-/


#6

Don’t kill the goose that laid the golden egg.


#7

i wouldn’t do it


#8

if you borrowed $100,000 and paid 100% interest it would cost you $100,000 and thats it. if you make him 40% parter and the company nets $100,000 profit a year he gets $40,000 this year, $40,000 next year and so on and so on.


#9

He is very likely under the assumption that you make $1,300 in 5 hours every single day. Is this true?

What did you make the day before in 5 hours?


#10

If you want to expand fast why not get a bank/government loan. Then you don’t owe 40% of your business. Although if you can take a loss in wages for a while you could do this all on your own. The hardest thing for a window cleaner to expand is perhaps getting a good member of staff who can do the work you want at your level.

I’v never hired but I 100% will in the future. I just believe you can do this all yourself.


#11

Let’s just say you won’t be the boss anymore unless you are super clear and have your lawyer work it out.

Huge offer but scary. It may jump you those years but like others say, your going to be giving him all this money for your sweat.

Maybe 20% of the company.


#12

100% interest?


#13

i’m saying even at a ridiculous interest rate, it would be a better deal than giving away 40% ownership


#14

From what I read here, I would pass… neither one of you know what your getting into.

If you do decide to go forward make sure you have legal council.


#15

Yea, because $100,000 loan at 100% interest would be $200,000 to pay back.


#16

Be careful Dandy. As a sharer in your market, I feel like I understand your customers to a degree. Mine are similar and honestly, I like the majority of them. I’m glad they are wealthy and find some of their stories intriguing.

That said, people in your neck of the woods aren’t giving out money without sizable expectations for themselves. They are smart, well heeled and motivated. They can also be ruthless when money is involved. I’d be hesitant to risk a good relationship and reputation with outside influences.

Watch “The Founder” and you might rethink any type of investment.


#17

right, but only $100,000 of that is interest


#18

That is spot on. Well said Rich


#19

This is really a two part question.

  1. like others have said, what is 40% of your business worth, both in the short therm and the long term. What are the particulars of your arrangement. If he owns part or all of 6 businesses he knows way more about his than you. Get help.

  2. Do you want to run a company like he is proposing. Do you want to hire, train, manage 10 or more employees? Have you had experience in this? Does your service area need a large WC company like you’re talking about?

You’ve got to figure out both. They aren’t easy questions to answer.


#20

So that’s great, but what will he give YOU for his interest in the company? IDK, I’d ask for $50K to buy in and $50K in improvements. Then get ready to negotiate.