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What to Do...........
Old 11-21-2007, 11:00 AM   #1
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What to Do...........

My best friend just started a business selling exercise equipment to schools, YMCAs, etc.

He needs help, because this business could go national easily . He offered me 25% ownership along with 60% of the profits on any sales I help negotiate (average sale is $10,000, profit margin is 50%) My only cost of entry would be $1000 to help cover advertising and website costs.

Sounds interesting, but also a lot of work.

Throughts? It turns out good ole Uncle Sam has grants that schools can get to help pay for this........
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Old 11-21-2007, 11:21 AM   #2
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Throughts?
I have an uncle-in-law who sold a variety of sporting equipment to schools for many decades. My point being that it's not a new or untapped market. Just like anything else, I'm sure if he works hard he can be successful, although it will be like selling boxes, printing services, etc -- lots of competition. And a lot of dealing with bureaucracies.

As for buying 25% of the company for $1,000, well, that would entirely depend on what I thought of the person and his character, although he must not think a lot of the potential of his own enterprise if he's willing to value it at $4,000. Either that, or he doesn't have a lot of business sense or he's completely broke, either of which wouldn't make me excited about backing him.
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Old 11-21-2007, 11:35 AM   #3
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As for buying 25% of the company for $1,000, well, that would entirely depend on what I thought of the person and his character, although he must not think a lot of the potential of his own enterprise if he's willing to value it at $4,000. Either that, or he doesn't have a lot of business sense or he's completely broke, either of which wouldn't make me excited about backing him.
He and his nephew are the primary owners, at 37.5 percent each if I join.

I am researching the grant thing, and one of my friends owns a large fitness center and is interested in our product...........
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Old 11-21-2007, 11:37 AM   #4
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I should say they also are giving me the option of being the "National Sales Manager", and just getting a high commission on what I sell and a percentage on leads I bring them.

This seems to be the low-stress way to go about it. So far, it's fun, bujt I haven't committed to being an owner.........
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Old 11-21-2007, 11:39 AM   #5
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Independent business is where the money is.

The real potential for problems is in the partnership aspect. Realize you might lose your "best friends" status, and make sure that your agreement is spelled out to every last detail, preferably by a lawyer who is familiar with this stuff.

For example, define "help negotiate," define liabilities, etc.
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Old 11-21-2007, 11:42 AM   #6
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Independent business is where the money is.

The real potential for problems is in the partnership aspect. Realize you might lose your "best friends" status, and make sure that your agreement is spelled out to every last detail, preferably by a lawyer who is familiar with this stuff.

For example, define "help negotiate," define liabilities, etc.
I'm all over that.........I used to design compensation plans for a sales company I worked for.........
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Old 11-21-2007, 12:51 PM   #7
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Originally Posted by FinanceDude View Post
My best friend just started a business selling exercise equipment to schools, YMCAs, etc.

He needs help, because this business could go national easily . He offered me 25% ownership along with 60% of the profits on any sales I help negotiate (average sale is $10,000, profit margin is 50%) My only cost of entry would be $1000 to help cover advertising and website costs.

Sounds interesting, but also a lot of work.
Devil's advocate time. I've had this experience with a few shipmates who figure that since I'm ER'd then my investment in their ambitions must be latté money.

First, latté money or not, it looks like your "best friend" has just put a price on your friendship. Do these people hate you that much, or do they just want to cajole you into a better position before the backstabbing vengeance-wreaking begins?!?

What do they think you have to offer the business? Why are they being so nice to you? Are you venture capital or vulture capital? Will they put out a press release announcing that FinanceDude, a car-sales superstar & compensation guru, has just joined the firm and is ready to help schools reach their fitness goals? Or do they want free bookkeeping financial advice & tax-prep assistance?

$1000 now is like handing out free cocaine on street corners. I'd be more concerned about bankruptcy exposure, liability (weight stack slams down on the starting linebacker's foot), and the need for periodic "shareholder equity infusions" to "take the business to the next level". I'd be concerned that the corporation was set up well enough to keep those liability exposures from sloshing over to your other business/personal assets.

You know all this stuff, but what do they know about starting their own business? Corporate structure? "Critical personnel" insurance? Payroll? Taxes?

If they have the chops to do this, have they been able to acquire any SBA loans or other financing? I'm not saying that the SBA is worth the effort, just that it takes some minimal level of ability to write a business plan and persuade someone to loan them the money. If they haven't been able to achieve this level then you're a sucker source of easy equity.

Maybe you want to be a contractor/consultant who's paid in minority shares of the corporation with specific exemption from any & all liability. I don't know if it can be set up that way, but you could offer the benefit of your wisdom without risking anything else... including a friendship.
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Old 11-21-2007, 12:57 PM   #8
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Devil's advocate time. I've had this experience with a few shipmates who figure that since I'm ER'd then my investment in their ambitions must be latté money.

First, latté money or not, it looks like your "best friend" has just put a price on your friendship. Do these people hate you that much, or do they just want to cajole you into a better position before the backstabbing vengeance-wreaking begins?!?

What do they think you have to offer the business? Why are they being so nice to you? Are you venture capital or vulture capital? Will they put out a press release announcing that FinanceDude, a car-sales superstar & compensation guru, has just joined the firm and is ready to help schools reach their fitness goals? Or do they want free bookkeeping financial advice & tax-prep assistance?

$1000 now is like handing out free cocaine on street corners. I'd be more concerned about bankruptcy exposure, liability (weight stack slams down on the starting linebacker's foot), and the need for periodic "shareholder equity infusions" to "take the business to the next level". I'd be concerned that the corporation was set up well enough to keep those liability exposures from sloshing over to your other business/personal assets.

You know all this stuff, but what do they know about starting their own business? Corporate structure? "Critical personnel" insurance? Payroll? Taxes?

If they have the chops to do this, have they been able to acquire any SBA loans or other financing? I'm not saying that the SBA is worth the effort, just that it takes some minimal level of ability to write a business plan and persuade someone to loan them the money. If they haven't been able to achieve this level then you're a sucker source of easy equity.

Maybe you want to be a contractor/consultant who's paid in minority shares of the corporation with specific exemption from any & all liability. I don't know if it can be set up that way, but you could offer the benefit of your wisdom without risking anything else... including a friendship.
Good points...........I'm leaning toward the independent contractor with no personal liability involved.........
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Old 11-21-2007, 01:26 PM   #9
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Does your friend have contracts in place with one or more of the big name equipment manufacturers giving his new business exclusive sales/distribution rights for some territory?

As others have mentioned, this sounds like a highly competitive, dog-eat-dog business, which is not congruent with the generous profit margins you posted. Something is fishy.

If you have some kind of inside edge with the local school board or other big bux purchaser, you might want to duck into the business, exercise your clout to get some sales (vs. the zillion other distributors who will be bidding) and then duck back out.
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Old 11-21-2007, 01:32 PM   #10
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Does your friend have contracts in place with one or more of the big name equipment manufacturers giving his new business exclusive sales/distribution rights for some territory?
No

Quote:
As others have mentioned, this sounds like a highly competitive, dog-eat-dog business, which is not congruent with the generous profit margins you posted. Something is fishy.
It is........

Quote:
If you have some kind of inside edge with the local school board or other big bux purchaser, you might want to duck into the business, exercise your clout to get some sales (vs. the zillion other distributors who will be bidding) and then duck back out.
I do, and that's my plan. One of my clients sets up corporate wellness centers all over the midwest. I figure that's a good start........
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Old 11-21-2007, 02:11 PM   #11
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I do, and that's my plan. One of my clients sets up corporate wellness centers all over the midwest. I figure that's a good start........
Maybe your client who sets up corporate wellness centers all over the midwest is the guy you should be going into business with....... I bet he could go straight to the manufacturers, leaving your best friend's distributorship completely out of the picture!
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Old 11-21-2007, 02:16 PM   #12
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Maybe your client who sets up corporate wellness centers all over the midwest is the guy you should be going into business with....... I bet he could go straight to the manufacturers, leaving your best friend's distributorship completely out of the picture!
Thought about that..........although the manufacturer my friend uses lets him buy at wholesale, and then gives him an MSRP guide to use...........
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