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.
