Someone wanted to invest 30k into my landscape company for 5% return, now I’m not the smartest guy out there and someone is free to correct me if I’m wrong but shouldn’t that 5% be until the loan is paid off and not until I give the company up
Again I’m very new to this so I could be looking at this horribly wrong
If it’s 5% equity it’s straight forward. They get 5% of the business and any owner’s draw they get 5%. I’m assuming this isn’t a very small business (under lets say 500k), because they wouldn’t be accounting for owner’s/managers salary. For that investment you should be netting around 300k (after reasonable owner/manager salary), growing every year, etc. I say net, because these types of service businesses usually sell for 2X EBITDA. Look at similar businesses for sale or even talk to a business broker (or a few) to get a better idea. Tell them you’re interested in selling your business and want a valuation. That usually includes owner/manager salary – this is the reasonable rate if you were to hire someone to manage the business.
It always depends on how the contract is written, but purchasing 5% equity is usually straight forward. Alternatively, he could want 5% of revenue, profits before any distributions, etc. A lot of possibilities for how the contract is written.
If he’s looking for for 5% there are a lot of other ways that aren’t as risky as investing in your business. There are a lot of angel groups he could join and invest in 1 or 2 of the startups (normally min is 20k). Those are more risky, but usually have a higher multiple return if they’re successful.
well investment is different from loan, though they can overlap.
if they are investing 30k for 5% they they believe your business is worth 600k in value (they believe if you try to sell your business it will sell for 600k) - if this the route they are offering, they would own 5% of your business, and be entitled to 5% of any dividends you pay to shareholders (if you pay profits to the owners of the business), when you sell, they will be entitled to 5% of whatever the business ends up selling for.
If its a loan - then they might be saying the’ll lend you 30k, and you have to pay back 30k + 5% (1500) - they would not own part of your company.
the third scenario is where they lend you 30k as a loan, but once it reaches a certain point it would convert to equity (i believe called a convertible note, but check as not my area of knowledge)
assuming its equity - you need to determine if 600k is a realistic value for the business, and if you want this person involved in your business, you should speak with a lawyer.
next, you should also consider if you need the 30k, and if there are better alternatives (e.g. borrow from the bank) to get that 30k.
Ah okay that makes sense thank you!!
Ownership is all you need, fight for it and keep as close as 100% possible. Don’t sell it cheap, better to use your own savings.
Are you sure tgis isn’t a scam? Do you know them? How did they make the offer? How did they value the company? This sounds like a scam.
Is your company really worth $600,000. If not, it’s a scam.
It’s a guy who I mow for, he owns a few apartments around the area I do
Mind you they’re kinda slumlord looking lol
In that case, I don’t know what to think. If you made 45k last year, your business is probably worth 150k max. If you do most of the work, it’s probably worth less. But this guy thinks it’s worth $600k. Something is wrong. I don’t know what.
So, if he gives you 30k now and then you sell a week later for 150k, he gets 7.5k. Makes no sense at all.
He’s saying your company is worth $600,000 and he wants to own 5% of it. When you sell he’ll get 5% of the proceeds. If the company ever distributes money to the owners he’ll get 5%.