Your thoughts on this please...

[ready2go]

this is a hypothetical situation but i might see myself entering in such a scenario in the near future:

let's say me and 2 other friends, juan and maria will put up a small business, say a squid ball cart in a school

since me and juan have no money to use as capital, we are asking maria to shoulder all capital expense

we offered to devote 40% of the monthly net income of the business to pay her capital expense, the other 60% we divide among the three of us as our dividends

this will go on until all her capital expense is paid, after that, 100% of the net income will be divided evenly among the 3 of us

if you were maria, will this be a fair agreement?

let's say maria agrees, but her condition is to register the business as single proprietorship under her name, and the three of us would just have a notarized agreement contract that we own the business equally

if you were in my situation, would you agree to maria's request?

thanks for your inputs!

r2g :coolhat:

[omeng]

hmmm..

question.. what if the business failed? what was the plan? meron nga ba?

[jolog1]

This is so unfair to Maria. The risk to you and Juan is zero. If business flops, Maria will be the one who gets hit because it's her investment while you and Juan walk away scathe free. If business is losing money, it'll be Maria that will keep pumping money into the business just to get it afloat.

If I were Maria, I'd be the business owner while I hire you two as my employees. Either that or find some other investor who could actually invest.

[woofers]

Originally posted by ready2go

if you were maria, will this be a fair agreement?


In a word, no.

[KuyaDanny]

Maria can lend the money to your business. An appropriate interest rate and repayment scheme might compensate her adequately for the financial risks she is taking and might make the whole arrangement more "fair" to her.

[LongBow]

huh? payment of the investment based on monthly net income?
magkano ang magiging investment ni maria at magkano ang forecasted monthly net income?

[LongBow]

Originally posted by KuyaDanny
Maria can lend the money to your business. An appropriate interest rate and repayment scheme might compensate her adequately for the financial risks she is taking and might make the whole arrangement more "fair" to her.

exactly. if you pay her loan based on monthly net income, parang kawawa naman talaga siya. baka abutin ng dekada bago mabayaran ng buo yung pera niya.

[ready2go]

if the business fails, we will still pay Maria our share of the investment in due time.

so you think it's better (for Maria actually) to arrange a fixed monthly payment from us?

let's say she shelled out a total of P120,000... so this means our share should have been P40,000 each and me and Juan owe her a total of P80,000.

if not through percentage of the monthly net income (since you say this is unfair for her), then what if we promise to pay her P10,000 a month (P5,000 from each of us) in the next 8 months, but then we'll split the monthly net income evenly

if there is a need to shell out more money during the business, we'll try as much as possible to shell out cash from our own pockets, but if this is not possible, then Maria will shell out cash, and we will arrange an additional sum to our payments to cover the additional expense

regarding paying her appropriate interests, how much would be appropriate? for the sample investment sum above... how much interest should we pay in case Maria asks us to do so?

thanks

[jolog1]

Originally posted by ready2go
if the business fails, we will still pay Maria our share of the investment in due time.

So she'll loan you two P80k. Do both of you have any collateral to hand to her? A written agreement won't be enough. If this is just a handshake deal and based on trust, I wouldn't do it. Both of you could easily just skip on the loan. For P80k, I would need more than a paper saying you guys will pay me back.

Ask yourself this question, does Maria need any of you? The answer is no. Maria might be the scammer in this situation. A piece of paper is not enough to prove you're also a part owner of the business. If the business is in her name then by law it's hers. Once the business is up and running, she'll drop you two like a bad habit. This is more common than you think.

Then again, maybe Maria is a retard. You guys found a way to start a business without risking your own money. If I can just find 10 Marias here in my neighborhood......

[LongBow]

Originally posted by ready2go
if the business fails, we will still pay Maria our share of the investment in due time.

so you think it's better (for Maria actually) to arrange a fixed monthly payment from us?

let's say she shelled out a total of P120,000... so this means our share should have been P40,000 each and me and Juan owe her a total of P80,000.

if not through percentage of the monthly net income (since you say this is unfair for her), then what if we promise to pay her P10,000 a month (P5,000 from each of us) in the next 8 months, but then we'll split the monthly net income evenly

if there is a need to shell out more money during the business, we'll try as much as possible to shell out cash from our own pockets, but if this is not possible, then Maria will shell out cash, and we will arrange an additional sum to our payments to cover the additional expense

regarding paying her appropriate interests, how much would be appropriate? for the sample investment sum above... how much interest should we pay in case Maria asks us to do so?

thanks

yes, i think it would be better, for maria, if you arrange a monthly installment plan. it's just that it's maria who's bearing the risk so, i was more concerned about her welfare.

let her earn interest only on the P 80,000 she'll be lending the two of you. the risk on the remaining P 40,000 she invested should be hers alone, it's her capital. regarding the percentage of interest, maybe 5 to 8% would be fine. i'm not sure about this one, though. since she'll be earning interest on the money she loaned the two of you, an equal division of the net income would then, be fair.

accounting for monthly installment:

Dr. Loan by Maria 10,000
Cr. You, Capital 5,000
Cr. Juan, Capital 5,000

and since she'll be earning interest on the loan, and will be receiving periodic payments, there'd be no need to register the venture under her name only. that would be fair for you and juan.

[omeng]

what i see right now is a trap.

Please read the article about "ENTREPRENEURIAL DEATH TRAPS"
(How to avoid the classic entrepreneurial mistakes)

http://pinoyexchange.com/forums/showthread.php?s=&threadid=110165&perpage=40&pagenumber=35

[ready2go]

Thanks omeng for that article reference, it was refreshing to read it again. :)

So here's the situation right now according to my understanding:

Me and Juan will give Maria collaterals appropriate for the loan she will give us and we should draw up a fixed monthly payment scheme for her which includes proper interest rates. And in return, the business should legally be under our three names and not just Maria's.

But based on the above mentioned article... we might fall under the "Three Musketeer Trap". If equal ownership in a business is not recommended then how are we going to go about this venture assuming the following cases:

Parameters:
1. knowledge on the business we'll be venturing into
2. time and effort that one can give to the business

Case A
Maria - knowledge: very little ; time: very little
Juan - knowledge: a lot ; time: very little
Me - knowledge: very little ; time: a lot

Case B
Maria - knowledge: moderate ; time: moderate
Juan - knowledge: a lot ; time: very little
Me - knowledge: moderate ; time: a lot

Case C
Maria - knowledge: a lot ; time: very little
Juan - knowledge: very little ; time: a lot
Me - knowledge: a lot ; time: moderate

thanks!

[KuyaDanny]

I am assuming Maria will still put up most of the money. It's never simple, but here's how I would approach the (hypothetical) situations.

Case A:
Maria - lender, Juan - consultant, You - owner

Case B:
Maria - owner, Juan - consultant, You - employee

Case C:
Maria - lender and consultant, Juan - employee, You - consultant, all three can be owners, after you figure out the sharing, You can be the CEO.

There are a lot of factors we are not considering (but should be), such as the expertise, maturity, teamwork, ability, personality, and levels of commitment.

[jolog1]

I think it would also be better if you borrow money from someone else other than Maria so all of you can put in together equally on this biz. Borrow from your parents or relatives. Start out at equal footing so you can avoid future quarrels on who owns how much.

[omeng]

My pleasure.. but if the articles is not clear yet to you, then you might fall to that. It's ugly bro. Believe me.

and i think jolog recomendation...

"Start out at equal footing so you can avoid future quarrels on who owns how much." <-- is falling there. no offense meant bro.

at the start, yes. you will have no quarrels.. but eventually.. you will notice you're into that path of "Three Musketeer".

From my experience.. it's not about the CASE ABC.. it's about the real score. Doing business is not that.. "i'm busy with my other work".. one should put time and effort. know the business to run smoothly. one should concentrate. then elect it as CEO/President or manager.

If your guts telling you that you are the one who can run the business.. then get the majority. then do what is right and what is moral.

in short.. "mas malaki ang uutangin mo".

remember.. as one of the successful entrepreneur and now one of the head in DTI said.. "in business, there's no such thing as 50-50%, 33.33-33.33-33.33% or 25-25-25-25%

don't fall into trap bro. remember.. that's classic. at bilog ang mundo =)

[ready2go]

i like what KuyaDanny suggested regarding the lender / consultant / owner / employee roles and made me re-assess the situation...

so what if ganito ang naging flow ng usapan namin nung mag-meet kami at pinag-usapan ang lahat ng points na na-bring up sa taas

Maria will still finance the whole start-up.

Me and Juan will give Maria collaterals appropriate for the loan she will give us and we should draw up a fixed monthly payment scheme for her which includes proper interest rates. And in return, the business should legally be under our three names and not just Maria's. (copy paste ko yung post ko above... hehe)

Then we will lay out all the responsibilities and tasks for the business to run... and assign them appropriate positions like the CEO, consultant/s, employee/s, accounting manager, marketing manager, sales executive, etc.

Then we will all assign the appropriate salaries for each position... si CEO ganito ang sweldo at responsibilities, si consultant ganito, etc.

And since 3 pa lang kami, we will initially assign majority of the positions to ourselves, yung iba pwede nang mag-hire ng staff kung may budget naman :D

So the business will eventually start with each of us as employees to our own company and earning appropriate salaries proportionate to our responsibilities.

At the end of the month, the net income will then be equally divided among the three of us as our dividends.

So as the business grow, we can start hiring people to replace the responsibilities and positions na ginagawa namin until eventually, the business is running on its own without any real effort from the three of us.

Ang nakukuha na lang namin ay yung regular dividends namin.

Mas okay ba itong scenario na ito?

thanks

[LongBow]

nice article omeng.

still, it's managing risk that's the real trick. any form of business organization will have corresponding risks. how smart you handle that risk will make all the difference.

[omeng]

that's so true LongBow!


ready2go.. what do you mean by this.. "And since 3 pa lang kami, we will initially assign majority of the positions to ourselves, yung iba pwede nang mag-hire ng staff kung may budget naman"?

just confused.. thanks!

[ready2go]

omeng,

we will assign positions for the tasks and responsibilities involved in the business. for example, in a squid ball cart business:

1. one has take inventory of the stock and order them
2. one has to receive the orders and do the accounting of expenses
3. one has to man the cart and do the accounting of the daily sales
4. and one has to manage the shop and be in charge of all business legalities and permits as well as the marketing

then we will decide how much each position should get each month:

1. P3,000 / month
2. P3,000 / month
3. P5,000 / month
4. P7,000 / month

then we assign these positions to ourselves first and we get the corresponding salary.

let's say

juan: position 1 and 2
maria: none
me: position 4
hired person: position 3

so the business will run and each person will receive the appropriate salary... at the end of the month, the net income will then be divided evenly among us three

this will not be a long term set up... eventually, me and juan will give up the positions we are holding and hire people so that the business can run by itself

hope this clears things up :)