I am considering going into business with an acquaintance and I am not sure how to split the profit (once we start making some). I am only looking to cater dessert trays, make made to order candy and cakes.
She will be the PR person to get customers and I will be the pastry chef making everything. She is very lively and outgoing and has good contacts from previous jobs. It will be my business and I will handle the licenses, including cost. I will also be the one purchasing ingredients.
How do we split the profit?
It will be my business and I will handle the licenses, including cost. I will also be the one purchasing ingredients.
How do we split the profit?
That (to me) doesn't say really say partnership. I guess I would see partnership more as two people invest both of their money & labor.
Sounds like she is providing a service to you and you are paying her.
I agree, going into a partnership is very tricky and can cause major problems down the road....perhaps you can just pay her for the marketing she does??
I don't think you should split any profits, especially since it is your license and you are doing the work...is she paying the rent or for anything??
I would see a lawyer....and then another one, just to make sure. We almost lost our life savings in a partnership..and the lawyer that made out the partnership legal stuff (very professional here!), did it incorrectly...so I would always ask for a second legal advice...
Sorry, I sound mean, but.....it is better to set things up correctly, at the beginning...
Please don't underestimate your abilities either....it sounds like you don't want to bother with the marketing, which is understandable. But you might just want to pay her a percentage of the profits, that she helped get....
I agree....it sounds more like you are the owner and hiring her as an outside sales person........
Also, just because she has great contacts does not mean that her friends and acquaintances will contract with you in business. They might just expect the "friend's discount."
My other question is, does she know enough about the products in the business, cost, pricing, etc, to be a consultant for you?
If so, then you offer her a fair percentage of each final sale - in other words, she gets paid after delivery of the fully paid product.
You need to consult with an attorney and an accountant, to come up with a fair percentage to offer her. But definitely, do not make her a full partner. An attorney can draw up an agreement where she would be a percentage partner, and receive a percentage of the profits - after overhead - for each sale completed.
Does not sound like a partnership - you are taking are risk and legal responiable for everything. Sound more like hiring an employee. You should set an hourly rate and then when she brings in a new customer you can give 5% of profit (commission) from that order as a bonus to her. You then will have to decide is it a one time commission (for the first order only, then she may want a higher percentage) or she can have commission up to the 4 or 6 order placed and then it will be a small percentage. Just remember is you do commission you need to decide if taxes are coming out or are you going to give a W-9 form then she will be held solely resonpible for her taxes (which some people do not put money away then they owe a lot when tax season comes)
Agree with all that's been said. She sounds like a sales rep, not a partner.
Red Flag went up when you said "I will be buying the ingredients". Uh, the BUSINESS buys the ingredients, THEN you see what the profits are before anything gets split.
If you pursue the partnership, my attorney told me to stay away from 50-50 splits. There HAS to be someone who has the final say. If the two of you disagree, you have a stalemate and everything comes to a standstill. One of you needs to be "in charge".
Also consider, if this is a partnership, what happens if she wants out? What if you can't afford to buy her out? Do you close the business? Does she sell it to someone else instead? What if she sells it to someone who you can't work with? Do you have any say in who she can sell her half to?
Partnerships are very very tricky. I'd consult with a good business attorney FIRST and on my own, before the two of you even sit down together.
Agree with all that's been said. She sounds like a sales rep, not a partner...
You and the others are right. I used the wrong term when I said partner. She will basically be my sales rep. Since I have very little money to start, I plan to pay her a commission for the sales that she brings in. What should her commission be? Any sales that I secure on my own, I will not give her a commission.
Doesn't sound like a partnership to me really, I think I would just go with the commission idea for her for the business that she brings in. I am in real estate and my broker owns the business and I get commission when I close a deal and the check clears the bank - just a thought
25% is more than generous, for the business that she herself brings in. ( sorry had to edit!)
25% sounds good to me, if it is from net profit, not from each sale. You could end up spending a lot of money on supplies, and don't forget your utility costs.
Have you also considered liability insurance? And is she going to be on your policy?
And please make sure that whatever agreement you come up with, the clients she books for you do not receive any products unless payment is received in full, and the check or credit card has cleared.
i had an actual parter for a couple years....it was pretty simple, after all the bills were paid we split the money after calling the accountant to see what taxes had to be paid in for what that amount was.
indy debi was right we had a 51-49 split so someone had the final vote....it worked out pretty well.
i think your girl is really a sales rep. wonder if a set percentage of sales would be a good cut for her?
what do reps usually get indy?...i'm thinking 15 to 20%...because they have no investment....but i dunno.
oh gosh, sales reps commissions can run the gauntlet! I've seen them as low as 5% to as high as 80%! Depends on the product and how the company is structured.
Some sales reps get a commission on the sale price (before expenses). My brother in law sold cars for awhile and his commission was based on the profit they made on the car (incentive for salesmen not to try to lower the price too much since it really DID come out of their pocket!)
I would hire her as an independant contractor and not an employee. That way you don't have to pay payroll taxes which increases your expenses more than you may think. Definitely check with your CPA/lawyer regarding details.
As for commission split it needs to be enough to make it worth her while and still stay reasonable...take into consideration what she's doing. If she only makes the initial contact and that's it then she probably should get a small percentage of the gross sales price - say 10-15%.
If all she is doing is getting you contacts I would give her 10%. You already have enough going out for ingred, labor, overhead, taxes and etc. Is she going door to door?
If she starts producing then you may increase her percentage if she brings in a greater amount of sales to your business. People will start calling you when word gets out, with out her.
I wanted to thank you all for all of your input. You have given me a lot of great tips and I really appreciate it.