Please Help- Small Business

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maxhorne4

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Hi All

Have searched the internet to pieces trying to get to a simple answer....

Starting a small business, have a friend that will invest money and have 51% shares

The big question is what % return can he expect on his money invested?

Simplest formula?

As we need to agree on this % "black on white"

Please some guidance would be highly appreciated
 
Not sure what you're asking. He'll get a percentage of the profit as well as own 51% value in the business. Are you asking how much of the profit he should get? Normally it would be the same as his share in the business.
 
I have 2 suggestions if you're asking questions like this:

1. Do not under any circumstances let your friend "invest".
2. Do more research on how to run a business & take a few basic financial courses so you can learn what ROI etc. is & then put a business plan together.

Until then all you are going to do is make a mess of it & most likely ruin a friendship in the process.
 
He will have the majority 51% but how much are you investing?
 
maxhorne4 said:
Hi All

Have searched the internet to pieces trying to get to a simple answer....

Starting a small business, have a friend that will invest money and have 51% shares

The big question is what % return can he expect on his money invested?

Simplest formula?

As we need to agree on this % "black on white"

Please some guidance would be highly appreciated
Click to expand...

The first thing you need to do is get yourself a proper accountant, as in a CA.
Then with his/her help, form a Pty Ltd, and during the first board meeting, minutes will be taken and shares will be issued.
All will be registered with CIPRO and be official.

The CA can also explain how the partnership will be run in an accounting sense.

Who will be MD, running day2day operations.
Who will be the CFO, carrying fiscal responsibility for the business, re. taxes, annual submissions to CIPRO etc.
What kind of business?
Will he be a silent partner, that makes all the final decisions as he has 51% stake?
Will salaries be drawn?
 
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MightyQuin said:
Of course you have to ask.

Not everybody knows absolutely everything about everything, like you do...
Click to expand...
Unfortunately he seems to know nothing. That can only end in disaster. You know most businesses don't make it.
 
Well if he has 51% of the business, technically if you have R100 profit, he get R51 and you get R49(assuming its just the two of you) and if you make a loss in the same ratio. Will both of you be involved in the day to day or just you. If just you, agree a salary that will be part of the business expenses. Then the profit is split as per the ratio. There are many accountants out there that can assist, CA's and CPA's etc. that will guide in the setting up of the business.
Understand what the break even point is and how to manage cash flow of the business. Remember you can be making profits on paper but still not have the cash to run the business.
 
Swa said:
Unfortunately he seems to know nothing. That can only end in disaster. You know most businesses don't make it.
Click to expand...

This is why he is obviously asking these questions BEFORE starting his business.

It will only end in disaster if he does NOT ask these questions, so what is he doing wrong? By your "argument", no one should attempt to start any business, because of a lack of knowledge or info.

Yes a lot of businesses do fail, but for a myriad of reasons.

I own my own small company that was started from nothing, 20 years ago. I haven't failed yet, mainly because I ask a thousand questions, before making any business decision.

Knowledge is power, isn't it?

Stop talking kuk, please.
 
rh1 said:
Well if he has 51% of the business, technically if you have R100 profit, he get R51 and you get R49(assuming its just the two of you) and if you make a loss in the same ratio. Will both of you be involved in the day to day or just you. If just you, agree a salary that will be part of the business expenses. Then the profit is split as per the ratio. There are many accountants out there that can assist, CA's and CPA's etc. that will guide in the setting up of the business.
Understand what the break even point is and how to manage cash flow of the business. Remember you can be making profits on paper but still not have the cash to run the business.
Click to expand...

Oh, OK. So exactly what I said...
 
rh1 said:
Well if he has 51% of the business, technically if you have R100 profit, he get R51 and you get R49(assuming its just the two of you) and if you make a loss in the same ratio. Will both of you be involved in the day to day or just you. If just you, agree a salary that will be part of the business expenses. Then the profit is split as per the ratio. There are many accountants out there that can assist, CA's and CPA's etc. that will guide in the setting up of the business.
Understand what the break even point is and how to manage cash flow of the business. Remember you can be making profits on paper but still not have the cash to run the business.
Click to expand...
That isn't what he asked though. Sounds more to me like the guy expects a certain return on his investment. That isn't something that can be calculated and there may not even be a return if the business fails. That is more like a loan to me in which case someone doesn't usually get a share in the business. Unless they're investing capital in the business they'll later withdraw again. Or they can loan the business the money as an unspecified loan and later withdraw their dividends as interest to avoid dwt, but will pay tax on interest in their personal capacity. See, many questions about his questions.

MightyQuin said:
This is why he is obviously asking these questions BEFORE starting his business.

It will only end in disaster if he does NOT ask these questions, so what is he doing wrong? By your "argument", no one should attempt to start any business, because of a lack of knowledge or info.

Yes a lot of businesses do fail, but for a myriad of reasons.

I own my own small company that was started from nothing, 20 years ago. I haven't failed yet, mainly because I ask a thousand questions, before making any business decision.

Knowledge is power, isn't it?

Stop talking kuk, please.
Click to expand...
It would help if he asks the RIGHT questions. From the sounds of it he doesn't know how a business works.
 
Swa said:
That isn't what he asked though. Sounds more to me like the guy expects a certain return on his investment. That isn't something that can be calculated and there may not even be a return if the business fails. That is more like a loan to me in which case someone doesn't usually get a share in the business. Unless they're investing capital in the business they'll later withdraw again. Or they can loan the business the money as an unspecified loan and later withdraw their dividends as interest to avoid dwt, but will pay tax on interest in their personal capacity. See, many questions about his questions.


It would help if he asks the RIGHT questions. From the sounds of it he doesn't know how a business works.
Click to expand...
There are no WRONG questions when you want to start a business and know nothing...

We'll know more when OP responds. If he ever does.
 
MightyQuin said:
This is why he is obviously asking these questions BEFORE starting his business.

It will only end in disaster if he does NOT ask these questions, so what is he doing wrong? By your "argument", no one should attempt to start any business, because of a lack of knowledge or info.

Yes a lot of businesses do fail, but for a myriad of reasons.

I own my own small company that was started from nothing, 20 years ago. I haven't failed yet, mainly because I ask a thousand questions, before making any business decision.

Knowledge is power, isn't it?

Stop talking kuk, please.
Click to expand...
I completely agree you. I have seen uneducated people running successful business, knowledge of accounting doesn't help you to run a business.
The OP should focus on running the business, getting sales and maximise profit.
You don't need a CPA to calculate business profit, a first year BCOM student will help you.
 
Fact is we (South Africa)need brave/ignorant souls to start businesses. If it suceeds he was brave. If it fails, what was he thinking, everybody could have told him he was destined to fail.

Years ago, a guy who was on university with me but dropped out started his own business. He explained his own words cost-volume-profit/ break even(he didnt call it that) and cash flow. He was so eager to do business, he took orders 24/7 which resulted in him not invoicing the middle of the night clients.

I had a look at his process and assisted him with a simple method of reconciling orders and invoices issued.

His business is still succesful today.

Fact is nobody knows which businesses will be succesful nor should we should look down on those who would like to start thier own business.
 
Hi All

Thanks for the positive feedback and the negative ones, which i will just ignore on my principles

Yes he will have 51% shares, will be silent

Capital injected was a once off, we need to decide on what % return(on capital) so we can finalize on the share holders agreement...this is where we are stuck...hard to this if we dont have expenses vs income etc.

If i can get some input please, if possible the positive type

Just something to ponder about "Better to ASK and risk appearing stupid than to continue on your ignorant way and make a stupid mistake "
 
%return on capital can be what you two agree on. There is no fixed percentage but I would say it should be a little more than what a bank would offer you on fixed deposit.
If the business is incurring loss then you don't pay him that amount, you just add up that amount in his capital.
 
See this is exactly what I'm talking about. It's practices such as a guaranteed return on capital that will sink a business faster than anything else. It isn't meant as negative criticism but rather to get you to think about whether you have the right idea.
 
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