I have been offered profit share in a business in exchange for my expertise – How much should I ask for?
Hi there, I’m in need of some advice as I’ve been offered a profit share in a business and don’t know where to start when it comes to negotiating rates and what would be considered fair.
Here is some background:
The company is building an online application (already well progressed) for businesses.
I will provide the following expertise:
Providing User Experience Testing and Feedback to help the engineers polish the tool
Developing ‘Unique Selling Points’ for marketing messages and other promotional / informative content
Help to write/develop knowledge guides, FAQs and supporting documentation and content for the tool
I will not be providing coding, engineering, infrastructure or other services. My main focus will be on user experience, testing and creating supporting guides.
The business owner has offered me a profit share and has said ‘Name your terms’, he will then review my offer and I imagine we will negotiate from there.
I will produce a request for information from the business owner and will ask for the following:
- Projected turnover and profit, year by year
- Price point for the product
- Evidence of his other business successes
- When will this product be launching?
- How soon does he expect to turn a profit?
- Will I get shares in the business or just a profit share?
I have three main questions:
1. What other information should I be asking for to help me make a choice?
2. On what should I base my request for profit share?
3. What is a good starting point in terms of negotiations?
I should stress that I know this may be risky, but I also want to be realistic in terms of what I could earn, and clearly if the product does well, I would want to do well too.
Any advice would be *very* much appreciated!
What about getting a specialised lawyer for such things? I guess, you can get some info on it at https://linkagemind.com/practices/capital-markets-finance/ website. I have used their help for my business too, and it was really helpful, I have to say. They will definitely help you too
hmmmmm. Profit share sounds nice but, really, how long will it take you to see any of that money? Why not outright shares which fully will vest monthly? The value of the shares today is what you claim as taxable income, so if it's .05 a share and you vest monthly, you will not be taxed much, which is good if the company fails to reach profitability, and thus, thrive. If the company achieves liquidity, you will be taxed at the time you sell your shares and not before then if you have exercised your shares each month. If you end up sitting on a lot of shares that are worthless--and believe me this has happened to EVERYONE--you can discuss with your accountant how to best deal with that outcome. My advice is to talk to an accountant before making any deal, as you want to be fully aware of any tax liability in the short and long term. Also, I always have a lawyer review my contracts--and not THEIR lawyer.
Paul. For me independency would be a greater value than having a share in teh business. Within no time, more advise is asked or "needed" and because your part of the game it's rather difficult to step out then. An old saying says, don't mix up girl and business.
An other pitfall can be that becasuse of your involvement in one company, your own business isn't wanted anymore by similar enterprises.
If you want to be in the business of providing consulting services, it's best to operate at arms length which means receiving payment for your services as you provide these services.
If you are given shares in the organization and have access to the books, then a profit share might be result in a good return on your no fee time investment.
Since they have not launched yet, projections are based on solid research (hopefully). Ask for the research so you can be convinced that this is not a waste of your time. Have you seen the business plan? How much is he prepared to invest? Are there competitors? Again, business plan questions that should have been covered. Is the management including the owner competent? Track record?
The answer to what it is worth is simple, what he is willing to pay and what you are willing to accept, discerning this is the hard part! Good luck
The first step is to evaluate the business founder/owner. His/her level of competence and drive is the only indication of the value of the opportunity. If he is a Jeff Bezos or a Steve Jobs, then your upside is unlimited if you get on board. If not, your upside may be very limited and the effort may be wasted time.
Second, determine a value of your contribution and competition for the contribution.
Third, determine the walk away factor: would I regret having walked away if this is successful. This is the place where angel investors rarely feel bad walking away and founders don't get how they pass on great opportunities. Are you OK walking? If not ask for less. If yes, ask for more.
I try to not negotiate. I like giving firm terms and letting the other party decide. That said, I know a lot of people who love negotiating and do it very well (as do I, I just don't like spending the time unless then numbers are in the millions).
I hope this is helpful. Ping me with any specifics or message me if they are private.