Problem involving ownership ratio and profit distribution


0

I'd like to ask for some help, it's basically a math problem, but I'm not sure if there's only one solution:

In April 2011 two friends and I bought a bar. Each of us owns 1/3 of the bar. It's a pretty small bar so we decided we would all work evenly at the bar and none of us would get money from the bar since we are still paying some debts.

In August 2012 I decided I'd go back to college, and also decided that I wouldn't be able to help at the bar anymore, specially since I do have a day job.

Now, when the bar starts making some profit my friends and I agree that it should not be split evenly, because from the moment I stopped working I wasn't entitled to that anymore.

We also agreed that changing the ownership percentage to 40:40:20 would be fair.

Now here's the deal, I'm not sure I agree 100% into moving from 1/3 per person to 40:40:20 from one day to another.

Is it possible to have a function that would change the ownership division across time considering the variables involved in a more 'organic' way?

What are my options on this particular case?

I ask this since we've spent this whole year getting our business out of debt, we managed to pay over 60K back to the bank and previous owner - so I feel like I would deserve more than 20% next time we decide to distribute part of the profit.

EDIT:

Just to be clear, the main question is about profit share and not ownership ratio. I don't plan on giving up part of the bar, but I think I shouldn't get the same profit as before.

Distribution Profit Sharing

asked Aug 2 '12 at 00:08
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Johnny Bigoode
103 points
  • Is the problem ownership ratio - or profit distribution? (they can be different agreements) You said that you all agreed to a 40/40/20 split - and now you (individually) don't? Why the change of heart? – Jim Galley 10 years ago
  • Profit distribution. I still agree with the 40/40/20 distribution, I just don't agree it should be overnight. – Johnny Bigoode 10 years ago

2 Answers


1

What would be the salary of person who replaces you and takes over your job? Deduct this amount from 1/3 of total profit and then translate this amount back to % you should have after you leave.

P.s. Main assumption here is that no major growth is planned.

answered Aug 2 '12 at 01:05
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Matej Zlodej
273 points

1

How long do you + partners intend to run the business? What was your initial goals for the effort - to become long time bar owners, or to just flip the business and move on? If the goal is to flip (sell) the bar, then you get your payback upon sale.

One could also assert that you all invested (and risked) equally in the success of the company, and that the distribution of the profits should be equal.

I would move the discussion back with the other partners and attempt to separate the ownership from the profit distribution. Or entertain a buyback clause where the other partners would buy your shares.

Either way, I would suggest coming to an agreement quickly - the farther you go into this, the higher the probability you risk ruining your friendship. Is the additional financial gain worth it?

answered Aug 2 '12 at 01:57
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Jim Galley
9,952 points
  • We didn't invest a dime, we bought the bar with a 60K+ debt that we're going to finish paying in October. The initial deal was that our shared work was our investment. We don't plan to sell it until 2015~2016. If we manage to save enough money we plan to get another loan and open a second bar, probably more restaurant oriented OR more club oriented. The bar is probably worth more than the 60K we 'paid' for it. And I should repeat that I don't plan on changing ownership, just profit share - sorry for the mistake. – Johnny Bigoode 10 years ago
  • Time is an investment: I assume it has value to you, based on your decision to spend it somewhere else. If the bar requires someone to physically be there to man the post, then your leaving has a greater impact to the long term success than just "moving on" & results in an operating cost increase. I would either keep the 1/3 split with the requirement that you find, manage (and pay) someone else to meet your obligations, or accept the equity / revenue cut to offset increased operating costs & risk. 13% reduction in revenue opportunity with an upside on sale is pretty good. Others may disagree – Jim Galley 10 years ago

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