Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 1 down vote favorite

My husband and I own a company which we started 3 years ago. We have two employees currently. In order to grow and expand, we know two of us are not enough to create and build a more profitable company, we found two members to join us:

  1. A friend of mine, strong in management, research and finance
  2. A friend's friend, an IT manager. He has the IT skills we need as we are an eCommerce company and neither my husband nor I do IT, we have been outsourcing.

We currently have about $150K in business, generating $20K a month. With new site launching next week, we expect our income to at least double/triple.

My friend can invest up to $20k, and the IT guy has no money.

I want to be fair to each of us four, but how to be fair and at the same time keep our reasonable share? Since we created the business and created new ideals for us to work together.

How to split the shares and reward each person for their input?

share|improve this question
4  
If you don't need them to bring significant cash into the business, why don't you just employ them? – Susan Jones Nov 13 '11 at 9:51

2 Answers

up vote 0 down vote

I have used the following to good success in the past:

  • value the business as it stands now (pre new money)
  • value the input in wages and cash of the proposed team for the next year
  • get people to propose a level of salary sacrifice (how much of their value they will NOT take from the business)
  • the value of the sacrifices plus the cash is you new investment for the following year
  • with this value plus your starting value there is a basis to calculate the division of of stock (which you can offer as options)

Note that an important number is the starting valuation which if you believe you have a bright future and existing turnover should not simply be a balance sheet or cash valuation.

share|improve this answer
up vote 3 down vote

How to split the shares and reward each person for their input?

It is called paying a wage. There is no reason to split shares here. Really. What you look at it hire people and grow YOUR business. Maybe pay them a bonus. But I would NOT divide the shares at all. Fortunes are not built by giving each employee a share in the business and leaving the founders out with nothing.

Bte.:

2.A friend's friend, an IT manager.

Ok, BUT:

and the IT guy has no money

Check background. IT Manager is a highly paid position. NO money - not even a paltry 10,000 USD - means something does not compute. There can be a interesting story behind it, or simply someone who shows off as a lot more than he really ever was or someone just incompetent managing anything, including his own finances.

share|improve this answer

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.