Forums: Discussions for entrepreneurs and small business.

I am trying to buy an existing business.  I have several years of runing this type of business for the owner.  Recently I found spoke toa friend who is an investor. He has interest in investing in me and this business . What I need to know is how to structure this.  He wants to know how much money he can make on his investiment.  Do I offer him a percentage of the net?  If so how much do I offer him?

Thanks Craig.

Tha lawyer may be a good idea but I would rther save the money at this point in time. This is in the very first phases.  All the investor needs right now is a game plan from me. The lawyer can come in later on. 

So what I would like opinions on is this.  Should I give him 10% of the net profit or 50%?  ETC

Well at this early stage there is a great chance it wont work so the money spent could be a waste.  Any idea how much that would cost/

Anymore ideas on my origional question?

Remember that "free" advice is usually worth what you pay for it.

What type of return does your investor want/need/expect?

What do you think is "reasonable"? Return needs to be commensurate with risk (perceived by the investor). Since you say above that "there is a great chance it won`t work" - I`d say the risk is high. Therefore, the return should be high. Typical return objectives for high risk ventures is around 40%-50%  per year - which translates into a return multiple of 5 to 8 in five years. Since most businesses can`t generate the cash needed to provide such a return - the only way to reward the investor is by selling the business or going public.

On the other end of the spectrum, an investor can get 7%-10% return with virtually ZERO risk. So you will have to be able and willing to offer a return higher than that.

So I`d say your bracket is  >10% and <40% per year return on his investment.

Finally, I reiterate the previous recommendations. Get advice from professionals.

Ok let me put this in laymans terms.

As far as the business not working.  That is not what I meant. It does fine and I know this because my dad ownes it. 

What I meant by it not working is that the whole purchase might not work so I dont want to hire an attorney at this time. I would expect your 40%-50% per year thought would be different now since I have explained my self a little better.

I need non attorney ideas.

First of all, my intent was to give you a range of return as a starting point. It isn`t important what I think - but what your investor expects.

Point two - you are not dealing with a venture capital situation (although many might disagree) you are dealing with a single private investor.

Lastly, I said get professional advice. If you want non attorney ideas that is one thing. If you want good solid business advice about your specific situation - you will probably have to pay something for it.

All the best,

Robert Johnson