Forums: Discussions for entrepreneurs and small business.

I am in the process of purchasing a business for $500k.  Half of it will be financed by the current owner with the business as collateral.  I will put up $100 and will have a loan for $100.  The remaining $50k will be provided by the investor.  Is it fair to say that the investor should have 10% ownership, or 20% ownership?  Does it matter that he will be an out-of-state investor and won`t be involved in the day-to-day of the business like I will?

Thank you very much for your input.

While the ultimate "fairness" answer is, of course, what the two of you can agree upon - the math is pretty straight forward. Since the purchase price sets the valuation at $500K - his $50,000 would represent 10% of the equity.

Other important points include:

• how that is structured
• what he expects
• how he will receive his return on investment

Robert Johnson

 

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