Hello to All!
I've been approached by a small group looking to start up a business locally and presented with an offer to "buy-in" to the company in return for capital. The group has put together a business plan based on similar business models already existing in the area and prior experience. The plan contains all of the necessary info. for valuing a business and projects the cash flow out to Year 5. The numbers, although quite rough, do present what I feel is an accurate projection for the business. Since the business is retail based, some uncertainty (due to sales and material costs) is accounted for in the projections. The group already consists of 3 partners, I would be the 4th. I would contribute minimal hours (15 hours or less) per week to the business in order to help with start-up related activities, however this would likely increase.
The offer:
$30,000 USD investment in return for 3% ownership in year(s) 1-3 and then adding an additional 2% stake by Year 5 (for a total of 5%). After Year 5, an additional 2% stake would be made available for purchase to bring my total share up to 7%.
Without going into great detail, the initial evaluation (cost) of the business that includes construction, equipment, and start-up costs is $590,000. The annual revenue for Year 1 is estimated to be $438,000 and is projected to increase by 25% for Year 2 (due to sales) and then projected to increase by 15% in growth for Year(s) 3,4,5.
I would appreciate if some successful business gurus could help me:
1. Understand if you would consider this a "fair" offering for this type of scenario;
2. Value the ownership stake offered (whether or not the stake offered is reasonable for the $30,000);
3. How should I determine how to value the additional offerings after Year 5. Should I put some sort of clause into the agreement to determine how the additional 2% will be priced or distributed?
Thanks to everyone in advance!
I've been approached by a small group looking to start up a business locally and presented with an offer to "buy-in" to the company in return for capital. The group has put together a business plan based on similar business models already existing in the area and prior experience. The plan contains all of the necessary info. for valuing a business and projects the cash flow out to Year 5. The numbers, although quite rough, do present what I feel is an accurate projection for the business. Since the business is retail based, some uncertainty (due to sales and material costs) is accounted for in the projections. The group already consists of 3 partners, I would be the 4th. I would contribute minimal hours (15 hours or less) per week to the business in order to help with start-up related activities, however this would likely increase.
The offer:
$30,000 USD investment in return for 3% ownership in year(s) 1-3 and then adding an additional 2% stake by Year 5 (for a total of 5%). After Year 5, an additional 2% stake would be made available for purchase to bring my total share up to 7%.
Without going into great detail, the initial evaluation (cost) of the business that includes construction, equipment, and start-up costs is $590,000. The annual revenue for Year 1 is estimated to be $438,000 and is projected to increase by 25% for Year 2 (due to sales) and then projected to increase by 15% in growth for Year(s) 3,4,5.
I would appreciate if some successful business gurus could help me:
1. Understand if you would consider this a "fair" offering for this type of scenario;
2. Value the ownership stake offered (whether or not the stake offered is reasonable for the $30,000);
3. How should I determine how to value the additional offerings after Year 5. Should I put some sort of clause into the agreement to determine how the additional 2% will be priced or distributed?
Thanks to everyone in advance!
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