Looking for the wise and wonderful Dopers to weigh in...

In My Humble Opinion
1

the reader’s digest of the dilemma is as follows:

Group A has money. Not a ton, but enough to get the loan to buy the motel and to slowly pay for improvements and renovations. The motel, however, is located 3 states away, where Group A does not live and rarely visits.

Group B is closely related to Group A and has a good relationship. Group B is perfectly trustworthy, hardworking, self-motivated and extremely talented. Group B lives where the motel that Group A would like to buy is located.

The plan:

Group A gets the loan, buys the property/business, pays for everything. Group B does all the work, from painting to marketing. (Group B includes a contractor) Group B includes one individual who will also live on the property, running it once it is open for business.

My view of the situation:

Money is certainly important, but so is time and sweat. After all, group B will mostly be doing all this work nights and weekends after working 40-50 hour weeks. If money is lost in the venture, it can be replaced. Time and energy, once spent, are gone forever. Also, Group A with the money * absolutely could not * buy the motel and run the business if the Group B were not there and ready to run it. It would be impossible. These things all have tremendous value.

So, the plan is for Group A to be paid back out of the business for any and all expenses they incur, and for the business to pay all of its own bills, including the mortgage. That is first.

The big question:

How should the ** profits ** be ** fairly ** divided?

And there are two kinds of profits:

  1. Profits from the ongoing running of the business
  2. Profits from any eventual sale.

Of course, again, it is understood that the whole thing could fall apart and only losses happen. And again, the losses are great for both sides, but the cash equity can be replaced. The sweat equity cannot.

I eagerly look forward to your opinions.

(BTW: other opinions have ranged between 70-30 in favor of Group A to 50-50)

Thanks,

stoid

PS: I will not reveal my group affiliation until after you offer your wisdom.

2

I dont know if I’m wise or wonderful, but I do have an opinion(what a shock, a Doper with an opinion).

I tend to think that a 50/50 split is unfair for group A, since they are the provider of the money. At the same time, 70/30 seems to be about the maximum advantage to give group A since Group B does the work.

My suggestion? Split up the money 65/35, thus giving a little more to group B in order to keep them happy.

3

Don’t assume that labor is not an equivalent investment to capitol. Group B should figure out the monetary value of the work they’re putting in to the business. Then assume they invested this amount of money into the partnership in order to figure out the proper shares to be paid out.

4

it looks like we may have settled on a breakdown, a version of 55/45 - no explains necessary.

For those who probably assumed that I was a member of Group B, it just goes to show how we don’t know each other here on the Dope from just our posts. I’m Group A, deeply concerend with not exploiting Group B, both because I just wanna make sure I do the right thing, and because Group B are my relatives.

Thanks for your input.

stoid

5

Actually, I assumed you were group A.

Guess I was right. :stuck_out_tongue:

6

Yeah, I knew you were group A. When was the last time a Democrat did physical labor? :smiley:

–Tim

7

Please. If he was a true Democrat he would turn the whole thing into some kind of jobs program for disadvantaged yoots or something. :expressionless:

As for the original posters questions;

I assume by profits you mean profit after you recover your initial investment. Since you are fronting all the money, you are bearing all the risk.

My suggestion is to first of all, never enter a business deal with friends or relatives without taking the same legal precautions you would take with any other business parter (in other words, have a lawyer write up a contract and consult with a CPA regarding tax implications, etc).

Already you have the mindset of “I want to do the right thing because B is our relatives”. That can easiliy turn into making unnecessary concessions to group B in the interest of maintaining family harmony.
Really what Group A is doing is investing in Group B to renovate, maintain and run the hotel. Group A should figure out what kind of return they want on their investment. In the meantime, Group B should be paid a fair market wage for their labor while revenues are used to pay expenses. If the business earns a profit after that, you can negotiate how you want to spit it.

It’s difficult to simply say “you should go with an X/Y” split without seeing the specifics of your business plan.

8

LOL! But then she’d have to write up a whole bunch of new work-safety and environmental regulations… :smiley:

Just teasing, Stoid! I’m about as Libertarian as they get, so at least 50% of your beliefs are mine, too. :slight_smile:

–Tim