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I built $2m in revenue for a business I don't own. What's the best way to split the profit?

2 years ago
30

When it comes to splitting profits for a business you don't own but have contributed to significantly, there are several considerations to keep in mind. The best approach may vary depending on the specific circumstances, agreements, and relationships involved. Here is a detailed answer outlining some potential options:

  1. Understand the existing agreement: Start by reviewing any existing contracts, agreements, or arrangements you have with the business. These documents may outline how profits are typically distributed or provide guidelines for revenue sharing. If such agreements exist, they should serve as the basis for determining the profit split.

  2. Negotiate a fair compensation: If there is no existing agreement or if the current arrangement doesn't adequately account for your contribution, it's important to negotiate a fair compensation. Consider the value you brought to the business and the impact on its revenue. Look at industry standards, market rates, and the level of risk you assumed. This negotiation should involve open and honest communication with the business owner or relevant stakeholders.

  3. Percentage-based profit sharing: One common approach is to split the profit based on a percentage. Determine what percentage of the revenue you believe is a fair representation of your contribution. For example, if you believe you were responsible for generating 50% of the $2 million revenue, you may negotiate a profit share of 25% (assuming a 50-50 ownership split). This approach ensures you are compensated proportionally to your contribution.

  4. Performance-based bonuses: Another option is to set up a performance-based bonus system. This approach allows you to earn a share of the profit based on specific performance metrics or milestones. For instance, if you exceeded revenue targets or achieved certain growth objectives, you could negotiate a bonus payment tied to these accomplishments. Performance-based bonuses incentivize continued success and align your interests with the business's objectives.

  5. Equity or ownership stake: If your contribution has been substantial and ongoing, you might consider negotiating an equity or ownership stake in the business. This would entitle you to a share of future profits and potentially provide a higher return on your contribution. However, this option may require careful legal and financial considerations, as it involves a more long-term commitment and may require expert advice.

  6. Seek legal or professional advice: Depending on the complexity of the situation and the relationships involved, it may be wise to consult a lawyer or financial advisor to ensure your rights and interests are protected. They can provide guidance on the best course of action, help draft agreements, and ensure the profit split is fair and legally binding.

Remember, every situation is unique, and the best approach to splitting profits will depend on various factors. Open communication, fairness, and a mutual understanding of each party's contributions are crucial for reaching a satisfactory agreement.

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