Partners Profit distributions 10

[driftLimiter]

I am planning to have my own structural firm in the coming years. I want to have a partner with me and I don't know yet how I want to structure the % of profit distributed between us.

I know there's no golden ticket answer, but I am curious if anyone else in similar situations could elaborate how they distribute the profits.

I want to try to have a system that stays fair and works for both of us. But I have SE license and he doesn't, given that we work on large buildings, it seems like a situation could arise where I am stamping most of the work.

Just looking for ideas, thanks in advance - DL

 

[Sparweb]

Any advice on where is a good place to look for a partner?

The classic silicon-valley tale (Compaq, Dell, Apple, Microsoft, Google, etc.) is that the future partners meet as colleagues either in school or a workplace. They make a friendship based on mutual interests and drives, first, before resolving to become partners in a venture they develop together.

What I'm asking is that now that you've already pulled the trigger, is it too late to find a partner suitable for your firm? You can't "test drive" your partner's compatibility as an equal before making the commitment.

Lawyers and dentists do this all the time in their professional firms. What are they doing that engineers don't?

 

[driftLimiter]

To all,

Thanks for the thoughtful replies. I appreciate the frank honesty.

Clearly there isn't a one-size fits all solution to this. I will keep this thread posted on how things turn out.

 

[CWB1]

You can't "test drive" your partner's compatibility as an equal before making the commitment.

Most companies considering additional partners hire them on as employees for a probationary period, then vote. A principal in one of my wfie's former medical offices told me when they had an issue it was usually either the potential partner lacking skill or patient retention.

 

[KootK]

1) Taking on a partner entails all manner of business risk as evidenced by all of the horror stories that you hear about partnerships gone wrong. So, if you're going to take on a partner, make damn sure that you're doing it for legitimate business reasons rather than:

a) Because it would be fun to have a friend along for the ride and/or;

b) Because you feel that having a partner shields you from some of the startup risk.

As with husbands, it takes a pretty good partner to be better than no partner at all. Legit business reasons for taking on a partner include:

c) It makes it easier, from a cash flow perspective, to add employees when you get to that point. Your respective books of work can share the burden of supporting early hires.

d) If, by way of reputation or raw production horse power, the addition of the partner allows you to successfully chase larger scale work (assuming that you want that) than you could as separate entities that team up on big things..

2) Were I to take take on a startup partner, I would go for 50/50. Reasons for that:

a) Avoid the inevitable hurt feelings associated with any other arrangement. If you doubt that your partner is worth the equal split, you should be very seriously asking yourself if there are legitimate reasons for that person to be your partner (or your theirs).

b) The initial capital investment of a consulting firm is too small to matter in many cases. Some computers, some software, and and little office space (optional)? It's not as though the two of you will be taking out a loan to purchase a $20M "engineering machine". The real "investment" is you and your partner both taking the risk of derailing your existing careers if it doesn't work out. And you'll almost certainly share that equally.

b) It's tempting to try and split things up based on revenue or profit. You really have to think ahead to what that might look like in practice, however, given that the whole point of the partnership is really to share resources. Some cosplay:

YOU: My projects brought in 2X the profit that yours did last year so I should get 2X the profit?

PARTNER: But we put our best people on your projects instead of mine and that's why they did well?

There you go. Two sentences into the weeds and, before you know it, there are lawyers involved and your spouses are mortal enemies.