I've been asked to ADVISE an established small biz in exchange for a PERCENTAGE of monthly revenue.
THREE SPECIFIC QUESTIONS:
1. This is a small biz that is cash flow positive monthly -- should I ask for a larger % of gross or smaller % of net?
2. Anyone have contract examples they are comfortable pointing to or sharing?
3. Accountability of payouts -- I'm guessing I need to ask for ongoing access to bank account and sales reports?
I am a contract and negotiation expert. I have over 8 years of small business advising and consulting experience. A more detailed bio is easily available on all social media and this site.
Let me be a lawyer and give this disclaimer
*This is not legal advice, and this information does establish an attorney/client relationship. This is merely for educational purposes*
Here are some short answers to get you started, hopefully in the right direction.
1. If it is an option, always ask for a % of the gross. There is a term that I use, "companies WILL net you to death!" Legally, companies have a wide range of what can be written off as an expense, thus shrinking the net profit, thus affecting your rate.
If you can't get a % of gross, make sure you have a detailed list of expenses that are routinely taken out every month, and negotiate from there.
In some (if not most) businesses there are "necessary" (internet and rent) and "unnecessary" (payment on Lexus for CEO) expenses. Your goal is to eliminate all the unnecessary expenses from the raw number that you will be taking your percentage from.
2. There are many template contracts available. I think entrepreneur is trustworthy (and free).
Here is the link http://goo.gl/fz36zg
3. I think it would be smart to ask for some type of accounting sheet. Thus, how would you know if they are telling you the truth about profits and/or net.
An additional question to ask yourself, is what are the benefits to taking a percentage vs. a flat fee? I'm assuming the contract is going to be based on performance, thus another option can be a base fee, with bonuses after you hit certain numbers. Just something to think about.
I hope this helps! Good luck!
If you need more advice, schedule a call!
Either they have problems or looking for a fresh blood.
If you going to advise = fix a monthly fee. Advise is an opinion don't tie it up to percentage of income. Maybe your advice will not have an immediate effect. Ask 100% payment in advance/ or 50% before 50% after
If you going to be hands on = Grow their business and take a bigger chuck of growth income. Say that they are making 100K/month. Grow it to 300K and take 35% of it.. play with your ratios
My experience is:
1-Net. It shows that you are committed to the value creation and not only bump sales (that maybe leave no profit). It also helps you get a better understanding of the company as you will get all the financial info of how do they get to that number. If you ask for sales only, you don't know how they are doing.
3-Usually you will ask for the balance sheet or IRS reports (if in the US, gets more tricky outside). This should be good enough. Remember is all based on trust and mutual benefit.
One last piece of advise, set yourself accountable. Ask what do you need from me, how often, what do you expect, what do you want me to deliver. Put it on paper, so then you know that there will be no future problems on what you did. Advise is a complicated asset to value, as clear you can get, the better.