I've been asked to ADVISE an established small biz in exchange for a PERCENTAGE of monthly revenue.
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?
Advising a small, cash-flow-positive business in exchange for a percentage of monthly revenue is an exciting opportunity. Here are some considerations for your specific questions:
### 1. Percentage of Gross vs. Net Revenue
- **Gross Revenue**: This is the total revenue before any expenses are deducted. Asking for a percentage of gross revenue means your payout is not affected by the business's expenses. This can be advantageous if the business has fluctuating costs or if you're unsure about their expense management.
- **Net Revenue**: This is the revenue after all expenses have been deducted. Asking for a percentage of net revenue means you only get paid if the business is profitable. This aligns your incentives with the business’s profitability but carries more risk if the business's expenses increase.
Given the business is already cash flow positive, you might consider a smaller percentage of gross revenue to ensure a steady payout regardless of expenses. However, this depends on the business's margins and expense structure.
### 2. Contract Examples
While I can't provide specific legal contracts, here are some key elements your agreement should include:
- **Scope of Work**: Clearly define your advisory role and responsibilities.
- **Compensation Structure**: Detail the percentage of revenue and whether it's from gross or net revenue.
- **Payment Terms**: Specify how and when payments will be made.
- **Duration and Termination**: Outline the term of the agreement and conditions for termination.
- **Access to Information**: Specify your rights to access financial information to verify payouts.
Consider consulting a lawyer to draft or review the contract to ensure it protects your interests. You can also find templates on legal resource websites like Rocket Lawyer, LegalZoom, or similar.
### 3. Accountability of Payouts
To ensure transparency and accountability:
- **Access to Financial Reports**: Request regular access to financial statements, sales reports, and other relevant documents.
- **Bank Account Access**: While full access to the bank account might be too intrusive, you can ask for view-only access or regular bank statements to verify revenue figures.
- **Third-party Verification**: You could agree on using a third-party accountant to audit the financials periodically to ensure accurate reporting.
### Summary
- Consider a smaller percentage of gross revenue for a steady income stream.
- Use a detailed contract to outline responsibilities and payment terms.
- Ensure transparency by having access to financial reports or third-party verification.
If you need more specific advice or examples, consulting a lawyer who specializes in business contracts is highly recommended.
