Setting Up New Buisness Urgent Help Required

prioryscout

I am new to this forum and would highly appreciate all help on the new buisness I want to start.I narrowly escaped last year buying 50% shares in a company that went out of buisness 3 months later ,would like to be very careful this time.
I have been offered to be a 50% partner in wholesale warehouse of a product i have been retailing online very successfully for the past 8 months,have knowledge of it but not enogh to go solo.
The wholesale buisness I'm offered to be 50% partner of, is eastiblished for 5 years have branches in two major towns up north.They have indicated they would like to open a new branch down south and would like me to be a 50% partner in the new warehouse.I have enquired about the deal and have received the following response from the company director,I have edited existing company details.I would reffer existing company as 'A',new branch they want to open in south as 'B'.
Please let me know is it fair response am I getting the good deal? and how shall I proceed? do I need to ask more questions?etc.Please note I am paying 50K company 'A' has not yet mentioned or shown any intention what they will be putting in.looks like they want to start with my money only as the following breakdown suggests.

B (South) Ltd
What is involved:
'A' Ltd north and further north will remain as they are and are not part of the deal.
The south branch would be a new separate venture and has not got anything to do with the existing 'A' business.
South branch will be split into shares of 50% belonging to prioyscout and 50% belonging to 'A' Ltd.
We will want to name the South branch 'B' Ltd.


What will the money be spent on (i.e. £50K)
The money will be firstly spent on fixtures and fittings for the premises.
I would estimate this to be at least between 5k to 8k.
Based upon 25k rent and rates we would like to keep a sum of 12k for few months rent. (to be on the safe side)
The remainder of the money will all be spent on stock.

How will it work?
The initial stock value will be calculated to see what value of stock has come into the business.
All the stock will be ordered via 'A'
The stock that arrives will come 'A' and then distributed to 'B'
The stock will then be invoiced out to south 'B' at china price + china shipping charges + uk agent charges + 5-10% handling charges for 'A' North and china.
After all these charges we will have cost price for each unit and it is after this where profits will pay for running costs and what is left over shared between prioryscout and 'A' Ltd.
The best way of taking the profits is to work out everything on a monthly profit basis and take out 10-20% each month and then at the end of the year work out the overall profits for the year and take out whatever is left to take. (e.g. if the monthly takings are £30K, 3K would be taken out and split as £1500 going to prioryscout and £1500 to 'A' Ltd.)
Apart from the profits and running costs, the rest of the money will remain in the business and keep rotating in stock.
We will have a separate Business Banking Account for South 'B'


Staff
We will train staff to their duties and responsibilities.
The staff would preferably be local to 'B'.


How will we promote South 'B'
South 'B' branch would be promoted through advertising in the Trader and Trade News magazines.
Leaflets will be made for the opening of the new branch.
A sales person will need to go around to most of the surrounding areas and meet people face to face and let them know about our existence.


Packaging of Products
All the packaging will remain the same as we use for North 'A' and Further north.

Website
We will have a separate website for South 'B'
Possible name for it would be https://www.South 'B'.co.uk
Website will also be on the ads and leaflets.
This website will not have any links with North 'A'Ltd (https://www.North 'A'.co.uk)



I have not responded to this yet
is 5-10% handling charge fair on goods from @A' they will be making 50% on anyway in profits?
Any help regarding this will be much appreciated.Thanks

joggyb

This is a very serious commitment you're potentially going to make, and I can't believe you're relying on the good folk of MSE to advise you.

You need to get proper professional advice from a solicitor and an accountant before you go anywhere near this.

debt23

Hi,

Cant say I like this at all, although it is very difficult to offer an opinion without all the facts (type of business, turnover etc).

I would not be happy with paying a handling charge to 'A', who are, in effect, a totaly different company, so they are just another middleman in the product chain - and 10% could be a lot of money - depending on your margins.

I would have expected 'A' to give 'B' all the neccessary info and help to bring the products in at the lowest possible value - direct from china I would imagine - but of course, from 'A's point of view, this is a win win situation for them.

Im not saying that this way of operating is always wrong, just rings bells with me thats all.

Surely, with 50K to spend, cant you just cut them out and strart up your own operation?

You have been selling the product well in the past, but state you dont know it inside out - well then, get to know it.

Ok - there may be licensing agreements that crowd you out (dont know the product, so cant say), but if not, why not bring it in from China yourself etc etc.

Glad you are being careful on this one though, and all the best

debt23

kimbatty

It is very difficult to offer up advice on such a big commitment without knowing all the facts, history of company a's turnover and profits etc etc. Their profits could look absolutely fantastic but then the cost of their premises may be very different from yours and also the cost of staffing may be different according to the availability of staff within your region as opposed to theirs.

On the surface it does seem rather unfair that they are taking a handling fee initially and also 50% of the profits but then again if they are a very successful business with great potential profits for you it may be that paying the handling fee as well still gives you a great turnover and a link in with a very successful company.

There are so many unknowns for anyone looking at the info you've given I do think you need to speak to a professional and fully understand whats on offer and how much you'll be likely to be paying out

The_doomed

can i do business with you?!

prioryscout

I would like to say thanks to all of you who have responded for their valuable advice and time .
Have taken it up with my accountant and responded to their email,asking what is their contribution to the buisness 'B' to justify 50% share in profits and to levy the handling charge from 'A'.to maximise profits for themselves as 50% partners the rest of the things accountant is happy with but has asked me to demand a salary in addition to my 50% share as I will be single handedly managing the new buisness .Will let you all know of the outcome.Regards

seaweasel

Speaking to your accountant is useful, but have you spoken to your solicitors about it? They should really be dealing with something like this.

missile

This sounds like a very good deal for A, they are using your money to set up company B, offload their stock and then sell their product, charging you UK agent and handling charges on top. What a rip off.