How to workout profit in business

Cpu2007

I hope someone can help me with this.
At the moment I am only looking for advice/tips to gain some knowledge.
My friends and I were discussing the idea of opening our own business and trying to understand how things should work when investing in a business.

For example, the simple way of understanding how much profit I would be gaining from the business is:
Lets say there are 3 of us: I invest 40%,2nd invest 40%,3rd invest 20%
Now, on the profit we gain(which will be a profit gained after deducted all the taxes/costs etc) I will get 40% and the same will go to the 2nd who invested the same amount, where there third will get 20%.

However, what happens if another person wants to come in, how will profit return work on him and how do we work it out?do we have to include the value of the business at the time when a new person wants to join, if so,how does that workout?
I'm asking the same question for the opposite situation,what to do if someone wants to leave the business?

I know these questions might sounds silly to many, but at the moment I'm just trying to understand the very basic.

Any additional advice,or reference to books etc is more than appreciated.

Thank you

Suarez

You would issue new shares which would dilute your own shares.

As for the cost - you need to consider net assets, goodwill, trading history as well as many other things. Probably best to speak to your accountant about this.

Cpu2007

Thank you

yes assets,goodwill etc are all things that I would be considering but it's just how they work out that puzzles me a bit.

do you a think a single accountant is the best move or each of us needs an accountant?

Wywth

Suarez wrote: »

You would issue new shares which would dilute your own shares. ...

Or existing holders could sell some of theirs

As regards to an existing member wishing to leave, then they would have to dispose of/sell their shareholding.
(note: there may be no one willing to buy/accept them )

Cpu2007

Wywth wrote: »

Or existing holders could sell some of theirs

As regards to an existing member wishing to leave, then they would have to dispose of/sell their shareholding.
(note: there may be no one willing to buy/accept them )

I was expecting shares to be part of this and this was one of my concerns. I believe then putting some rules in a contract in order to prevent these sort of problems is the best way to go.

gb12345

Cpu2007 wrote: »

I was expecting shares to be part of this and this was one of my concerns. I believe then putting some rules in a contract in order to prevent these sort of problems is the best way to go.

Are you setting up a Ltd company or a partnership?

Everyone is talking about shares, but that assumes that you will be a Ltd company.

Cpu2007

gb12345 wrote: »

Are you setting up a Ltd company or a partnership?

Everyone is talking about shares, but that assumes that you will be a Ltd company.

not sure, the business that I'm thinking about it falls under the domain of leisure {coffe, snooker etc}

gb12345

Cpu2007 wrote: »

not sure, the business that I'm thinking about it falls under the domain of leisure {coffe, snooker etc}

The domain is irrelevantas to whether you want to set up a company or a partnership.

You really need to all get together and make an initial appointment with an accountant. They will advise you on the pros and cons of the different structures and help you decide what is best for your circumstances.

Once that is decided then they will be able to tell you how to deal with people leaving and joining the business.

Cpu2007

gb12345 wrote: »

The domain is irrelevantas to whether you want to set up a company or a partnership.

You really need to all get together and make an initial appointment with an accountant. They will advise you on the pros and cons of the different structures and help you decide what is best for your circumstances.

Once that is decided then they will be able to tell you how to deal with people leaving and joining the business.

great,thank you!

Cpu2007

thank you

do each person who's investing needs an accountant or there should be only one accountant for everyone?

gb12345

Cpu2007 wrote: »

thank you

do each person who's investing needs an accountant or there should be only one accountant for everyone?

I would say that you only need 1 accountant to deal with the entity's financial affairs.

Separate legal advice might be a good idea though (particularly if you go for a partnership).