Complicated equipment deal with investor

Robson1978

Hi - I am a business mentor in my spare time for a charity and have just taken on a new mentee who is setting herself up as a sole trader. In order to set up the business my mentee needed to purchase some fairly expensive equipment (c£5k) which would put significant pressure on her finances. She was approached by an individual who had seen the quality of her work who then offered to give her all the equipment that she needed on the basis that she manufactures and supplies her products to him at a discounted rate that he can then sell in his various retail outlets. The equipment is now all in her workshop and being used but despite repeated attempts to formalise the agreement in writing for the protection of both parties, the 'investor' is not keen on doing so. My mentee will not purely be supplying this investor but it's clearly a risk that he could decide one day that he wants all the equipment back and the business would the fold pretty quickly unless the cash was available to source replacement equipment.

Any advice on how my mentee could try to protect herself would be much appreciated.

Regards
Robson

paddyrg

She's got the kit, I'd say the ball's in her court. Treat it as a free loan, make stuff for the guy and for other clients, save up, and once she's in full business flow either buy the guy out or buy her own kit from new, giving him his back with thanks.

Sounds like an awesome deal to me, I'd be biting his hand off with no formal paperwork to tie me into any long term commitments.

Robson1978

Hi - it's a great deal, almost too good to be true and hopefully you are right to be more relaxed about it. It's just the risk if the investor takes the equipment back before she is financially able to replace it. Even more reason to grow as quickly as possible!

Thanks
Robson

paddyrg

Robson1978 wrote: »

Hi - it's a great deal, almost too good to be true and hopefully you are right to be more relaxed about it. It's just the risk if the investor takes the equipment back before she is financially able to replace it. Even more reason to grow as quickly as possible!

Thanks
Robson

Maybe they will, maybe they won't, but is she actually any the worse off than now if they do? Except with more experience, savings and clients?

If she shows growth at a speed where she has £2500 saved up after some months, someone will lend that balance more easily than 100% which is what this guy is effectively doing. No matter what happens, I can't see a downside for her, unless I'm missing something obvious. Many companies will lease equipment, treat it as a free lease as opposed to ever being 'her' equipment if that helps make it more acceptable?

colino

What a terrible deal. Has no one with any business sense been involved, did the investor break in and install his capital equipment in your clients premises?
An urgent meeting of both parties has to be called and no further work undertaken on the machinery or goods supplied until an agreement is drawn up and signed. What's to stop the investor (the owner of the equipment) finding another supplier of cheap(er) labour, premises and overheads and in a heartbeat removing the equipment and leaving this client without a business?
You have to upgrade your PI, your relationship with the client and the charity formalised (you don't have one with the investor) and I hope not too many fingers are burned with this amateur shambles.

Robson1978

Paddryg - thanks. I'm hoping that within six months the person I am mentoring will be in a position to either purchase the equipment outright or be better placed to explore other options. I don't blame her for taking on this deal as the alternative was to be saddled with initial debt and this deal also does have many benefits for the investor including the extremely specialist nature of her products and the tremendous margin he can make when he sells the product on.

Regards
Robson