Need some advice

rak8180

Hi everyone,

I need some advice regarding opening a business. I have never opened or done business and neither has anyone in my family so I thought this would be a good place to ask.

My friends and I (there are 3 of us) are looking to open a children's residential care home in London. We are each investing an equal amount of money in to the business but one of my friends dad has the properties that we are using. We will be leasing the property from his dad and paying him rent. Its a very long process and his dad has agreed to let us have subsidised rent until we are up and running which hopefully if we are successful we will be paying back.

We have all agreed that we will split all the profits equally among us but the friend who is getting the lease via his dad has said that he would like 50% share of the business. His reasoning is that he is taking the biggest risk because we are using his properties and if anything goes wrong he has the most to lose. I agree with him that he is taking that risk and that we should give him some sort of financial re-imbursement for the extra risk he is taking but I am uneasy with a unequal ownership share.

I have done some research and found some stuff but I also wanted some neutral opinions. We have had a discussion about this already and he has said he is open to anything if it makes sense so can I get some advice please.

Also what would the long term ramifications be in terms of him having a 50% share when everything else is split equally in terms of profit and decision making and obviously this would all be done legally. I already know that if we ever sold the business he would get 50% but what other potential issues could this bring up in the future

gwynlas

Forget it this would mean him owning half the business and the other two of you a quarter each, with similar voting shares.

if the dad owns the property he should lease this to the business at whatever rent he chooses, the fact that one of the leasors is family and a partner in the business is really neither here or there.

More importantly what skills and knowldge would you each bring to the business, have you a plan and how will you raise finance?

Marcon

 We will be leasing the property from his dad

We have all agreed that we will split all the profits equally among us but the friend who is getting the lease via his dad has said that he would like 50% share of the business. His reasoning is that he is taking the biggest risk because we are using his properties and if anything goes wrong he has the most to lose. I agree with him that he is taking that risk and that we should give him some sort of financial re-imbursement for the extra risk he is taking but I am uneasy with a unequal ownership share.

You won't be leasing the property; your business (which I trust will be set up as a limited company, with a 'legal persona' of its own to enable it to enter into contractual commitments) will. Does the property currently have permission for use as a children's care home, or will you need to get change of use from the council?

Why does your friend have more to lose if anything goes wrong? The lease is with his father, not your friend himself. He might lose face but he isn't going to lose his shirt!

Also what would the long term ramifications be in terms of him having a 50% share when everything else is split equally in terms of profit and decision making and obviously this would all be done legally. I already know that if we ever sold the business he would get 50% but what other potential issues could this bring up in the future

Based on what you've said, it does sound as if either he understands what he's doing and is trying to pull a fast one, or at least push his luck; or he's clueless and just thinks that 'asking for 50% of the business' sounds good (probably watched Dragons Den too much…). What exactly does he think he is contributing that entitles him to anything more than 1/3 of the business - and if profits, decision taking etc is split equally, what does he actually mean by '50% of the business'?

I need some advice regarding opening a business. I have never opened or done business and neither has anyone in my family so I thought this would be a good place to ask.

Do all three of you have extensive experience, credibility and contacts in the field of residential children's care homes? Are you OFSTED approved and registered? If so, presumably you are aware of all the checking, licensing, insuring etc etc which will be involved and recognise that it will take some considerable time to get up and running. If you don't all have relevant experience, what contribution is being made by those without it?

Have you done any market research on where your 'customers' would come from? How hard would it be to find appropriately qualified members of staff?

How realistic is the amount of cash you have to keep the business running - possibly for several years - before it actually generates a profit (if at all)? What will you live on if there's not enough to support salaries for the 3 of you?

Do you have a solid business plan - one which would enable you to persuade a bank to lend you money if possible?

By your own admission you are starting from a position of zero knowledge (everyone originally started there, so that's not a criticism!), so spending a year or so acquiring and improving your business skills could you give you a far firmer foundation. However many skills you hire in - be it accounting, recruitment, law, marketing etc - knowing and understanding enough to be able to follow what's going on, and whether a job is being done well and you are being charged a fair rate, should never be underrated.

If you are no older than 30, have a look at https://www.kingstrust.org.uk which would seem to be an ideal jumping off point for some really good help and guidance.

Helpful reading: https://www.gov.uk/browse/business

If you've not spoken to your local council (local to where the home will be based), that would be advisable.

Starting a business when the country has rarely been in such dire economic straits is a particularly huge challenge, and if any of the observations above deter you, then possibly now isn't the time - but that doesn't mean your time will never come. Just ensure you are as well prepared as you can be for when the time is right.

Very best of luck.

Savvy_Sue

DEFINITELY speak to local authority to ascertain what commitments they have in budget to local residential care for children, and what level of need these children might have.

Because as you must know, the preferred option for most 'looked after' children is in foster care.

(I used to work for a charity. We set up a residential home for which we had identified a clear need. Initially residents were able to claim Housing Benefit, then the rules changed and we were no longer offering the right kind of care. At that point, for each person we wanted to admit we had to argue the case for funding from their local authority. Many had no budget for what we offered, as they had not identified and budgeted for the need we were meeting. The 'correct' way of proceeding would have been to tender to supply a service, but that presupposed they had recognised a need and invited tenders. There's a lot more to this sorry tale, but the home had to be closed. The need remains and is greater than ever.)

lincroft1710

I would never go into business with someone who thinks they should have a 50% share of the business (rather than 33.33%) just because their father owns the premises. This is before all the other obstacles involved in setting up a residential care home for children

Ineedmoney24

Your hesitation about the 50% share is more than reasonable, especially since the property is being leased from his dad, not directly from him. Like others eluded, ownership should usually reflect what each person is actually contributing to the business itself, not external connections. It might make more sense to compensate the added “risk” in other ways, like adjusted rent terms or a separate agreement, rather than giving up equity.

rak8180

Thank you for your responses everyone. I have spoken to him and he has agreed on splitting everything equally. I appreciate some of the concerns regarding what we are doing but be assured we are doing our research and will not move forward until we are completely satisfied.

JibberdyDacodo

Whatever you end up doing (Ltd/partnership; whatever %age you decide to split potential profit/losses), make sure to get IN WRITING.

Also make sure to agree on how you will potentially end this business (who will be picking up which pieces).

RTin2781

Hey - hope this is ok to post, but I used a few sites to get some advice when starting my business (Enterprise Nation was helpful). There were some useful webinars/content around ownership and setting up partnerships etc. Hopefully that can help!