Someone wanted to invest 30k into my landscape company for 5% return, now I’m not the smartest guy out there and someone is free to correct me if I’m wrong but shouldn’t that 5% be until the loan is paid off and not until I give the company up
Again I’m very new to this so I could be looking at this horribly wrong
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Someone once approached me and offered to give me their old piece of shot car because mine was broken down. I took it, and we ended up married with two kids. I’d be careful.
Out of topic, how did you started a landscape company? For me its a saturated market… but seems that is not. What do you offer differently?
Ownership is all you need, fight for it and keep as close as 100% possible. Don’t sell it cheap, better to use your own savings.
. If you made 45k last year, your business is probably worth 150k max. If you do most of the work, it’s probably worth less. But this guy thinks it’s worth $600k. Something is wrong. I don’t know what.
So, if he gives you 30k now and then you sell a week later for 150k, he gets 7.5k. Makes no sense at all.
But also, equity also means nothing if you never sell the business, meaning he gets to keep the money and never has to give anything back to the investor. Most small businesses are worth $0 equity as they have basically $0 potential to be sold for any reasonable amount in the future.
Are you sure tgis isn’t a scam? Do you know them? How did they make the offer? How did they value the company? This sounds like a scam.
Is your company really worth $600,000. If not, it’s a scam.
It’s a guy who I mow for, he owns a few apartments around the area I do
Mind you they’re kinda slumlord looking lol
In that case, I don’t know what to think. If you made 45k last year, your business is probably worth 150k max. If you do most of the work, it’s probably worth less. But this guy thinks it’s worth $600k. Something is wrong. I don’t know what.
So, if he gives you 30k now and then you sell a week later for 150k, he gets 7.5k. Makes no sense at all.
If it was until it is paid off, that would be called a loan.
An investor gives you money in exchange for an ownership stake, but you don’t pay him back the cash.
Was his name Mr. WoOnderful? In perpetuity…
well investment is different from loan, though they can overlap.
if they are investing 30k for 5% they they believe your business is worth 600k in value (they believe if you try to sell your business it will sell for 600k) - if this the route they are offering, they would own 5% of your business, and be entitled to 5% of any dividends you pay to shareholders (if you pay profits to the owners of the business), when you sell, they will be entitled to 5% of whatever the business ends up selling for.
If its a loan - then they might be saying the’ll lend you 30k, and you have to pay back 30k + 5% (1500) - they would not own part of your company.
the third scenario is where they lend you 30k as a loan, but once it reaches a certain point it would convert to equity (i believe called a convertible note, but check as not my area of knowledge)
assuming its equity - you need to determine if 600k is a realistic value for the business, and if you want this person involved in your business, you should speak with a lawyer.
next, you should also consider if you need the 30k, and if there are better alternatives (e.g. borrow from the bank) to get that 30k.
If you have good credit you can open up 0% introductory credit cards to get capital. 5% is a good rate, 0% is better. If they want 5% interest forever I would say no deal, and if they want 5% of your business I would tell them to fly a kite off a high cliff.
That’s exactly what I was thinking haha
Lots of good comments. I would add, in case it’s not obvious, don’t do it unless $30k is going to make one heck of an impact.
Ah okay that makes sense thank you!!
Something doesn’t really seem right. How do you know this man? This is a highly unusual offer. Why does he want to invest in your company? Offering you $30k for 5% of a landscaping company that made less than $50k doesn’t make any sense. I think there is a chance one of you is misunderstanding the other? Did a stranger approach you online? Could by trying to scam you.
That would be a $30k loan. He wants to do an equity investment. Meaning he doesn’t expect the $30k to be repaid like a loan, but rather to be paid out 5% dividends of the profits, and also to be able to sell that 5% to another investor, if you guys get aquired or whatever.
A $30k loan would expect regular payments and interest.
Aside from that, there are a plethora of ways to structure deals, and that is for you two to negotiate.
Sounds like pref equity with a 5% coupon or could just be a 5% hurdle. If you need capital but don’t want to be squeezed by interest on bank debt you could structure this as PIK interest so it doesn’t require any service in the interim. Way too little info here to actually know what is being proposed though.
It might be more effective to clarify the terms with the person making the offer than with random people on the internet
never take the money if you dont need it. equity is always more valuable if you see a realistic long term vision. But, if they can help you grow then its worth it, 10% of a watermelon is better than 100% of a grape.