How To Share Costs & Profits - Industry Norms?

[thepealrs]

I should be fully set up for a small 16 light indoor grow within a week. We will triple that size in Dec as we have the conditioned space, as long as the grower can handle the small grow first). My question is - profit split between investor (me) and grower (partner).

To start, I provide the fully set up facility, pay for all plants, nutrients, electricity, etc. My partner is 100% responsible for managing the day to day operation and selling product. His suggested split is - me 60%-him 40% until all setup costs are recovered; then me 40%-him 60% with him covering all costs. This seems a bit over generous towards him.

I'd prefer to get my initial investment ($100k) back sooner. I'd like to know what is the norm in the industry for recoup of initial investment, allocation of costs and profit share?

 

[TorturedSoul]

It looks like you're the money man and he's the employee. Offer him a decent wage and 15% of the (net) profits if you want to be generous, otherwise just pay the wages (and give him a W-2 each year).

Of course, like all employees, he'd be getting paid whether or not you earned a nickel.

If, OtOH, you want to go with a real "partnership" route, then you two should sit down and agree as to how much his contribution will be worth - in comparison to your $100K investment. If it's 10%, give him that. If it's 90%, lol, give him that.

If neither of you are at risk for a prison sentence, then just treat it like any other business. If you open a Starbucks franchise, and he comes to work for you... are you going to be doing profit-sharing, or just pay him for his work? Okay, that's a poor example, because that calls for unskilled labor, where a grower would tend to be at least semi-skilled. If he's been to school where he earned at least an associate's degree in some sort of related agricultural field, so that he can reasonably be expected to understand all facets of pests, diseases, deficiencies, et cetera - and controls/cures for same - and can do so day in, day out, without fail and without requiring direction/oversight... and can produce a product that does NOT contain mold, pesticides, et cetera... Then he ought to earn a wage that is well above the average burger flipper (2x to 3x, IMHO). Because it does require some knowledge and work. But it's not brain surgery - and, therefore, does not command a doctor's wage.

I'd prefer to get my initial investment ($100k) back sooner.

LOL. I suppose you'd prefer to have it in your hands some time during the next five or ten minutes. But it's not really relevant.

 

[onewarmguy]

It looks like you're the money man and he's the employee. Offer him a decent wage and 15% of the (net) profits if you want to be generous, otherwise just pay the wages (and give him a W-2 each year).

Of course, like all employees, he'd be getting paid whether or not you earned a nickel.

If, OtOH, you want to go with a real "partnership" route, then you two should sit down and agree as to how much his contribution will be worth - in comparison to your $100K investment. If it's 10%, give him that. If it's 90%, lol, give him that.

If neither of you are at risk for a prison sentence, then just treat it like any other business. If you open a Starbucks franchise, and he comes to work for you... are you going to be doing profit-sharing, or just pay him for his work? Okay, that's a poor example, because that calls for unskilled labor, where a grower would tend to be at least semi-skilled. If he's been to school where he earned at least an associate's degree in some sort of related agricultural field, so that he can reasonably be expected to understand all facets of pests, diseases, deficiencies, et cetera - and controls/cures for same - and can do so day in, day out, without fail and without requiring direction/oversight... and can produce a product that does NOT contain mold, pesticides, et cetera... Then he ought to earn a wage that is well above the average burger flipper (2x to 3x, IMHO). Because it does require some knowledge and work. But it's not brain surgery - and, therefore, does not command a doctor's wage.



LOL. I suppose you'd prefer to have it in your hands some time during the next five or ten minutes. But it's not really relevant.

TorturedSoul's got a good suggestion but I think the operative phrase here is "If neither of you are at risk for a prison sentence". It sounds to me like you're not going to be present at your grow site anywhere near as often as your partner and the last time I checked Cali only permitted 6 plants for personal use. Who takes the greater risk? You might loose money but he'll loose 5 years, more if he's going down for the second or third time.

 

[TorturedSoul]

About nine years ago, an... associate of my brother's asked me if I'd be interested in running a grow house for him. Guy told me I could find the house and he'd cover the lease/rent/utilities, and that he'd pay for whatever equipment I decided was needed (and then jokingly told me that if it came to more than $10,000, he'd like to see receipts for everything, lol).

I turned him down. Sure, I kicked myself a few times over that - but not very hard (so to speak). Why? Because, had I agreed, my... NOT going to prison would have depended at least in part on someone else. No thanks. I learned at a very early age to weigh reward vs. risk (and possible punishment). The probability of making a tidy sum doing something that I enjoyed did not balance out against the possibility of losing my freedom.

So I have given this kind of thing some thought. I've also - in a minor way, true - done the "business partnership with a friend" thing, and have read/heard about others' experiences in this regard. I'll never do that again, lol. A business is a business. You make decisions that (hopefully) result in success, viability, profitability, and survival of that business. I'd much prefer the "employer / employee" relationship over a "partnership," even if it means that I end up being the employee. Someone has to make the hard decisions, and decision by committee has a long history... generally a poor/bad one.

So treat yourself as a boss and the other person as an employee. If they are not happy with this arrangement, find a different employee.