What is practical & pragmatic & what is blunt & rude?

[Katymac]

Someone has offered to invest in my nursery - basically offering a 16.5% investment against a 37.5% share of the equity

I am about to write back to say no chance....but is this polite enough??

"Things I Katymac, bring to the nursery:
? £30,000 of my own money
? £25,000 long term loan from my parents (but he has made me sign a loan agreement - the rotter)
? £15,000 Asset finance from Lombard
? £28,000 business loan from Natwest secured on the un-mortgaged part of my house
? £32,000 unsecured business loan from Natwest.
? 4 years management experience in a childcare setting
? NVQ3 in Early Years Childcare and Education
? Core staff (already trained and motivated)
? Variety of training courses (including Food Hygiene, first Aid and Birth to Three ? these are legislative requirements)
? 18 months of set-up research
? Won dispute with Highways agency
? Sourced appropriate experts

Financially these add up to £130,000 (72%) of a business needing £180,000. However my input far exceeds the financial outlay.

Investors input to the business
? £30,000
? Some marketing/advertising experience (not quantified)
? Some general business/staffing experience (not quantified)
? Website (reasonably website up & running for about £2,000-3,000)

Even allowing for an annual wage for your input to the business I think a 37.5% share is over generous. I would however, consider a 20% share for a £30,000 investment."

Is that rude??

Yes, I would argue that 83k is your equity, as your risk. If you add the 30k they bring that's 113k equity. 30 of that is 26.5%. I would use that plus the sweat equity to justify the 20%

Also, you should think given that you also need to raise more money whether that 20% will be diluted (decrease) when new money comes in.

Sorry I have to go. Will try and check in later.

I don't know whether the bank one is to you. You should really find out. If the company goes bankrupt, are you personally liable for that money? Normally you wouldn't be, that's the point of limited liability companies. If you still would be then that's definitely part of your equity!

Thank you both so much

I am starting to get a handle on this

But getting new info into me is hard work

Thanks to you both again - I really am getting there now (maybe?)

Still confused about the business vs personal loans

No - it is me personally I know that - because they won't lend to a ltd company

It is limited because of the insurance risk - I can't be liable for the potential insurance claims etc (I think)

You'll get there! You're NOT thick.

I don't know much about limited companies, I was a partnership.

If the loan is in your name, it's to you and if it's in the company name, it's the business, because a limited company is separate from you, iyswim

Except if there was a director's guarentee in which case you're liable if the business can't pay.

I think that's how it works.

Ah, that changes everything! Sorry, when you said unsecured business loan I thought it was business debt. Is the asset finance also in your name? Is it business assets it's secured against, or your assets?

I think it's me then

I'll check on the paperwork (when I find it )

If (as I have understood it) you personally have gathered money together as an individual, not in the name of your business, which is ltd, and you are going to put this money into the business and are personally liable for it, not the business, then I think you could legitimally call it your investment.

If they are all in your name I withdraw my objection with many apologies and you can most certainly say you bring 130 000 investment.

Ok it's to the business but I am guaranteeing it - so I am liable for it all if the business goes belly up

Only the £15 is in the business's name & that is against the business assets

So I guess I bring £115? or is it only £55? or is it £83

• starting to wish I hadn't wanted to open a nursery

I can't even get this right

ah. Then ib is right, it's not all your investment really, part of it is the business taking a loan.

I don't think I'd invest in me

Have faith.

• Have you gone to business link or something for advice? There's lots of support for start-ups. They can really help with all this stuff.

here

They are a little ....unreliable round here

NWES are better - & there might be a loan of £30,000 but it will be at 15% (22.24 APR)

But I am getting desparate - my CC would be cheaper

I am trawling the Business Link website for grants/loans etc - but not doing too well

Sorry, had to go. Not sure about the business loan. In my book, anything you would still be residually liable for if the business liquidated should be considered equity or quasi-equity (as that's the point with equity, that you stand to potentially lose it all)

Does the business have significant assets?

none - only the assets which would be bought with the 15K asset finance

oh & a 25yr lease

Well then in that case I would argue the 15k is equity-like as in the case of an insolvency it is unlikely to be covered off by selling the assets so you would have to pay it yourself. Also it's probably not transferable in case of a sale of the business (I am assuming this from the fact that you are guaranteeing it personally).

"hank you for approaching me with your offer to invest in my nursery. I appreciate your confidence and am pleased that you recognise this business opportunity.

However, in light of my own input I would consider a 20% share for a £30,000 investment to be more equitable. My personal commitment to this business is detailed below:

? £115,000 cash investment
? Secured an asset loan of £15,000
? 4 years management experience in a childcare setting
? NVQ3 in Early Years Childcare and Education
? Core staff (already trained and motivated)
? Essential training courses, including Food Hygiene, First Aid and Birth to Three
? 18 months of planning, including sourcing appropriate expertise and resolving a potentially threatening dispute with the Highways Agency

Financially, these add up to at least £130,000 (72%) of a total required outlay of £180,000. This is not considering my input with, for example, the day-to-day running of the nursery.

I would therefore propose that for a 20% share of the business, you would commit the following
? £30,000
? Marketing/advertising experience
? General business/staffing experience
? Website

An alternative might be a ?ratchet deal?.

Initially, 20% equity based on 7.5% interest pa over a repayment period of 5 yrs, reducing by 3% each year, resulting in 5% residual interest in company after 5 years with right to buyout based on independent valuation.

I am confident that, having already identified my business as a suitable investment, you will give this due consideration and I look forward to hearing from you."

Looks good to me - have you discussed the ratchet deal with them before or is this the first they'll be hearing of it? If the latter, I would probably mention it in general terms and offer to be more specific if they are interested.

My only reason for saying that is that otherwise they would probably take this as a starting position and expect to negotiate from that.

That's a good point

But I would probably go to 10% interest(I guess) - but I don't really want to do more than 20%

It is hard working out what my future business is worth?

I don't have any idea how this kind of business is valued, but generally businesses are valued as a multiple of income.

Which income and which multiple depends on the type of business.

Basically you would look at businesses similar to yours which have been sold, calculate how much the price is relative to the income and apply that multiple to the income you expect to have.

Does that make sense?

Oh sorry, this gives you the value in the future. You then have to discount it to get the value today.