Starting a New Geotechnical Firm 4

[miyaye]

I am in the process of starting a geotechnical engineering firm. I am trying to figure out how to divide the pie. I have two potential partners, one professional engineer who is not bringing capital, but he will be contributing with his license as an Engineer, PE (soft asset). He will be the initial qualifier (because of his PE and experience) to certify the company with the local Counties and DOT and be able to get contracts. The other person, who is not an engineer, will be providing equipment (drill rig - hard asset) This equipment is also required as part of the pre-qualification process with the county and dot. As far as me, I am a license engineer, I have started two operations from scratch, have been very successful, but the only problem is that I have started two operations from scratch for someone else. I have loyal clients that will support me if I go on my own and I can do this on my own. I completed a business plan. The plan is telling me that I need at least $150,000 to purchase equipment and keep the firm afloat for at least six months before I start seeing some income. I have some cash, but not 150,000. My plan is to register the company with the County and DOT while I am employee so I am able to get some work as soon as I resign my current employer. Howver, I can not be the qualifer unless I resign my current employeer, something that I can not do at this time. This is where the two partners come into the equation. The PE engineer will get all the initial certifications while I am still employee and the equipment is required to obtain the required certifications.

They are making a contribution for which they are not being fully paid in cash and they will want some form of ownership.

I want to have certain degree of control, mainly to be able to control the risks associate with the business and also because I have more experience from the operational, technical and marketing point of view.
What percentage of the company should each partner receive under this scenario?

My initial thoughts are
80% ......me
10%........PE engineer
10%........other person

I would like to hear suggestions. Thanks for your time

 

[GregLocock]

Well, if they fall for that you are made. And they are mad.

It sounds to me like you are the junior member of this triumvirate.



Cheers

Greg Locock

SIGlease see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[Ron]

I agree with Greg. You bring less to the table than the other two, with the exception of the drive to get it done.

You might consider a more equitable split that would give the other two more incentive to help you grow the business. At 10 percent each, they're not vested in success.

 

[MiketheEngineer]

Deflate that ego a bit... If lucky see if you can get 51% control - then go for broke.

 

[rbulsara]

Ask the question: Why would those two need you?

Rafiq Bulsara

http://www.srengineersct.com

 

[rday]

So your going to begin start up of a company to compete with your current employer, while still employed?

In doing this you are going to solicit "your" loyal clients, who presumably engage services from your current employer?

You want two other people to act as your proxies to start this company so you can step in after it's up and running and be the head cheese? All the while, you maintain your current employee position.

On to the post

Sounds to me like the driller (your other person) is the critical partner. He has the equipment and could easily just contract his services to any geoetch firm he pleases. He really has no need of either of the other two. He could start his own firm and offer the other engineer 10%.

Really there are soooo many issues here, it's hard to know where to begin.
What is the company structure (LLC, s-corp)?
Who will own the equipment?
If the driller, how will he be compensated for its use by the company?
If the company, how is the current owner to be compensated for change of ownership?
Who provides the $150,000 start up capital?
If outside investors, will they recieve partial ownership for there investment? What kind of return on investment are they getting?
You want control to manage risk, what about those putting their capital at your disposal?

 

[MiketheEngineer]

"Stealing" good clents from your current employer may bring on certain legal and/or ethical problems...

 

[howardoark]

sorry to come late, but the responses were nonsense. Miyaye had the clients which is the only really important asset (a $25,000 drill rig is worthless without clients). And you don't steal clients, they don't "belong" to the firm. I agree that it's tacky to solicit them while you're still an employee.

On the other hand, he's asking the other two guys to throw their lot in with him in an unproven venture that he could squirm out of (oh, I changed my mind about quitting my current firm so I'll sell you my 80% interest in the firm for $120,000 and we'll call it even). I don't think he should ask for a controlling interest as the other two guys are risking more than he is.

I'm going to guess it never happened. I know as soon as he laid out the conditions for me I wouldn't have partnered with him on a bet.

 

[GregLocock]

So in fact you agree with the other answers.

Cheers

Greg Locock


New here? Try reading these, they might help FAQ731-376

http://eng-tips.com/market.cfm?

 

[howardoark]

I agreed that he was offering his potential partners a bad deal and that they would be foolish to accept it. But the idea that people who bring the money to the firm are somehow less important than the guys who stamp the drawings or run the drill rig is also foolish - also he said he was licensed so he didn't really need the other PE. He would definitely deserve the largest share of the firm since he was going to be the one making the rain fall. But if it were me, I wouldn't let him have a controlling interest because he would then be in a position to take all the profits as a bonus and there would be nothing his junior partners could do about it.

The firm I work for was started by 2 guys who built it into a 250 person firm over the course of 15 years and then sold it for $35 million. The story went that the company succeeded because Mr. Jones sold work he had no idea how to do and Mr Smith found a way to get it done. Mr. Jones's name came first on the letterhead. Mr. Smith probably would have been a very successful engineer and maybe he would have retired with a gold watch and a pension after 30 years with his old firm.