Working Effectively With Partners

Working effectively with Partners

• This might initially scare you
• Keep an open mind
• It is not working with some stranger; you will become friends with them and it won’t be so scary

Why work with partners?
• Source of money
• Source of knowledge and expertise
• Diversify risk
• Source of deal flow
• Source of credit

How to work with partners?
• Can own property jointly in your names
• Set up entity – management agreement sets forth rules

Structuring deals
• Simple cash loan
• Equity split
• Hybrid deal

Simple Cash Loan
• Partner lends money and is paid a percentage interest rate
• Try and defer interest payments

Equity
• Partners split equity and ownership of the deal
• Don’t give away the farm

Hybrid
• Cash loan for interest
• Equity split

When to use what strategy?

Cash only

Pros:
• Getting cash the least expensive to you
• Don’t have to share the equity

Cons:
• Cash payment required to investor
• May not have the cash
• Not sharing risk
• Deal goes bad, you still owe the money

Equity

Pros:
• No cash expense
• Share risk
• Deal goes bad you don’t owe anything

Cons
• Giving up valuable piece of deal

Hybrid

Use this strategy when getting resistance from potential investor or you feel more comfortable with this structure. They may be concerned about giving you cash and not getting immediate return so you can offer some cash payment combined with a small piece of equity. Conversely, they may not want immediate cash; they may want a piece of the deal, so you can give them a smaller piece of the deal and some cash payment.

You decide what is going to work best for you and propose deal and negotiate from there.