Author Topic: Help, my wife's new business is blowing up! What do we need to do?  (Read 5042 times)

pinkfloyd4ever

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So my wife and her friend started a business recently. They’re making healthy AND delicious plant-based (i.e. vegan) foods. They started working on recipes and working on branding, website, etc at the beginning of this year.  At the beginning of May they started selling their products at a local farmers market two Saturdays per month (rather than every week since they both have day jobs). Anyway, they’ve only had 3 market days so far but they’ve already been featured on the web version of a local food magazine, with an article coming to the print version in a month or 2. Also a small independent grocery store here that focuses on local products just approached them Saturday about carrying their products, and they now have some products they had left over from Saturday's market in that store. And to top it all off, yesterday my wife’s friend/business partner (whose day job is at a small bank that focuses on small businesses) was approached by some of her coworkers who've tried a few of their products and are seriously interested in investing in their business! AHH!!!!

We're very new to this. What do we do??? They already have a meeting set up with an accountant who specializes in startups and charges about half of what others charges. Obviously we need to talk to a lawyer who's experienced in small business startups if we do take on investors. But how do we pick one, or find one who's going to have our best interest at the forefront without charging a ridiculous amount?  How does an investment partnership in a small startup usually work? What do we need to make sure we do, or be careful not to do? What should we do ourselves, and what is worth paying to have done professionally?
« Last Edit: June 07, 2016, 11:04:56 AM by pinkfloyd4ever »

Gimesalot

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #1 on: June 07, 2016, 11:13:35 AM »
One thing that you didn't mention is the food aspect of this business.  They need to become a legal business ASAP and get insured.  In addition, they should get ServSafe certification and move into a commercial kitchen.  They may want to hire a local chef or restaurateur that guide them through this side of the business.

AlwaysLearningToSave

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #2 on: June 07, 2016, 12:16:49 PM »
how do we pick one, or find one who's going to have our best interest at the forefront without charging a ridiculous amount?  How does an investment partnership in a small startup usually work? What do we need to make sure we do, or be careful not to do? What should we do ourselves, and what is worth paying to have done professionally?

First step is to slow down, take a deep breath, and realistically evaluate the future of the business.  Is it something that is just a weekend farmers market, we-do-it-because-its-fun-right-now type of thing or are your wife and her friend are truly wanting to make a go at this for the next 5 to 10+ years?  The business partner has a day job.  Does your wife?  If they really want to make a go at it, it will probably necessitate one or both of them committing to the business full time, sooner than you might think.  If they aren't willing or able to commit to the business, it may not be worth spending a ton on a lawyer.   

If you do choose to go down that route, consider this your fair warning that you will probably think the lawyer is charging you a ridiculous amount even if you are getting good value.  And the lawyer's hourly fee is not necessarily a good indicator of whether you are receiving good value.  Sometimes a high hourly fee attorney can give you the best value.  The more you can educate yourself, the better able you will be to do things on your own.  Ask your lawyer to give you guidance on things you can do on your own.

Your best bet is probably to ask around for referrals to local lawyers.  You want a lawyer with whom you can build a good ongoing relationship, not just the best lawyer or the cheapest lawyer.  The lawyer should have general business experience, with focuses on tax planning, business succession planning, etc.  Bonus if the lawyer works specifically with clients in the food business.  You probably want a lawyer in a firm rather than a solo or small firm to have access to lawyers with different specializations. 

Be wary of how many investors they take on and do not take on any more than you need-- adding investors adds complexity, adds cost, and adds potential for future drama.  Assuming your wife moves forward with her business partner, you will need a buy-sell agreement laying out the rights and obligations relating to participation in the business and buyouts in the event of death or disability of the owners. 

mskyle

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #3 on: June 07, 2016, 01:18:41 PM »
Any chance your area has any kind of a small business incubator or counseling program? Some business schools have these, where they offer free advice to people interested in starting/expanding their businesses. I know people who have found this kind thing very useful!

MrsDinero

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #4 on: June 07, 2016, 01:29:35 PM »
First off I would say slow down.  3 market days of selling their foods is not an indicator of long-term success. 

There is a lot of information that is left out of this post.

Do they have a business plan? 

What was their original (dream) goal of the business? 

Do they want their foods to be sold in stores?

Do they plan on making the product themselves?  Hiring people to make it for them?  Or look into larger manufacturing for a wider distribution?

Investors is great but what are they planning on doing with the investor money?  How much of the company will they give to the investors?  Do they want to start selling off parts of their company now?

marty998

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #5 on: June 13, 2016, 04:19:53 AM »
I agree...slow down.

Do you actually need capital? From other people? I bet they don't really want to dilute ownership at the moment.

Keep calm and make rational choices - focus on getting a recurring list of customers first... no need to start engaging investors just yet.

maizeman

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #6 on: June 13, 2016, 05:23:59 AM »
Investors is great but what are they planning on doing with the investor money?  How much of the company will they give to the investors?  Do they want to start selling off parts of their company now?

Do you actually need capital? From other people? I bet they don't really want to dilute ownership at the moment.

+1. The fact that people want to offer them money for a part of the business is awesome, but help her to avoid getting sucked into the temptation of raising money for the sake of raising money. Before anything else, I'd recommend your wife and her partner sit down and come up with a business plan that includes what they need to spend money on, how it will help the business, and how much total money they need. They should also figure out how much they think their company is worth and what percent of it they are comfortable selling to investors. The business plan should help make the case for why their business is worth as much as they think it is.

chasesfish

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #7 on: June 13, 2016, 05:47:34 AM »
They need to start here:

https://www.sba.gov/tools/local-assistance/sbdc

The SBA funds Small Business Development Centers and counselors or can sit down with your wife and her partner and give her very basic information for free.  They're funded out of fees generated by SBA Lending.  The advice can vary based on the quality of the local center/counselor, but its a good place to start.

After that, find an accountant who specializes in small businesses.

phred

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #8 on: June 13, 2016, 11:27:13 AM »
First off, it is against the law for your wife's friends to invest in the business unless they are 'accredited investors" -- which I doubt.  They can, however, loan their money to the business.

The Small Business Administration used to furnish advisors under their SCORE program.  You might call the SBA and ask if the program still exists.

jwright

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #9 on: June 13, 2016, 12:09:04 PM »
First off, it is against the law for your wife's friends to invest in the business unless they are 'accredited investors" -- which I doubt.  They can, however, loan their money to the business.

The Small Business Administration used to furnish advisors under their SCORE program.  You might call the SBA and ask if the program still exists.

That rule is in place for selling securities; they could still bring on partners who are given a partnership interest in exchange for a capital contribution.  I will make the assumption that to start, the business will be an LLC.

But I will echo the others in the thread, first step is a written business plan.

Proud Foot

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #10 on: June 13, 2016, 02:35:56 PM »
As others have said, they definitely need a very detailed business plan.  Most states have a SBA office that they can use for resources and assistance. Another thing is to see what the state requirements are for food sales and what licenses are needed.

Axecleaver

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #11 on: June 13, 2016, 03:01:41 PM »
- Use that SBA link posted above to create a business plan. The template they provide will guide you to start asking questions that you haven't thought of yet.
- Get company formed and registered
- Consider what insurance you need - liability insurance for food businesses seems smart.
- Register for sales tax in your state (if required)
- Register for credit card merchant account  through a go-between that focuses on small business (Square or paypal, for example)
- Track all of your expenses - great business expense writeoffs!

Looking forward to future updates!

Bruinguy

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #12 on: June 13, 2016, 03:36:05 PM »
First off, it is against the law for your wife's friends to invest in the business unless they are 'accredited investors" -- which I doubt.  They can, however, loan their money to the business.

The Small Business Administration used to furnish advisors under their SCORE program.  You might call the SBA and ask if the program still exists.

That rule is in place for selling securities; they could still bring on partners who are given a partnership interest in exchange for a capital contribution.  I will make the assumption that to start, the business will be an LLC.

But I will echo the others in the thread, first step is a written business plan.

My understanding is that, depending on the circumstances, LLC interests could be deemed securities for purposes of the securities laws.  If you want to raise money, I'd recommend hiring a lawyer to assist. 

maizeman

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #13 on: June 13, 2016, 05:59:04 PM »
First off, it is against the law for your wife's friends to invest in the business unless they are 'accredited investors" -- which I doubt.  They can, however, loan their money to the business.

The Small Business Administration used to furnish advisors under their SCORE program.  You might call the SBA and ask if the program still exists.

I am not sure that is not strictly true. I think that's being described would be a "Rule 504" offering, and they could raise up to $1M from non-accredited investors as long as they didn't solicit the investments, and raised money from only pre-existing contacts (which the wife's co-workers would obviously qualify as). However IANAL so consult experts before you commit yourself to anything. And in my limited forays into into the world of start ups we did raise money only from accredited investors.

libertarian4321

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #14 on: June 19, 2016, 05:22:41 PM »
They’re making healthy AND delicious plant-based (i.e. vegan) foods. They started working on recipes and working on branding, website, etc at the beginning of this year. 

Yup, them and about thousands of others, at farmer's markets, flea markets, etc all around the country.

Selling a few portions of whatever food at a farmer's market is one thing.  Having a real business is quite another.

"Vegan food" isn't exactly a new idea.  Not only will you be competing with thousands of other amateurs like yourself, you'll be competing with multi-national corporations if you grow the business much beyond the "selling a few off the back of a truck" stage.

Unless you have something truly unique (highly unlikely), truly fantastic and far beyond what the others have (again, highly unlikely), have plenty of big money backing, have an experienced management team, and have the "unique" part patented (because otherwise, the "big guys" will come in and squash you like a bug if you ever get big enough that they notice you), you will find it extremely difficult to go beyond selling a few items locally.

Sometimes a good, small, part-time business that makes you a little extra money on the side is best left as just that. 

Many people get excited by the fact that someone is actually willing to buy their stuff, go nuts thinking they will be the next "big thing," and end up as road kill, with piles of debt and smashed dreams.



That said, have at it! :)


Jim2001

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Re: Help, my wife's new business is blowing up! What do we need to do?
« Reply #15 on: June 19, 2016, 06:18:15 PM »
First off, it is against the law for your wife's friends to invest in the business unless they are 'accredited investors" -- which I doubt.  They can, however, loan their money to the business.

The Small Business Administration used to furnish advisors under their SCORE program.  You might call the SBA and ask if the program still exists.

I am not sure that is not strictly true. I think that's being described would be a "Rule 504" offering, and they could raise up to $1M from non-accredited investors as long as they didn't solicit the investments, and raised money from only pre-existing contacts (which the wife's co-workers would obviously qualify as). However IANAL so consult experts before you commit yourself to anything. And in my limited forays into into the world of start ups we did raise money only from accredited investors.

Rule 504 describes "certain issuers" being allowed to sell unregistered securities.  Unless she works with a FINRA registered broker/dealer it doesn't qualify.

So, unless the people contributing cash are also actively involved in running the business, it would be selling a restricted, unregistered security to unaffiliated parties.  This is dramatically different than a group of people pooling their money and then running the business.

Do people buy into these kinds of deals without following the regulations? All the time...and sometimes people go faster than the posted speed limit.

It doesn't make it legal.

Another HUGE concern is that if she takes this money from her friends, then burns through it all and the company goes bankrupt, will the friendships survive?  There's no way to know the answer to that one until it happens.  Is it worth the gamble?

+1 for the question, "What is the money needed for?"

https://www.sec.gov/oiea/investor-alerts-bulletins/ib_privateplacements.html
https://www.sec.gov/investor/pubs/rule144.htm