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After years of ideas and ‘maybes’ I settled on one and it’s expanding quicker than expected. How do I manage the money?

I’m sure I’m not alone, but I’ve spent years thinking up ideas and side hustles to help boost income, keep me active, or help create life outside of my soul crushing job lol.

That being said, I finally stuck to one a couple months back, and even still didn’t think I’d jump. As I was building and thinking of jumping, I gathered some interest amongst my little tribe (super intimate friend group - we do everything together).

2 of them were so interested that they just wanted to help, and we went into it thinking it would be a slow long haul until we saw progress especially in the face of covid.

While initial investment was minimal, we’ve made it back in about a month - and now have about the same amount in pure profit.

Problem is I have NO IDEA what the best move is. I want to pay them for their work, and I want to take a portion to reinvest back into it.. as well as setting aside some for taxes and things.

I don’t mind not paying myself currently. How do I best divvy this up?

Thanks for your input!

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Talk to an accountant. Be careful transferring your money just like that, the cost could be high.

Plus business is first, if all of your are “investors” in some way or another everybody or no body gets payed. Grow company today, get money tomorrow.

Other points

A few thoughts, after reading the other replies, too... First off, educated Accountant here, not a CPA, but have an MBA and my resume ranges from Corporate Accounting, Treasury, and Sr Financial Analyst to Sr Finance Manager now...

First, Reddit overestimates the ability of most Accountants. If you’re talking about a small amount of business so far, around $50k/yr or less, I’d say at the very least you should have a personal CPA to help you manage the taxes. If you’re closer to $100k+ then you might want one who can support your books and taxes. In terms of managing your books, you can do it with software like Quickbooks for a while and give an accountant access. So books and taxes, that’s all the CPAs are for.

One big item is ownership. From the sounds of it, this is your business 100% and the third parties are involved but own nothing. If this is correct, then I would suggest setting up an entity with a lawyer and making contractual agreements with these parties for how they can track time and how much you will pay them for that time. Make sure there’s an approval process so you don’t get fleeced and lose a friend! If you give them part ownership, then I’d say any distributions of cash that you make are in line with ownership. You have to be careful not to dilute yourself - don’t contribute all of your cash while they give nothing. Because of that, I’d recommend the first approach of paying them an agreed hourly rate and you own 100%, if possible.

These aren’t sexy but they come with costs and are worth taking care of if this business is really going to work. Once those are done, you’ll have 4 objectives for your cash in this order: 1. Positive margin - hopefully this is done, selling for more than you pay, 2. Sell more - put your marketing skills to work and get more business for those margin gains, 3. Reduce costs - both variable costs you pay for each sale and fixed costs like bills, rent, whatever. You can’t get it to nothing, if course, but if you made some investment could you save? And remember - your time is money, saving time is a reduced cost! Lastly, my favorite, number 4 - get paid. What’s the point if not to make some cash, you don’t have to have the other things perfect to start paying yourself, but for as long as you’ve gone some wins within reach, I’d reinvest all you can afford into the top 3.

I hope this is helpful! I don’t know what you know and I appreciate when others are thorough with me, so this was my best effort. If you’d like, I’d be happy to help more, but have hit the limit of what I can offer based on what I know. Feel free to DM me, if you’d like, I’ve been spending this time trying to help small business however I can in the Finance department.

You need to firstly figure out what your tax burden is going to be. Missing on taxes is a painful process.

Are your employees working for free right now? What are your options for reinvestment? What rate of return can you generate? What is the next big expansion point of your business and how much cash will it take?

I’d recommend being cautious with unnecessary spending right now. Having cash on hand is always a benefit to any company regardless of the size. There will always be something to spend it on. Don’t have holes in your pockets. --- Yes. All of these are questions I have too. I’m looking into taxes, and anticipate putting 20%/month aside.. I figure that will be a bit more than needed but I have no idea how much we’ll see at the end of the year and just want to be covered.

‘Employees’ - partners I suppose... are working free currently but we’ve logged all hours spent working.

I have all receipts of every expense.

Reinvestment currently would just be supplies and tools to continue producing, packaging supplies, and maybe some ads - though currently I’ve only spent from my personal money for ads so I think I’d continue that (and I’ve spent just under $30 with a good turn around in my niche.. we’ve tripled sales week after week for three weeks now. I’m sure that’ll start to slow but it was a big boom we weren’t expecting.

Return rate... I really have no idea currently. It’s very new, but I hope to crunch numbers this week.

Next big expansion currently isn’t needed. We can continue to grow as is for some time now. The only thing I can think would be next would be to maybe hire another person down the road - and only low part time (2 days a week maybe).

It would be great to get a bigger space of course, but I have no plans to jump that far in yet.

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May 7, 2020 at 10:15:25 AM

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