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Aviator

Aviator

Elder Lister
Wadau, there is this question that I want to put forward.
In 2017, I established a hustle and by fr and large it is doing well. It is registered as a sole proprietorship. Mainly targets value addition of farm produce. Now, I have been approached by several people who want to buy shares. I see a big potential for expansion, so the idea is welcome. I have no idea how to accommodate these people, but I see like we can go very far together. So my big question is, how to you price the shares and reap from the effort you put t the start?
Here are key facts:
I invested kitu 1m into the hustle.
Currently, it is worth like 3.5m, equipment only.
I would like to upgrade the equipment if I got additional 5m. The potential investors are capable and willing to give the amount.

If you were me, how would you plan the biz?
 
upepo

upepo

Elder Lister
If it is worth 3.5m in equipment, you could now cost in your effort to come up with the total value of the business. Supposing you add 1.5m for your effort, then the total worth becomes 5 million, which is your contribution to the joint venture. This is the figure you would use when apportioning profits.
 
P

pchi

Lister
That now depends on the people you are associating with.I have a friend of mine who started a tea factory.To build a tea factory,you need alot of money and equipment,so this guy build the factory polepole for about ten years untill the finishing stage,this whole time he was alone with his own money.Now towards finishing,he had to bring some people on board so as to boost him,so he sold some shares.I can tell you and this is the thing which hurts the most,in less than 5years down the line my guy was voted out by the same people he sold shares to.Now you can imgn you've been alone all through only to be voted out by the people you sold shares to.
 
Abba

Abba

Elder Lister
Tafuta a qualified accountant to evaluate your stake. Once you done na accountant ,tafuta a good corporate lawyer to draft legal documents ya shareholdings . Usinfanye vitu chwarachwara. Do it professionally that's what I'll do.

If an accountant tells you your assets less liability plus cash at bank gives you a stake of 4m, then talk to your lawyer to have a legal document that says you and your 4m have 50% stake .is someone brings 2m then they have 25%stake ....

I could be wrong though..
 
JazzMan

JazzMan

Elder Lister
Abba said:
Tafuta a qualified accountant to evaluate your stake. Once you done na accountant ,tafuta a good corporate lawyer to draft legal documents ya shareholdings . Usinfanye vitu chwarachwara. Do it professionally that's what I'll do.

If an accountant tells you your assets less liability plus cash at bank gives you a stake of 4m, then talk to your lawyer to have a legal document that says you and your 4m have 50% stake .is someone brings 2m then they have 25%stake ....

I could be wrong though..
Click to expand...
Na akipata hiyo agreement apatie another five lawyers watafute loopholes wazifunge hata freno ya msedes haiwezi pita.
 
Nattydread

Nattydread

Elder Lister
If they're investing 5 m to replace your equipment, then you have already depleted its economic value and milked it dry.

I'd assume that you have been reserving some of your profits as the gear depreciated. That will be your bargaining chip. If you have 3m cash 1m goodwill and they bring in 5 then, you can value it all at 9m and work out ratios of shareholding.

As always, involve your legal advisors. Verbal agreements destroy relationships.
 
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It's Me Scumbag

It's Me Scumbag

Elder Lister
One cardinal rule. Maintain controlling shareholding. 60% if you ask me. That way no one however much money they will have pumped into your already existing entity can outvote or overrule your decisions.
Then if you have to get investors in,ensure that the investor contracts makes the newcomers silent partners with no say in the day to day running of the company. They invest for a share of the profits not in the running of your entity.
If you can,get investors who are experts in the business you are in. Other than the money,their experience will be valuable going forward.
About lawyers,you already been told what they need to do.
 
Cortedivoire

Cortedivoire

Elder Lister
Change the business to a limited company. Weka uko na 100% ownership. Approach an investment banker who will advise how you will sell the shares and valuation of the business.
Note: Don't sell more than 49% of the shares. If you sell majority ownership, insist to have at least 51% voting/advisory shares of the board because this will give you the power to control the direction of the company
 
$

$$$

Lister
Aviator said:
Wadau, there is this question that I want to put forward.
In 2017, I established a hustle and by fr and large it is doing well. It is registered as a sole proprietorship. Mainly targets value addition of farm produce. Now, I have been approached by several people who want to buy shares. I see a big potential for expansion, so the idea is welcome. I have no idea how to accommodate these people, but I see like we can go very far together. So my big question is, how to you price the shares and reap from the effort you put t the start?
Here are key facts:
I invested kitu 1m into the hustle.
Currently, it is worth like 3.5m, equipment only.
I would like to upgrade the equipment if I got additional 5m. The potential investors are capable and willing to give the amount.

If you were me, how would you plan the biz?
Click to expand...
Disclaimer: This is not investment advice but rather my kibanda opinion.
- First, you need an accurate valuation of your business as is. I would say your average monthly net profit (X25). If you make 1M per month net, then your business is worth 25M minimum. The equipment/machinery is baked into that valuation. The same way a matatu makes 100k but costs 2.5M. Same concept because it is a machine.
- After knowing the value of your company, calculate the percentages. How much equity will they get for a 5M investment??
- Make sure you own and control over 67% shares and voting rights by ensuring that all are ordinary shares. This ensures that you run the show fully and cannot be voted out.
- Hire a CPA to guide you through the process, and a seasoned lawyer so that you don't get ripped off in the documentation. I suggest you draft the entire thing and offer them a take it or leave it deal. They sign your papers, not the other way around.

For example, if the company generates net profit of 500k per month, I would value it at 12.5M. A capital injection of 5M would see you lose 28.5% ownership but still retain a large controlling stake at 71.5%.

I expect that their investment will come with certain conditions because they aren't buying you out of your position.
 
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Field Marshal

Field Marshal

Elder Lister
When valuing your company take into consideration the time you have put in, the goodwill/brand recognition you have created, future projected profitability, cash at hand (reserves) etc. A company that has equipment worth 3.5m that turns out a profit of say Sh200, 000 per month is worth more than the value of the machinery.

I particularly agree with the dude just above me.

If you want I can direct you to a fairly sharp young investment banker who can advise you more. His name is Johnson Ireri. Gugu.
 
Aviator

Aviator

Elder Lister
pchi said:
That now depends on the people you are associating with.I have a friend of mine who started a tea factory.To build a tea factory,you need alot of money and equipment,so this guy build the factory polepole for about ten years untill the finishing stage,this whole time he was alone with his own money.Now towards finishing,he had to bring some people on board so as to boost him,so he sold some shares.I can tell you and this is the thing which hurts the most,in less than 5years down the line my guy was voted out by the same people he sold shares to.Now you can imgn you've been alone all through only to be voted out by the people you sold shares to.
Click to expand...
This is exactly my fear.
 
E

emali

Elder Lister
Cortedivoire said:
Change the business to a limited company. Weka uko na 100% ownership. Approach an investment banker who will advise how you will sell the shares and valuation of the business.
Note: Don't sell more than 49% of the shares. If you sell majority ownership, insist to have at least 51% voting/advisory shares of the board because this will give you the power to control the direction of the company
Click to expand...
kumbe saa zingine unaweza kaa chini na senators na uongee point ya maana?
 
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