Partnerships and Compensation

[Karen Margrave]

Everyday there are questions on BP, and I've been messaged, regarding various compensation to be paid to others, especially those with larger businesses. Here's a sampling. So please, weigh in:

For those of you in partnerships, how do you get paid? Do you pay yourself wages and re-invest a % of the profits into the next deals?

Do all your partners split profits equally, or according to their contribution, etc.?

Who handles the financial end of the business? Do you have a CPA or do it yourself?

When one partner puts up money, and the other does the project management, what do you think fair split is?

[Bryan Hancock]

Originally posted by Karen Margrave:

For those of you in partnerships, how do you get paid? Do you pay yourself wages and re-invest a % of the profits into the next deals?

I'm currently involved in about 20 partnerships and we generally set up a few new ones a month now. Most are JVs or people investing in funds we raise. I generally like to make money AFTER my investors make money as is specified in the waterfall. The puts the carrot in the right place for our management team.

We're exploring charging a small development fee for some projects to cover the cost of staff to grow some functions internally instead of outsourcing everything. This would be a break-even business at best to cover costs. I like to get paid at distribution the same time our investors get paid. In more elaborate structures you can structure a match to any distributions to keep your interest in balance with that of your investors.

Originally posted by Karen Margrave:

Do all your partners split profits equally, or according to their contribution, etc.?

Partner-level value to me is cash, debt signers, expertise/time, and identification of new deal flow. Everything else can be outsourced fairly easily. Finding deals can really be outsourced too, but we like to partner with builders and brokers to create alignment.

We use a formula in a spreadsheet that values equity as dollar for dollar and debt as 70 cents on the dollar. Expertise can be the rounding factor and it is pretty easy to assign a value for finding the deal as either equity or straight cash as a commission.

Originally posted by Karen Margrave:

Who handles the financial end of the business? Do you have a CPA or do it yourself?

CPA and bookkeepers

Originally posted by Karen Margrave:

When one partner puts up money, and the other does the project management, what do you think fair split is?

It really depends on the deal and who delivers value. In general I think the equity is more valuable than expertise in most partnerships, but for real producers this isn't the case.