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Trade Production Services for Part Company Ownership
Often times I have small and medium business say they would like to work with me but can’t afford me. While looking at some other business options I came across an interesting concept.
Trading media production services for a part ownership in the company.
I have bartered before with my services but some business don’t have anything I would want so they don’t have anything to barter with. So rather than that I would investing in a company not with cash, but with services.
A concrete example, I have a former client starting a new gym. She would like photo and video promotional material done for it but doesn’t have the $ yet since it is a start-up. My thought was to propose I invest in her business, take 10% ownership, so I would get 10% of all revenues, and provide her with $X worth of production each year, worth about 10% of the company value.
Another option is to be on retainer, where again it would be 10% of sales paid on a monthly schedule but I don’t have any ownership in the business.
Both situations have their pros and cons. Has anyone tried something like this?
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7 Replies
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You are better off with a barter deal. I have been offered many times what you have proposed and there’s really no way, since there is no stock, to know the value of the company and its books are amorphous. Also, are you going to have your CPA meet with their CPA and go over the books to see if all is kosher? Not likely.
Barter is the way to go and you’ll stay in shape in this case.
Ned
Ned Miller
Chicago Videographer
http://www.nedmiller.com -
The funny thing is that I did have a barter at her previous gym, but this this new one is only having fitness classes, no weights, so it has nothing to offer as far as barter goes.
And yes I can have my accountant go over things with her accountant, I imagine that is what people do when they invest in businesses, but I haven’t done it this way before.
Invest vs. retainer? I am going to approach several businesses that I have worked with before with this idea in order to get a steady stream of income. I want to create good partnerships with people I’ve worked with before that I see growth potential in.
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I only occasionally watch “Shark Tank” for amusement, but one thing that stands out on that show is, none of the pitchmen and women like giving up ANY percentage of their business, and this is regarding having true business heavy-hitters bidding on it. That percentage holds all their profit and future security.
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I’d be very wary of this…. not that it’s a horrible idea, just know what you are getting into.
I’d do the “piece of the action” investment deal only if it is a company that you really believe in, and that you want to invest in. If this entrepreneur came to you wanting a “real” investment (i.e. cash), would you invest in it? If so, then yes, I think it would be an okay idea to trade your services for an investment in the company. If it’s not a company that you’d like to have a financial stake in otherwise, then no, I wouldn’t trade work for an ownership percentage.
All of that keeping in mind of course that the vast vast majority of startups fail, fail big, and fail quickly.
Like some of the others here, bartering in my opinion is a much more solid way to go… if they have something to trade that is something you actually want, need, and otherwise might acquire anyway.
We have bartered twice (that I can think of) and it worked out extremely well. We already had an established advertising relationship with our area’s top ophthalmologist and did television commercials for his practice. Then once when he was ready to start a new campaign, we offered a deal that both sides jumped at: we produced some television spots for him, knocked three or four grand (I don’t remember exactly how much) off the bill, and he performed LASIK surgery on our art director (who happens to be my better half) for free. Everyone was incredibly happy. So much so that a couple of years later we repeated the same exact deal, this time with our general manager getting his peepers fixed.
In this case it worked so well because each side really wanted the services that the other side had to trade. Those are the barter deals really worth having.
We’ve turned down other barter proposals in the past, sometimes because we didn’t want what was offered, but more often because the actual value of what was being offered was much less than we would have charged for the production services we would be providing.
This is sort of the same reason that here we pay for everything… all people, places, and things… anything from locations to actors to crew members. I don’t mind doing favors for people in the least (in fact I enjoy it), but I don’t like to owe favors, or be beholden to anyone. I remember needing some specific venue in the past for a shoot, and it was going to cost us a thousand bucks or so. Whoever was in charge was saying “Eh, we won’t charge you a location fee… we’re thinking we might need a commercial produced sometime.” Noooo…. in that case I’d MUCH rather write them a $1000 check. I don’t want to be in a position where six months or a year from now they come to us needing five or 10K worth of work and expecting it as “returning the favor.” Production work is so admittedly expensive that those kinds of deals are rarely to our advantage.
T2
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Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.
fantasticplastic.com
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and of course Uncle Sam will be there https://www.irs.gov/uac/four-things-to-know-about-bartering-1
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Why’s that?
T2
__________________________________
Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.
fantasticplastic.com
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