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I’m purchasing a business and we have it spelled out in the…

I’m purchasing a business and...
I’m purchasing a business and we have it spelled out in the terms that there will be continuing profit-sharing for the first six years. But the first 75,000 gets paid to me before profit-sharing starts. My question is this: how can we structure the draw so we can account for expenses/ fluctuations? The business profited 160thousand last year after expenses. There is fluctuation in income monthly.
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Answered in 6 minutes by:
3/12/2018
Lori
Lori, Attorney
Category: Business Law
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I​ recommend that you use a base number or base range of the expenses to use as your annual expenses going forward. Based on your due diligence for the purchase and review of the books and records, you should be able to come up with a average annual expense number and average annual income number. I would look at more than one year of expenses and income. You then can come up with a formula in the your agreement - based on monthly income of $X, you will get a draw of $Y for the annual draw total of $75,000. I am assuming that net profit sharing will be annual and the draw will be treated as an expense (capital return or loan to you) That should also be specified in the agreement.

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Customer reply replied 1 month ago
The amount will quickly exceed my initial investment, is that still a capital return? Or income?
Capital return with the guaranteed profit/return agreed to be paid to you before profit sharing
Lori
Lori, Attorney
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