We have a ‘Dilemma Contest’ winner!

Our most recent Contractor Dilemma finds Dave Ullman in a five-year process of handing his successful contracting business over to his 24 year old son Billy. But Billy is intrigued by an offer from wealthy past client Ken Morgan, who’d like to joint venture with the Ullman’s buying, renovating, and then selling houses. Billy sees this as a way to expand the company and make his mark. How should Dave advise his son?

Our judges looked at a number of well-considered proposals, but ultimately selected the cautious approach put forward by Matt Brown of Telos Construction Ltd., Abbotsford B.C., which included the following remarks…..

“If Billy truly sees investor partnerships as an integral part of his future business plan, maybe a one time ‘trial run’ project agreement with Morgan could be a positive experience,” wrote Brown. “Dave needs Billy to understand the importance of a solid business plan moving forward that will help him to focus his attention where it needs to be, and not to lose focus due to what may initially appear to be an attractive opportunity.”

Congratulations Matt!
You win a DeWalt Cordless/Corded 20V MAX* Bluetooth® LED Large Area Light (DCL070), retail value of $479

How did others feel? Some were hot, some were cold …..

Not so fast, Billy!
“While propositions like this seem lucrative, it could backfire. The investor and Billy may clash over profit, design, and quality, or take advantage of Billy being ‘green’.  I’d suggest Billy take the reins of Dave’s current business model and focus on his project management and marketing skills; once he has a few successful jobs under his belt, then consider entering the flipping game.”
……………………………..
“Dave should maintain his main business as usual and staff himself with extra competent people in order to allow Billy to still oversee the day to day operations of the existing business, (maintain the bread and butter of their business), and be able to also manage the growth of expanding their business and utilize the opportunity to get financed to grow.”
…………………………….
“My recommendation to Dave is not to say a flat out ‘No’ to his son, but to temper his enthusiasm with a quality agreement that will protect his company…Billy must understand the need for both parties to be happy with any agreement at the beginning, when no money can be lost rather than the end when going through the courts may be the only option, and where you can kiss your profit (and more) good-bye.”
……………………………..
“Real estate speculation in Canada is tough unless you get something really under priced and do some fast cover up type work…. Offers that are too good to be true often are, and will lead to failure.”

Negotiate a better deal
“This is too one-sided in Morgan’s favour. The land and building purchase will be a fixed amount. The material and labour can be quite uncertain and difficult to agree upon. Best to have Morgan invest in the company by way of equity and issue common shares. Buy back the shares when the project sells or just reinvest in the next project.”
………………………….
“Dave and Billy should renegotiate with the wealthy businessman, asking him to finance the purchase of the properties and the carrying costs (supplies, contractors, etc. for these flips) until the properties sell.  They would be showing faith by having given their labor and trades management to the projects and not receiving wages for the work they have done until the properties sell and the profit splitting could still be based on their initial investment.”
………………………………
A whole new corporate structure
“The Ullmans should open a new company (Venture Capital Inc.) and loan the company the money for the budgeted renovations. The Ullman Renovation Company would do the work for a fee and get paid for doing it.  Once the house is sold and Venture Capital Inc. gets its share, it pays back the loan to the Ullmans. There are multiple tax benefits this way and all entities are protected!”

Go for it, Billy!
“If their work is appreciated and someone has this much interest, it is a no brainer…. Dave can shop
out a couple of employees to Billy to make the job go faster….Billy branching out will give him a lot of great business experience which he will need to run his dad’s business in 5 years.”

Thanks to everyone for taking the time to respond!

Stay tuned for our next Contractor Dilemma in early January!

follow John on Twitter @john_bleasby