New business model help!

Hey everyone! I'm a bit stumped. My newly formed company consisted of 2 people with 50/50 ownership. We paid each other equal salaries but our positions were quite different. I'm the photographer and my business partner is the designer. We've learned a ton and fortunately, we kept our heads above water without too many issues!

As time passed, I added on another photographer under contract and I pay her half for portraits and $75 per hour during weddings. We both shoot together now as well.

Here's the issue! The photography side doesn't bring in large lump-sum invoices like the design side does and it doesn't make sense to split everything in the middle now that we have 3 people involved. I was wondering if it was a good idea to have everyone work under the brand and get paid commission. Say, we have a minimum salary and take in a percentage of the work we bring in. This would make the company scalable.

I'm just trying to wrap my head around creating a new business model that is fair for 3 individuals. We all work equally hard and deserve fair pay under a 3 person partnership but I'm having trouble figuring it out...

I suppose we could put 20-30% of each paid invoice into the company and pay ourselves accordingly. (ei., $450 paid invoice. $90-$135 of that goes into the company and $360-$315 is split between the other photographer and I since we both shoot together.) The commission is lower but because we put money into the bank, our minimum income should be covered. (Say we pay ourselves a minimum of $500-$800 per month)

The company's overhead will be a lot lower and our commission is left open-ended. I'm just tossing numbers around and I'll have to reassess our cost of doing business but if you guys have any advice, that would be awesome!

EOSBoy wrote in post #13501393
I suppose we could put 20-30% of each paid invoice into the company and pay ourselves accordingly.

That's exactly what me and my business partner do. We pay out 40% to the company, and the remaining 60% gets split between all those involved in the project.

The 40% goes to overhead and savings. But also, at the end of every month, we have a quick meeting to look at our finances and give ourselves bonuses out of the company funds, if appropriate. Hopefully someday those "bonuses" will become our regular salary, but we're not quite there yet.

This is a tough issue - it took us a while to settle on this scheme (as against the 50/50 split) so I appreciate how sticky of a subject this can be.

joe

Suffice it to say - this should all be addressed VERY CLEARLY in your operating agreement.

charro callado wrote in post #13501450
That's exactly what me and my business partner do. We pay out 40% to the company, and the remaining 60% gets split between all those involved in the project.

The 40% goes to overhead and savings. But also, at the end of every month, we have a quick meeting to look at our finances and give ourselves bonuses out of the company funds, if appropriate. Hopefully someday those "bonuses" will become our regular salary, but we're not quite there yet.

This is a tough issue - it took us a while to settle on this scheme (as against the 50/50 split) so I appreciate how sticky of a subject this can be.

joe

Wow, good stuff. It's reassuring knowing that this model is practiced. I was just a little weary since I'm having to do this on my own. A higher percentage taken out sounds like a better idea. If I did 20-30% we'd have to take in 7-11 shoots per month which can be quite the effort if we don't take in weddings for the month. Thanks a lot for your reply!

charro callado wrote in post #13501456
Suffice it to say - this should all be addressed VERY CLEARLY in your operating agreement.

Totally agree! We have an attorney on hand who's waiting for a solid plan before taking our money...

EOSBoy wrote in post #13501465
Wow, good stuff. It's reassuring knowing that this model is practiced. I was just a little weary since I'm having to do this on my own. A higher percentage taken out sounds like a better idea. If I did 20-30% we'd have to take in 7-11 shoots per month which can be quite the effort if we don't take in weddings for the month. Thanks a lot for your reply!

No problem. The only thing I will add is that we break the 60% further into production and post-production. So if, for example, I shoot an 8 hour wedding with my partner acting as my assistant (he does video, not photo), and then I spend another 16 hours on editing, album design, etc - we divide it up accordingly. My time invested in the project is 3 times his, so I take 45% and he takes 15%.

But, we cap the hours on post-production so I can't spend 500 hours on editing and claim 59.9%. I'm welcome to put in more time - and I often do - but he's not penalized for it. The cap is on a project-by-project basis.

So yeah it's complicated but once you settle on a system you get used to it quickly.

charro callado wrote in post #13501502
No problem. The only thing I will add is that we break the 60% further into production and post-production. So if, for example, I shoot an 8 hour wedding with my partner acting as my assistant (he does video, not photo), and then I spend another 16 hours on editing, album design, etc - we divide it up accordingly. My time invested in the project is 3 times his, so I take 45% and he takes 15%.

But, we cap the hours on post-production so I can't spend 500 hours on editing and claim 59.9%. I'm welcome to put in more time - and I often do - but he's not penalized for it. The cap is on a project-by-project basis.

So yeah it's complicated but once you settle on a system you get used to it quickly.

Thanks for the info, man. You've been super helpful! That makes sense...

I spoke to my partner today as well as another successful business person and we're aiming to keep our structure as vertical as possible.

What we came up with is to work under the brand but branch out under separate LLCs using separate bank accounts to prevent any money confusion. I like the idea of having a minimum pay as well as a 40% company intake and the 60% will be split accordingly between the other photographer and I.

For the design side, he won't be using a minimum since his invoices are a lot larger. Instead, he'll give the company 40% to use as a budget for outsourcing work. The 60% will be used to cover overhead and payroll.

I'm going to speak to our CPA to see how well this will fly and I'll post the results here. If anything, hopefully this thread will help out those who are in a similar pickle!

I have a question for ya, Joe!

When you guys pay each other, are you on a set payroll schedule or do you pay yourselves based off when the project is completed?

We're still pretty new (i.e., still making large capital expenditures) so our payroll schedule is pretty sporadic.

charro callado wrote in post #13518606
We're still pretty new (i.e., still making large capital expenditures) so our payroll schedule is pretty sporadic.

I see. It's definitely tough setting a payout schedule since bookings can be so flip floppy. I have a consultation meeting today and I'll make sure to forward any relevant info!

EOSBoy wrote in post #13518620
I see. It's definitely tough setting a payout schedule since bookings can be so flip floppy.

Not only that, but it basically comes down to, "Hm, well, we can pay ourselves this week, or we can upgrade our studio lighting, which will make our lives a lot easier and our work better."

This is a great thread. I've decided to work for myself and it looks like I have a lot to learn.

tripl3distill3d wrote in post #13546896
This is a great thread. I've decided to work for myself and it looks like I have a lot to learn.

Good stuff! If you work hard, it's so totally worth it.