Father/son Business Structure

[bmoser9]

Hello everyone. I’m looking for any knowledge or advise on how my dad and I should structure our business. He paid for all my schooling and paid me a salary while I was a trainee. He has been paying for all expenses and will continue to do so if I stay under his business (which I plan to do). He is currently a sole proprietor and I am his employee. I do still help him with his reports when I am not working on my own. I am receiving my own orders from lenders/clients that are not passed down from my dad.

Should we form a LLC? How do others split the fee between the supervisor/owner and licensed appraiser? We currently do 50/50 (because of the salary) but plan on switching to 75/25 or 80/20? Should I take 100% and split expenses? We are just having a hard time deciding on structure since its both new to us. Thanks!

 

[JTip]

Working for the family....oh boy.....

My FIL trained me, paid me $100 a report after I was certified ($50 as a trainee). I gave him 8 years.....he enjoyed 1/2 days and golf three times a week.

I'm on my own now making six digits, with hefty benefits, every other Friday off and a big ol' computer screen that will fit six windows. It's simply a business decision and I made the right call. He wasn't happy about losing his cash cow, but I had enough.

On the real estate side (sales/appraisals/brokerage), family doesn't mix IMO. Run.....................................................................

 

[bmoser9]

Working for the family....oh boy.....

My FIL trained me, paid me $100 a report after I was certified ($50 as a trainee). I gave him 8 years.....he enjoyed 1/2 days and golf three times a week.

I'm on my own now making six digits, with hefty benefits, every other Friday off and a big ol' computer screen that will fit six windows. It's simply a business decision and I made the right call. He wasn't happy about losing his cash cow, but I had enough.

On the real estate side (sales/appraisals/brokerage), family doesn't mix IMO. Run.....................................................................

Your FIL sounds like a real POS who took advantage of someone who was scared to speak up and demand a fair wage... My dad works 60-80 hours a week and pays me a nice salary for helping him grow while I gave him 50% of the cash I made on each of my own appraisals for the first 8 months of me being licensed. Since you know he helped get on all the lenders rotations in my area (taking business away from him). Now we want to know how to move forward to maximize profits for both of us.

Congrats on your 6 digits and 6 computer screens. All I need is two to be effective. Last thing I will do is run from the person who raised me and gave me a job.

I'm looking for serious/helpful/constructive replies.

 

[JTip]

Break out the HP-12c.

Figure out the office costs, MLS, E&O.....everything he pays for you. Divide by how many reports you do. You can extract a cost per report then determine what fee split is logical and then present it to him. It either makes sense to work for him or work for yourself.

I only have one screen, large enough for six windows.....but I usually run four....

 

[DTB]

I worked side by side with my Dad for 25+ years (not real estate specifically). I consider myself to be so fortunate to have spent that much time with my Dad while making a great living, I could not imagine anything better.

As far as pay, I got a better deal than would be available to non family. Because I was young w/family and needed the money. My Dad already made his bones and needed less from the business.

If I were in business with my son, I would do it the same way. Lean toward those coming up.

I was very lucky, not everyone can make family/business work.

Good luck.

 

[Michigan CG]

There are a lot of unanswered questions here. You are in Kansas. Kansas City, Wichita or Topeka where there are coolie cutter houses everywhere or in the middle of nowhere Kansas where houses on 20 acres are not uncommon?

You don't state if he is CR or CG. That makes a big difference. If he is CG and does a lot of commercial or farm work then you should be paying him a lot more than if he is CR.

If your dad has experience with complex properties, has databases set up for vacant land sales and can guide you through horse farms, large acreage properties, goofy properties and other odd situations then he gets to keep a piece of your pie for as long as he still works. Experience is something you cannot buy. How to handle the house on 40 acres with paddocks and a 20-stall horse barn is not something you can just figure out in a year. If he has maintained a lot of information about land values and trends and can teach you how to do that it is worth a lot of $$. If he does farms and can teach you about soil types and productivity of certain grains in Kansas that is worth a lot of $$.

On the other side is the AMC model of doing easy houses with little challenge. If that is the business model then after a certain point in time it might be reasonable to just pay your share of expenses while giving him a little piece of your pie as you owe it to him.

 

[timd354]

Should we form a LLC?

Spend the money to speak with a knowledgeable business/tax attorney who will be able to recommend the best and most tax advantageous legal structure for your business. Spending a bit of money now to structure the business correctly will more than pay for itself down the road.

 

[Dale Floyd]

How fortunate and blessed you are to be able to work in this career with your dad. I can think of no greater honor, as not everyone has that opportunity. Being able to handle the dual roles of family versus business isn't always easy either, but in most cases it can be accomplished by those who are willing to use a little sandpaper on the edges of their personalities a bit.

As far as payroll - I treat my son the exact same as I treat myself. Out of every assignment, there is a percentage that goes into the company to pay for everything business related and to keep it profitable. The rest belongs to the appraiser. There are scores of opinions about that split, but it depends on your firm's overhead expenses and desired future profitability calculations such as staff, office space, insurance, investments, etc. If it is the plan for the business to continue to provide benefits to aging partner(s), then that has to be part of the mix for profitability. How you handle subcontractor vs employee status depends on your company's business model.

Congrats to you and your dad. If there's anything I can do to help, just send me a message.

 

[ucbruin]

I worked side by side with my Dad for 25+ years (not real estate specifically). I consider myself to be so fortunate to have spent that much time with my Dad while making a great living, I could not imagine anything better.

As far as pay, I got a better deal than would be available to non family. Because I was young w/family and needed the money. My Dad already made his bones and needed less from the business.

If I were in business with my son, I would do it the same way. Lean toward those coming up.

I was very lucky, not everyone can make family/business work.

Good luck.

Glad to hear that your dad was a great guy...
It's good know that your dad taught his son how to be successful in more than just business....
Especially around Father's Day.....

 

[Howard Klahr]

I'm looking for serious/helpful/constructive replies.

On a public forum, one picks over whatever is there taking the good with the bad.

how my dad and I should structure our business.

Timd has already provided the most helpful advice on this issue. However, as a professional analyst you should be able to run the numbers of various scenarios yourself to understand the best business model for your specific circumstances. You may want to look at the business structure of law firms, accounting firms and other business service companies for ideas on various business structures.

Just keep in mind on how the structure might impact the ability to expand beyond just the two of you. Also no one wants to think about it, but also consider succession plans and how best to work that out in the event an unfortunate event occurs such as death, illness or even of some just wants out. If taken into account before the event it will have the least negative impact on continuing the business.

Best of luck