So you want to invest in a Fly Shop

[Mark Schafer]

Well, maybe you don’t but here’s my issue 2 people in last few months have asked if I was looking for an investor, not partner. I said I’d think about it but didn’t have any immediate plans.
Both guys are more or less retired, and my guess looking for something to do, thing is I have no overhead and a very small space all the utilities etc are paid for by my real job already except some additional ins.
Before I get long winded my question is if you were interesed in making a cash investment in a small operation what kind of repayment and/or perks would you expect.

[Zach Matthews]

“Invest” is a weird term when it comes to fly shops.

Here’s my philosophy on business. It’s kinda pinko but also kinda pragmatic. I think businesses are awesome when they exist to provide their owners and their workers with a solid livelihood. I think they go off the rails when they are expected to not only pay their owners and workers, but also investors who contribute nothing more than capital, ESPECIALLY when those investors expect their investment to grow year-on-year instead of being satisfied with buying essentially an annuity payout in a company with stable profits.

Owners only have to finance the overhead, the employees’ salaries, and their own profits. When the owner takes on investors, those investors expect dividends, and suddenly there is a fourth piece of the pie being cut each time. Unless the investment is enough–and the risk safe enough–that the owner can use the investment to bake a lot bigger pie, at the end of the day the owner is likely to be taking home less pie for himself.

Zach

[Mark Schafer]

That’s the basic “how things work” business school model, but real life is something totally different.
The “investors” know my situation, and I’ve consulted them on other things.
Let’s say the amount is $5000- 10000 and that would go for inventory that I don’t or can’t carry because of buy in’s, minimums etc. so I know exactly how much money it produced and I could split it between the business and the investor, the wildcard is that that inventory raises the stature of the overall business potentially driving increased sales acrossed the board.
So would you be happy with some % of the profit from the sale of the items and keep rolling the initial invest over for a determined length of time, along with maybe key employee purchasing? Additionally having some place to escape to so as not to be under foot at home.

[Zach Matthews]

Mark I see what you’re saying and if you could sandbox it like that it’d probably be worthwhile. But I would want some pretty big firewalls around the sandbox. (Say share of online retail or share of fly tying department or something like that). Because you’re right, at some point that initial investment helps generate some synergy or whatnot and then the question becomes, was it an investment or a partnership? Stuff like that can go sour. But it does sound like a good opportunity for you.

Have you thought about running this by other fly shop owners? I’m pretty sure Andy Bowen at Cohutta Outfitters had a similar arrangement with his partner Charlie for a while. Both great guys and Andy might be able to describe some pitfalls you can’t know about yet.

Zach

[Aaron Christensen]

You open yourself up to a range of potential challenges when other people gain an equity interest in your business. Tread carefully. Plus, the transaction costs of putting the agreements together so everyone is protected and there is less chance of future conflict would likely offset any benefit from access to an investment, at least in the dollar range you mentioned.

[Mark Schafer]

Zach,
That’s kind of why I brought the question here thinking some current or former owners might be around.

I still do business with a handshake, but I see where there could be a variety of pitfalls, and it’s impossible to explain personal relationships, yes I know famous last words. Putting all the CYA things aside.

Realistically a $10000 investment given normal markups and minus a cut for the house should return $2500 in profit and if things should go completely sour I hand over the unsold inventory or buy it outright.

[Aaron Christensen]

So the short answer of what an investor should look for is a clearly defined exit strategy and the triggers for when either party can compel an exit. A clear understanding of respective roles and financial participation (who gets what, and when) is also important.

[Author]

Posts