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Need business advice on developing new revenue streams for an already successful company. How can I protect my interests?

• Overiew I have always been self-employed and managed to make my own way through life by developing my own products and doing freelance software development when I need to make some easy and sure-fire money. I recently completed one such project, which led to me being asked to help develop some web-software which will completely diversify what it is that this company X will provide to the market. There role will dramatically change upon completion and they will have about 5 new revenue streams as a result. I am not interested in profit and revenue from their already successful operations, but just to contextualise things, lets say that they turned over somewhere in the region of $10M last year, which I know to be fairly accurate. Because they already have a wealth of information and data available, we have been able to sit down and do some fairly accurate forecasts for the markets which we will move into. This diversification will be done on the back of the software which I will development, enabling them to occupy the upstream and downstream markets, and then create some new markets which as we see it don't yet exist. I can easily see these new revenue streams completely overshadowing the $10M made last year, and I am concerned about where I would stand if hypothetically the owner receives a massive offer to purchase the company and wants to sell. We have agreed on a equal 50/50 split of the profit from these new sources of revenue. But I have concerns about how I can protect myself. I cannot bring any capital to these new products; ...but I am going to be working for what can be considered as practically free. I will invoice monthly for a very small amount just to stay alive. As I see it (I need to confirm with the owner), the company I will be developing the software for will not be investing in the marketing of the new products but will be reinvesting anything the products make in order to help see the revenues grow. I am fine with this, and I want to align the business' interests the same with mine. How can I do this if it is possible that everything the new products make will just be reinvested back into the company. Because as I understand things, once it is reinvested, I have no interest in that reinvestment. For example: I have 50% interest in profits made. We turnover $2M with $1M costs. This would mean that there is $1M gross profit, so at this stage I am entitled to $500k. The owner however reinvests 800k into helping me develop new product ranges and marketing expenses. I am happy for this to happy, but the second this happens, my interests have not just been diluted, they have actually dissapeared because I now have no entitlement to that reinvestment even though it is strengthening the company. First Question =========== What should I do? And what can I do? I am extremely naive when it comes to knowing what my options even are. Having being self-employed **all** my life, I have never worked as an employee for anyone. Assume I understand nothing. The company is owned by one person (if this is at all relevant or helpful). Second question ============ How can I protect myself when the owner decides to sell. I know that this is an extreme possibility and I think that the owner might jump on such an offer if the price is right. I want to make sure that I am alligning myself with the companies core interests, but I don't want to find out a year from now that I have screwed myself over because how could any potential purchaser of the business honour this 50% profits agreement, (which I feel is already flimsy - since reinvestment of any revenue dilutes my return). I apologise for the extremely long question, but I didn't want to leave anything out.

• Answer:

  It sounds like you have a strong and positive relationship with the owner.  If this is the case, you need to figure out some other kind of relationship besides 50/50 minus costs/spending. You want something as percentage of net sales on the product, with a definitive statement of what "net" entails. It's better to have a locked in smaller percentage that's unarguable, particularly if there's a board over the decision maker, and/or there's a possibility of sale. If you don't have that kind of relationship, stop working on it for him, until you get something down on paper. Meanwhile figure out what of it is yours, what you can lay claim to, and what you can add it that is new.  Also, figure out the competitive landscape and have a plan to start shopping if you can't reach a deal. Final note, 50/50 of profits, in reality means you earning sub-10% on net sales, so don't be greedy, that's a huge bit of a company's profit stream.