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Math Question for Setting up a Business

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02-08-2016 , 06:19 PM

TUZbl

centurion

Join Date: Oct 2009 Posts: 137

So I came across an interesting math problem that I don't know how to solve and wondered if anyone could help.

The owner of a business is offering me an equity stake to increase sales. I'm starting with a 5% share with the ability to reach up to a 30% share being released in 5% increments as the company grows.

My question is how do I figure out at which points these increments should be so that we will both split the increased profit evenly up to the 30% cap?

Thanks!

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02-08-2016 , 06:27 PM

darksideofthewal

adept

Join Date: Aug 2007 Posts: 887

If you want to get half of the increase in profits, it should be trivial to figure out which 5% * X is closest to that. Am I missing something?

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02-08-2016 , 06:32 PM

whosnext

Carpal \'Tunnel

Join Date: Mar 2009 Posts: 6,733

I am not sure but I think he may be asking about compounded profit sharing (its the compounding that is tricky to work out).

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02-08-2016 , 07:00 PM

TUZbl

centurion

Join Date: Oct 2009 Posts: 137

Quote:

Originally Posted by whosnext

I am not sure but I think he may be asking about compounded profit sharing (its the compounding that is tricky to work out).

Correct that is what I'm asking about, but am not even erudite enough to know that was the terminology I should have used.

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02-08-2016 , 07:04 PM

Aaron W.

Carpal \'Tunnel

Join Date: Sep 2002 Posts: 30,132

If I'm understanding correctly, you're looking for:

[Increase in earnings] = [Half of the increase in profit]

[Amount of money earned at the next threshold] - [Amount of money earned at current threshold] = [Half of the increase in profit]

(Base % + 5%) * (Current + Growth) - (Base %) * (Current) = 1/2 * (Growth)

...

Growth = (5% * Current)/(45% - Base %)

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02-08-2016 , 07:37 PM

TUZbl

centurion

Join Date: Oct 2009 Posts: 137

Genius, thank you!

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02-08-2016 , 08:25 PM

Aaron W.

Carpal \'Tunnel

Join Date: Sep 2002 Posts: 30,132

Quote:

Originally Posted by TUZbl

Genius, thank you!

Not really. It's just algebra. But you're welcome.

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