Park owner offered me equity instead of cash for the season contract

I run grounds and small systems maintenance work, and a 90 site park about two hours from a national forest asked me to bid their whole season, April through October. Mowing, pedestal repairs, septic pumping coordination, bathhouse upkeep, the pool inspections. I priced it at 64k for the season, which is thin but real for me because my crew is already out that direction three days a week.

Owner came back and said he would rather give me 4 percent of the entity than write the check. He showed me a P&L: 780k gross last season, expense ratio he calls 47 percent, so call it 413k NOI on his numbers. 4 percent of that is around 16k a year if it holds, against 64k of cash I would be giving up now. He says the equity is worth more over ten years and he is probably right on paper.

What I cannot get comfortable with is that I would be a 4 percent holder with no control, no say on distributions, and my own payroll still going out weekly in a business where 70 percent of revenue lands in four months. There is a note on the property he has not shown me. He says he will.

I have until the end of the month. I keep going back and forth between countering at half cash half equity and just declining and keeping the crew on the residential route work.

2 replies

1renee_dubois Get yours

Wren is asking the right thing. On my small buildings the moment I took anything other than cash I learned that a minority piece with no distribution right is a promise, not income.

The part that jumps out at me is the 47 percent expense ratio. If he is currently doing the maintenance himself or paying a part timer badly, then your 64k is a new expense the P&L has never carried. Add 64k of cost to 413k of NOI and you are at 349k, and your 4 percent is worth 14k, not 16k. The equity he is offering is partly funded by the work you are donating to create it.

Also the undisclosed note matters more than the ratio. If there is debt service ahead of you, distributions in a soft shoulder season go to the lender first and you eat the payroll. I would want the loan documents before I priced any of this, and I would want an operating agreement in front of an attorney because minority holder rights vary by state.

Half cash half equity is a reasonable counter if the cash half covers your actual labor cost. Below that you are financing his park with your crew's wages.

Park owner offered me equity instead of cash for the season contract

2 replies