My Partner Can't Commit More Time to Our Site

So how do we divide revenue?

[tomthumb2000]

I began a website a year ago with a good friend who agreed to handle the techy stuff while i provided content. We arranged a verbal contract where we'd divide future profits 50-50.
To date I've done about 65% of the work and now my partner has very little time to commit and may need to pull out for a year or two.
Traffic is climbing and soon it will be worthwhile to begin with adsense and affiliate programs. So how do we divide future revenue given that he has put a lot of time and effort in already?
We're good friends and there's plenty of trust but we don;t know how to handle this in a way that's fair to us both. I thought oif of a system where we could log the hours we put in and work things out proportionately that way.
Anyone with any experience or ideas on this?

[solotraveler]

As an accountant, the first thing you need is something in writing. 50/50 is nice...but you've already stated you're doing 65% of the work. Are you two a 'formal' business? What I mean is, do you have a business license with both your names on it? If not, here's a suggestion (check with an accountant in your area, FAST!)...add up all the expenses you two have for 2005 (expenses-hosting, paperclips, software, seo fees, etc) and split it down the middle. Your friend takes half and you take half. Then get your business license, form an LLC or S-Corp or something, but get legal.

The worse business agreement is the one made by 'word of mouth'. You can't prove it in court and waiting until your business is earning money is the worse time to figure out who gets paid.

[walkman]

best way is to talk to him and offer a buyout. Be nice, just say it's better if one keeps the site, given the issues etc. If you take it to lawyers, forget about it: unless it's a huge company, the lawyers will eat most of it.

[tomthumb2000]

Yeah, i'm beginning to realise our naivete.
As it happens we have free hosting (another friends owns a server) and take care of our own seo so there's no costs as such.
My partner can also be incredibly useful in developing stuff like forums, wikifying sections of the site and setting up user profiles for blogs etc All of that is way out of my league. I'm not in a position to pay someone thousands to develop all of that.
I see the wisdom of putting things on paper but how do we determine how the revenue should be divided on the basis of time and work put into the site?

[vincevincevince]

You could both set an hourly fee for your services. Figure out what you think your time is worth an hour. Bill your time to the company and pay yourself based on that rate. Whatever is left in the company at the end of the year you can pay in dividends according to the share holding of each partner. That way you get paid what you have decided is a fair rate per hour, but you still retain joint ownership and overall profitability.

[ken_b]

>> 65% of the work <<

How are you determining this number?

You mention that your friend is good at setting up the technical stuff. Are you sure that is not 50% of the work, even if it only took half as much time?

[Frequent]

My suggestion would be to get together with your friend and decide mutually what the site is worth right now. Come to a realistic number that you both can agree upon. Do not factor future earnings into the equation because they may or may not appear. What would the site bring on the open market today if you were going to sell it.

Take that number and cut it in half. Offer to buy him out since he no longer has time for the site. Cut future profits out of the equation permanently. There may be no future profits. You are taking a risk by buying his half now, since it may in fact be worthless. He is taking a risk that the site may be worth more in the future.

The only option that can truly clear the slate is to dissolve the partnership completely and in writing. Liquidate the assets (the site) on the open market. If you want to buy it you can bid right along with everyone else with no special treatment. Whatever the site brings you split it.

If this site really has potential for big earnings get the lawyer now.

However you do it, get everything in writing.

Freq---

[walkman]

>> Are you sure that is not 50% of the work, even if it only took half as much time?

very good point. Time is not everything. A lawyer's hour is not the same as that of someone entering data. The same can be said for other things

[vincevincevince]

A lawyer's hour is not the same as that of someone entering data.

Although, do take care, as a lawyer entering data is worth the same as a junior secretary for an hour, if that's all he's doing.

[tomthumb2000]

Thanks everyone for the responses.
Vincevincevince i think i'll try your suggestion.
As for what time is worth it's way too difficult to quantify. My friend has years of tech study behind him but then my content writing comes from years of experience in my field.
I've been doing 65% of the work on the basis that in addition to supplying the content i've been doing the link campaign, adding outward links also and generally optimising.
Thing is. this is a long term project and though we have half a million words of original content online, we're in a very competitve field and it will need good stick features like a user community and forums and wikification of the site to guarantee good traffic. I guess i could pay someone to do all that but two heads seem better than one in big projects.
So i think it comes down to establishing how much of the workload each of us is doing. Maybe the logging of hours is the best way to do that.

[javahava]

i highly suggest a buyout. in short-time, you will likely feel resentment for paying a 50% tax of all future profits for your efforts (the split of future revenue to your former partner). i agree with coming up with a valuation for the business, but then offer a premium (an extra 10-15%), just to make him feel like he's getting a good deal out of selling (because most 50/50 founders would not sell for a 50% valuation - the option value it makes worth more to just keep the ownership - you need to pay for the option value). it'll hurt a bit more financially now, but much cleaner (legally and relationship-wise) down the road.

[joeduck]

Many good suggestions here. Another is to simply cut that project loose - or each contribute the same time - while you start another that only YOU own.