@Ozzy needs your wisdom on business stuff

The_Dude

To clear up the intellectual property rights issue you would include a "works for hire" and/or "assignment of invention" clause in the contract.  Works for hire normally cover copyright issues, assignment of invention clauses can cover patent, trademarks, etc.  You can find a boatload of material out there on the interwebs about these two clauses.

But it's on him to include them unless you are counting on keeping an ownership interest in the product.   If he doesn't add those clauses I'm not sure why you would volunteer them.  
If you do want to own any of the product of your labor, then you should spell it out clearly.

Tennee

@seriously I'm with you. I'm looking from the Oz Man's POV as to what I'd want.  That why I made the 'appropriate' comment.  It sounds to me he's doing far, far more than piecemeal work here; he's heavily invested in D&D (not the kind with wizards) and bringing this thing to life.  If I read too much into that, then it's not appropriate.   I'm not saying a full assignment of rights here, but a piece of the pie would be appropriate if he's in on ground floor and doing heavy lifting to bring it to market.

This is where his negotiating skill will come in to play.  If the owner balks at a % ownership of the product itself, go for a sales %.

HildaCorners

One thing not yet mentioned ... your proposal/contract needs to make clear:

- who is purchasing materials;
- if you are, you will add 10% to the purchase price to cover your overhead;
- if he is, and there is a delay for any reason, your work will not meet the agreed-upon schedule.

Yes, you charge overhead on purchases you make for the client. You have to spend time making the order, dealing with delivery, and you are effectively floating him a loan for the amount of the purchase. Did I say 10% above? 15% might be better. Though best is for the client to purchase materials, and save you the bother.

It's also very important to specify that any delay on the client's part, for any reason, in getting you materials or information will result in a delay in delivering the final product.  Surprisingly, some clients don't understand this.

In my web design contracts, I also add a ridiculous late payment penalty clause to every contract. To paraphrase, it says "I understand emergencies happen, and sometimes payments will be late. If you let me know, we can work something out. If you don't let me know, I charge <a lot, like 20% of the total project cost> per month for every month you are late. I've never had to ask for this, and I hope I never will."

seriously

Hilda, if I'm not mistaken, it's not legal to charge 20% per month.  I think the max is like 27.5% annualized.  Don't quote me, but I recall something along those lines.  Could be a state law too.

mrsozzy

Yes, could be usurious depending on the state. A late fee can be construed as interest.

ozzy

Wow..so much input

I've got to talk to this guy tonight.  At this point I think I need to stall him a little bit until I get my own demands, rates, %s etc.. straight so I can make a proper proposal instead of winging it.  It's not even BS, as there are many things to consider, as the collective you have pointed out re insurance, contract terms, rates, taxes, and so much more.

I think what I would prefer is $x/hour, customer provides all materials, Ozzyco gets $y per unit produced over the next Z years.  Customer owns the finished design in consideration of said agreement.  At this point I'm in no shape to be a part of anyone else's business - timewise, cashwise, brainwise, etcwise.

Even if this proof of concept/prototype works as we hope, there is still a lot of uphill work left to do before full production could commence.  The product is a type of modified electric bike, so there are a lot of regulations to meet, torture testing, and assorted headaches to deal with, the surface of which I have not even scratched yet.

If he doesn't like it..then I'll just be OI and focus on my other customer.  I am definitely not getting in a race to the bottom pricewise..no thanks.  I can go broke without getting tired (some machine shop guy told me this a long time ago lol)

oh @frillyfun I did get the Rich Dad/Poor Dad audiobook listened to today.  Very eye-opening    Thanks for the nudge/kick on that!

Tennee

Very good Oz.  Now, about our consulting fees....

HildaCorners

mrsozzy said:

Yes, could be usurious depending on the state. A late fee can be construed as interest.

Probably so ... but the issue has never come up, because everyone either pays on time or lets me know so we can work something out.

I'm using a standard contract I found on a web designer's site ... I should run it by an attorney at some point.

Angeline

HildaCorners said:

mrsozzy said:

Yes, could be usurious depending on the state. A late fee can be construed as interest.

Probably so ... but the issue has never come up, because everyone either pays on time or lets me know so we can work something out.

I'm using a standard contract I found on a web designer's site ... I should run it by an attorney at some point.

seriously

HildaCorners said:

mrsozzy said:

Yes, could be usurious depending on the state. A late fee can be construed as interest.

Probably so ... but the issue has never come up, because everyone either pays on time or lets me know so we can work something out.

I'm using a standard contract I found on a web designer's site ... I should run it by an attorney at some point.

All contracts should be run by an attorney IMO.  I'm smart, but I'm not sneaky!

seriously

@Chief_TC - scale of your transactions has a lot to do with it, as well as the complexity of the transactions.  If you get hosed on one repair, are you out of business?  I doubt it.  You probably require payment before someone drives away too.  But when dealing with credit, it's a big deal.  When the customer requires performance guarantees, it's a big deal.  I require them for key vendors and suppliers, as well as key customers.   I'm the captain of have ship and ain't nobody gonna sink it!

MrGrimm

3X sounds like a good number.  I'm in manufacturing doing estimating and most everything ends up fairly close to be 3X material at the end.  Of course I'm sure you don't have the same amount of overhead, but then if this is a side business that takes away from family time, you should be paid handsomely.

Crashaxe

seriously said:

@Chief_TC - scale of your transactions has a lot to do with it, as well as the complexity of the transactions.  If you get hosed on one repair, are you out of business?  I doubt it.  You probably require payment before someone drives away too.  But when dealing with credit, it's a big deal.  When the customer requires performance guarantees, it's a big deal.  I require them for key vendors and suppliers, as well as key customers.   I'm the captain of have ship and ain't nobody gonna sink it!

A lot of businesspeople don't think about offering terms from the proper perspective.

Whenever you offer any terms other than payment up front, unless you are selling on a cash up front basis, you are a business lender giving that customer an interest-free loan. You have all of the business risks a bank does but without the protections a bank does.

You bear all the risks of a loan going bad, but generally have none of the protections a bank does.

You usually don't get to review the customer's financials beforehand and on an ongoing basis. You also don't generally get to obtain collateral as a bank does.

A security interest in a tangible item you provide is a nice thing to have, but generally any asset you supply a customer is going to either be consumed in the course of activity or depreciate, and in the event that your security interest is valid, you can end up waiting months or years to get cash for that sale.

Even if you were to be collateralized, you are going to be in a secondary position to any existing institutional lenders or lessors.

Personal guarantees are helpful to have, but even with one, you are not guaranteed repayment if the business goes south, because owners generally will feed their business with their own assets during rough times betting that things will improve, way beyond when they should walk away.

Terms are often a necessary evil, but the biggest thing you CAN do is control the size of the risk. The next best thing is that you can somewhat mitigate things by being decisive if the customer is late on their terms by even a day. 

ozzy

So.. I used my brain, and doing so, remembered a former coworker who could be perfect for the fabrication of this prototype.  I just sent him a message to gauge his interest, with no detail as to pay or such, just to see if he was interested.

For what the project needs at this point, he would be near perfect.  Waiting for his reply...

Any thoughts on how I include him, assuming he wants in?  I'm thinking just contract hourly rate would be simplest?

Crashaxe

If you can deal with the conditions you need to have to hire him as an independent contractor, just issuing him a 1099 form would be a LOT better than hiring him as an employee and dealing with all of the headaches and the personal tax liabilities you face if you put him on a payroll and have to do federal and state withholding.

Here is a link to a checklist outlining what conditions need to exist in order to consider having someone work for you as an independent contractor:

https://www.legalzoom.com/articles/employee-vs-independent-contractor-differences-you-need-to-know

Crashaxe

Of course, you also have to weigh the fact that if an independent contractor gets injured on the job he can sue your company for medical costs and for negligence or other torts, and depending on the nature of his particular hypothetical claim, the owner of the property where the work is being performed, whereas if he is an employee and you are providing workers compensation, his right to sue is largely eliminated.

The need for adequate business liability insurance once again is illustrated. *Sigh......

Of course, you have to jump through hoops to get the workers compensation coverage and it costs you money.

On advice from my attorneys and as a requirement of my businesses' workers compensation carrier, I require proof of workers compensation coverage as well as liability coverage from any independent contractors I use at my business or on my own dime, which sometimes means I have to pay them more, depending on the sophistication of the contractor.

I also have a written independent contractor agreement for any individuals that are hired, as opposed to existing companies holding themselves forth as contractors (electricians, construction firms, plumbers, etc. The agreement helps protect against both liability and tax issues.

Everything cuts both ways, as I'm sure @mrsozzy has mentioned to you in passing once or twice. One of the advantages of sleeping with an attorney is she will probably provide you with free legal analysis of the risks vs. benefits if you sweet talk her. LOL

ozzy

Well..Ozzy thinks he is going to have to pass on this project.  

Not enough time available to do it right, and I don't want to half-ass it.  It's going to need a lot more time than I can allocate myself for and maintain both my marriage and sanity.  

I'm going to finish up the first part of the project that we agreed to, and then I'll be on my way.   Sort of a bummer, but less of a bummer than doing it poorly.

Geekengineer

Sorry I sort of TL:DRd this thread, but @Ozzy, are you a licensed PE?  Does the project in any way, shape, or form require licensed and bonded engineer signature(s)?

Always be aware that there are always lawyers out there who are always out to get you.  Always.  Never, ever assume anything you design WON'T be turned against you, no matter how benign the intended function of the design is.

Plus, figuring out the whole "how much should I get paid?" question for independent work makes me not want to do independent work in the first place.  It's a real fine line between charging too little and being gotten too cheaply, and charging too much and being passed over for a cheaper alternative (even though you're the obvious best choice).

It looks like you've also learned that it's sometimes okay to pass on an opportunity.  Saying "No" to a project sounds kind of weird/wrong sometimes, but sometimes it's the right thing to say.

[Disclaimer:  for my first job out of college I worked for a mobile hydraulic equipment company.  At one point I was an inside sales rep, and a particular job came through.  Hot line insulator washer truck for LADWP.  Our proposed truck was a new design, and none had been built yet, but my outside sales guy basically forced me to quote the damned thing even though we had zero true cost information.  Long story short, I got the ZIP code wrong on the FedEx package.  Our bid didn't make it in time.  The winner of the bid couldn't meet the specs, and our design would actually have cost 1.75x what my outside sales guy told me to list as the sales price.  Our COST to build it was 1.75x THE SELLING PRICE.  So, I saved my company hundreds of thousands of dollars by effing up a ZIP code.  My immediate boss (a true asshole) was pissed at me, but the VP was quite pleased with my error.  He said he didn't have a good feeling about the whole project anyway.]

ozzy

I'm not a PE.  No point in the type of work I've done.  I'm just an overly diversified ME.

Too much potential downside and not enough upside for me to get overly interested in the project.  This is a first for me, to say no.  Maybe I'm learning....

ozzy

zombie thread ressurection Please analyze my current business model: The machine sells for $2100 each It requires $1550 in purchased components, So with each sale, I would net about $550 before taxes, paying myself, overhead (which now that I am re-located in my garage , is nearly nonexistent) etc I buy the components and assemble them, run a few tests, tweaks, etc to make sure it works right, then I deliver them to customer and verify the tests at his location to his satisfaction. Typically we do 3 or 5 at a time. Customer used to pay in advance, but has stopped doing that. They do pay immediately upon delivery though, and I have never had an issue collecting. I have a full time job, so this is just a side gig, I don't plan to expand it any further. Question - is this a reasonable model? The outlay is something of a problem, given my issues with credit in the past. I have nearly no operating cash, as it was spent on overhead in my previously rented location, so this is a large issue at the moment. I figured moving from the rented space would make it worthwhile. but I'm not so sure. Ideally I would find a different side gig to pull in an extra 1000-1500/mo that did not require all the expenses, but part time engineering work is not so easy to find. If I just got a crap job I'd have to work around 100 hours a month to make that much. Please help the uncertain @Ozzy decide if I should bail out of this project, hang on, or third option _____ Thanks.