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Developing an Operating Agreement & Profit Model

Lesson 5 from: Business 101: Start-up Considerations

Karen Okonkwo

Developing an Operating Agreement & Profit Model

Lesson 5 from: Business 101: Start-up Considerations

Karen Okonkwo

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Lesson Info

5. Developing an Operating Agreement & Profit Model

Lesson Info

Developing an Operating Agreement & Profit Model

So developing an operating agreement. I just want to preface and say that operating agreements are generally specific to LLCs. An LLC is what a lot of creatives that I know use, and so I'm using that kind of as a template here. I would just say that if you decide to create an LLC and you want to create an operating agreement, I would hire a lawyer. If you cannot afford to create an operating agreement with a lawyer, then there are businesses online like Rocket Lawyer that can really help you determine that. And so in the sheets that you guys have is a breakdown on a sample operating agreement that you can use to create a partnership with whoever you're working with. And you can even do it for yourself. I will say that you don't have to file this through any state or city officials. This is just personal between you and whoever you're working with. So the breakdown of that is, or the breakdown of what your operating agreement is taking care of is your equity structure. So how much is ea...

ch person, what percentage equity do they have into the business? Management, so determining what responsibilities that you guys have, your voting rights, limitation on liabilities, so indemnification, books and records, how you're keeping track of that, anti-dilution protections. So let's just say that somebody decides to leave the business. Well how does that still protect you and your equity in the business? Restrictions on transfer, confidentiality and restrictive covenants, liquidation and dissolution, if you guys decide to end things. And then just general provisions. Okay, so your profit model. So in a nutshell, this section is just all about how you plan on making money. How you plan to be a profitable business. Because too oftentimes we just kind of jump in to business and we're like oh, I'm just gonna start painting. Or oh, I'm just gonna start taking photos. And I'll just work with whatever price-point they want. And that's fine, but I found that when people do that they start to get resentful because it's like wow, I actually gave 50 hours toward editing these images. I should have charged more. And so you just want to take a step back and give yourself different scenarios. If I find that I get this sort of a job where I'm doing this sort of a work, this is how much I would like to pay. And I know that sometimes people get really fearful about price, but if you're doing a market demand and you're understanding what people are willing to pay, and you're at, you're surveying potential customers to see how much they're willing to pay, it really shouldn't be hard for you to understand what your profit model is going to be. So the breakdown here is understanding what is all considered when you're creating a profit model. So the first tier is what we call margins. So margins are the contribution that each product or service makes toward profitability once the cost of the product or service has been fulfilled. So it's basically what is the margin after you've considered all of the cost to make that particular product. And then volumes. You know, you capture the activity levels in the business, so it's basically the number of transactions that you plan to have over time with your business. Operating leverage, it's the measure of the combination of fixed costs and variable costs in a company cost structure. And then revenue capture. It's just all the ways that your business will be making money, otherwise known as your revenue driver. So for us it's subscriptions, it's enterprise deals, where we're going out and doing specific shoots. So merchandise. So it's very important for you to be clear on the revenue drivers.

Class Materials

Bonus Materials with Purchase

Startup Considerations Worksheet

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