How to Calculate the Earnings for the Investor

When running a business, bringing in investors can help accelerate growth. However, it’s essential to 
understand how to calculate the earnings for each investor based on their share of the investment. 
Let’s walk through a practical example to see how this works.

Scenario Overview
Imagine you have a business with an initial capital of $200,000. Three investors come in to contribute 
to the business, as follows:
Investor #1 invests $70,000
Investor #2 invests $130,000
Investor #3 invests $45,000

In this example, we’ll calculate the ownership percentage for each investor and determine how much 
they will earn from the business's monthly profits. For this scenario, 
let’s assume the business earns $30,000 per month.

Step 1: Determine Total Capital After Investment
First, we need to figure out the total capital of the business after all the investments are made.
Total capital Computation: 200,000(Your capital) + 70,000(Investor#1) + 130,000(investor#2) 
+ 45,000(investor#3) = 445,000(Total Capital)
The total capital of the business is now $445,000 after the contributions from the three investors.

Step 2: Calculate Each Investor's Ownership Percentage
To determine each investor’s earnings, we need to calculate their ownership percentage based on 
their investment relative to the total capital.
Your Capital: Ownership Percentage: 200,000/445000 * 100 = 44.94%
Investor #1: Ownership Percentage: 70,000/445,000 * 100 = 15.73%
Investor #2: Ownership Percentage: 130,000/445,000 * 100 = 29.21%
Investor #3: Ownership Percentage: 45,000/445,000 * 100 = 10.11%

Step 3: Calculate Monthly Earnings for Each Investor
Now that we have the ownership percentages, we can calculate how much each investor will earn 
based on the business's monthly profit of $30,000.
Investor #1 Monthly Earnings: 30,000(profit) * 15.73(ownership) / 100 = 4,719(Investor Share) 
Investor #2 Monthly Earnings: 30,000(profit) * 29.21(ownership) / 100 = 8,763(Investor Share) 
Investor #2 Monthly Earnings: 30,000(profit) * 10.11(ownership) / 100 = 3,033(Investor Share) 

Note: The calculation in this example only considers the contribution of money as capital. We should 
not follow this exactly. You should discuss with your investor and make an agreement. If they can 
contribute something other than money, are they willing to work? How long will they work in your 
business? What skills do they have that can benefit your business?

If your investor's contribution is only money without working, their ownership percentage should be 
deducted or lower compared to an investor who is actively working in your company.

Last update on Sep 05, 2024

Tags: investor,invest