Hi all. I currently work for a small business (4 employees), and my boss is nearing retirement age.
Since I have been here the longest he offered it to me and I eould pay in installments.
I am leaning towards not buying it, but wanted a second opinion (or however many I get). I don’t know the first thing about evaluating a business deal and I doubt I could afford a contract lawyer. Also he has all these stipulations for selling (i.e. I told him if I did take over I would want to make everyone remote, he says he wouldn’t sell unless it was in the contract that the office stays open). Any thoughts/advice appreciated.
Get someone to help you. There are lots of methods for business valuations. I wouldn’t pay attention to them. What I would do is focus on cashflow, and how you would manage this business.
DO NOT PASS THIS OPPORTUNITY UP WITHOUT EVAULATING IT VERY CLOSELY. THIS LITERALLY COULD BE LIVING CHANGING FOR YOU.
IF this is a good business you might have a GOLD opportunity here. Because it’s not on the market and you aren’t competing with anyone for the sale, and you’ve got a seller(owner) who clearly wants to work with you and pass it on to someone he knows and who knows the business. The other side of the coin, you don’t want to buy into a ship if it’s sinking. It seems like based on how your talking that the owner has been somewhat successful in this business for some time, if that’s so you should really consider this.
Ask him to go over the numbers with you. You need to review a P&L, and you want to calculate what’s call the SDE which is “Seller Discretionary Earnings”. It’s more complicated but in the end no different the budgeting your own finances. All the money coming in, minus all the money going out for necessities, equals your disposable income.
Why do you want to make everyone remote? Are you afraid of owning real estate or do you not think the business supports the real estate it currently has? What kind of business is this. Is “the office” owned by the business? Does the business rent it from a 3rd party. Does the owner own the property in another holding co and simply want you to guarantee a long-term lease so that he has a long-term real estate investment that he can keep profiting off of? There is no wrong answer here. Just things you need to consider.
If the business has 1 million in sales, and each of the employees makes 100k, and there is 120k in rent (or mortgage payments) and let’s say another 200k in expenses. Thats 720k cost on 1 million. Putting you at 280k in your pocket. If you could just buy 280k a year, what’s that worth to you. Most companies have different multipliers of cashflow or other metrics that are fairly industry standard, which is how a lot of companies are valued, but personally I ignore that and focus on what it’s worth to me personally. What I would pay in order to have a 280k a year of cash. Would you pay your old boss 100k a year for 5 years in order to have that 180k of profit? Do you have ideas that could drive that 1 million a year to 1.5 million a year? Do you have any idea for modernizing systems to automate Backoffice and commodity tasks and activities.
Now on the other hand. If the bossman is only making 50k a year, or worse less. Your talking about a pretty basic salary for taking all this risk. So don’t do it, or not do it, purely based on feeling, or something silly like office, or no office. Focus on hard facts. If there is good cashflow, then yes buy it.