I currently work for a small company. By “small”, I mean 3 full time employees. I started here about 12 years ago & have pretty much moved up the ladder as far as it can go without actually owning the place. Conveniently, the owner has mentioned to me that he would like to retire & hand the reigns over to me. We’ve discussed this idea in the past, and now it looks like we will attempt to make it happen. On Wed, January 26th, I have a meeting scheduled with my boss which is designed for me to ask any questions regarding taking over.
I know a lot about the business part of the business, but I don’t know much about buying a business.
A few facts about our situation…
My boss runs the business out of his home. It’s a separate-entrance office, but it’s still under his roof. Part of his retirement plan involves moving out of the home (traveling the world & such) and possibly selling it or renting it to me (to live/work out of.)
The business is technically a corporation, with my boss & I being the only shareholders.
We are discussing a process of phasing out my boss, and phasing me in that should begin later this year & be completed within 1-2 years after that.
I have very little along the lines of assets and have little to offer as far as purchasing the place. Unless he flat out says, “It’s all yours,” I’d have to look into a small business loan (or a generous benefactor) for capital.
My boss, while he lives a good life & makes a good living, isn’t wealthy.
My boss and I have a very good relationship, almost like family.
So, What questions should I ask? I have a few in mind, but I’d like to get advice from as many sources as possible. I know there are tons of details I’m leaving out of the OP, If you have any questions for me, I’ll do my best to answer them.
I would ask what his expectations are regards taking capital back out of the corporation. You could “buy” the business by paying him dividends instead of just paying cash. In other words you could fund his retirement, to some extent, over a period of time, instead of just a lump sum up front. But that depends on what he wants.
You need a lawyer and an accountant that understand small business sales and valuations.
I’d also ask myself, “Do I want to be in this for the long run?” If not, then how feasible would it be to resell the business in the future.
I’d also look at prospects for growth of the business or expanding in new directions. This depends a lot on the type of the business, of course, so if you could at least give a few hints in that direction.
I’m in a similar position right now. I’m trying to raise capital to launch a firm. Boo ya!
Here’s some basic questions for you to ask.
What is the annual revenue of the firm?
Of that, what percentage is profit?
What’s the debt-load of the company? How is that debt financed?
If he stays on what sort of salary will he want?
How long will he want to hang around?
What will the impact be of your taking over on the other employees?
Ask yourself if there’s room for the firm to grow with new initiatives on your part? Is your current boss missing out on market opportunities that you could exploit to make swift gains?
Here’s a couple of questions you should ask yourself.
Has the underlining situation of the business changed recently or is likely to once you take over. For example, are the existing clients or customers attached personally to your boss and possibly leave once he does?
Try to judge what your relationship with your boss may be after you take over.
Will he keep his finger in the pie too much or too little.
Since you stated you don’t have much in assets, he may have to finance you.
Thanks for the responses so far! I love this place.
ShibbOleth, the idea of funding his retirement is something to explore. I think he would arrange it so I could pay him off in dividends in lieu of an up-front buy out. How much would he want? I don’t know (that’s a question for our meeting.) I do love my job & would have no problem being in it for the long haul. I am in the very first stage of actually talking about this, so I’m not ready for a lawyer, but I won’t do anything official without one. I have asked my accountant for some advice.
The type of business (I can’t believe I didn’t mention it) is a photography studio. I work primarily with sports & youth leagues. I see a lot of potential for growth in the future, and if I ever decided to give up on it, there are franchises out there that I could ‘sell out’ to.
Jonathan Chance, congrats on your venture as well. Your questions are great. I guess questions for myself are applicable too. Keep em’ coming.
aahala, The only recent change is his desire to move on. Our client base is as familiar with me as they are with him, and I’d be shocked if we lost a client on that basis. Since it would be a phasing-out situation, I’d think that my boss would do his part in making it a smooth one with our clients. As for his fingers, I think the final goal is for a clean break…but that may not be attainable for a few years.
