I am new to the forum - so I apologize that I am asking for help before I have provided any value. My initial look-around tells me this is a valuable forum, and I will provide as much help going forward as I am able!
I have been looking to buy a business in my local area for over a year. After five offers and two deals (both of which fell apart during due diligence), I have recently given in and taken a position with a local employer. Just as I did that, however, I was presented with the opportunity to buy a struggling business in the area. Since I committed to working for my new employer, I am not in a position to take on the day-to-day operations of this struggling business. I have a potential partner (call him Bill) who I trust and who has significant experience in running businesses, and he has proposed a deal.
This manufacturing business is struggling primarily due to a lack of capital (caused by gross under-pricing of the product). The current owner (call him Sam) has personally-guaranteed debts of about $250k, but is very good at design and production (when he can fund it) and would like to remain involved in some capacity for about five more years.
The rough outline of the deal would be that Bill and I partner to buy the business in the following manner. I fund the initial capital needs (about $150k), Bill provides no funds, but agrees to run the business (he will be working half days, as he is a business broker and has lots of other work going on), Sam stays on as the production manager and designer. Sam takes a nominal salary, but Bill and I take none. Bill's equity vests over three years, at which point he owns 50% of the business. We would decide together on issues such as salaries, distributions, etc. The business would pay down Sam's debts as it generates earnings (this is what Sam gets out of the deal). After the debts are paid, Sam simply gets his nominal salary.
The goal would be to sell the business in 3-5 years.
Does anyone have thoughts on this deal - is it equitable to everyone? Should there be some return on my capital built into the deal, or is the "sweat-equity" provided by Bill equivalent to the invested capital (all of which is at risk if the business can't generate the earnings we project)?
I appreciate any feedback!
I have been looking to buy a business in my local area for over a year. After five offers and two deals (both of which fell apart during due diligence), I have recently given in and taken a position with a local employer. Just as I did that, however, I was presented with the opportunity to buy a struggling business in the area. Since I committed to working for my new employer, I am not in a position to take on the day-to-day operations of this struggling business. I have a potential partner (call him Bill) who I trust and who has significant experience in running businesses, and he has proposed a deal.
This manufacturing business is struggling primarily due to a lack of capital (caused by gross under-pricing of the product). The current owner (call him Sam) has personally-guaranteed debts of about $250k, but is very good at design and production (when he can fund it) and would like to remain involved in some capacity for about five more years.
The rough outline of the deal would be that Bill and I partner to buy the business in the following manner. I fund the initial capital needs (about $150k), Bill provides no funds, but agrees to run the business (he will be working half days, as he is a business broker and has lots of other work going on), Sam stays on as the production manager and designer. Sam takes a nominal salary, but Bill and I take none. Bill's equity vests over three years, at which point he owns 50% of the business. We would decide together on issues such as salaries, distributions, etc. The business would pay down Sam's debts as it generates earnings (this is what Sam gets out of the deal). After the debts are paid, Sam simply gets his nominal salary.
The goal would be to sell the business in 3-5 years.
Does anyone have thoughts on this deal - is it equitable to everyone? Should there be some return on my capital built into the deal, or is the "sweat-equity" provided by Bill equivalent to the invested capital (all of which is at risk if the business can't generate the earnings we project)?
I appreciate any feedback!
Aucun commentaire:
Enregistrer un commentaire