Hi, folks. New user here looking for a little advice. My father and I are meeting with a guy tomorrow who is interested in exiting his small business. It's a family-owned construction company that's been around for 20 years or so. The seller is a "serial entrepreneur" and wants to step away from this business to concentrate on several other small companies he runs.
I've read up on how to valuate a small business (0-3x discretionary earnings) and think I have a handle on that. What I don't have a clue about is how to structure the actual deal if we all decide to move forward. Based on prior discussions with the seller (we have history), we think he'd be open to some kind of royalty payment for some length of time, as opposed to a lump-sum payment up front.
If we went that route, would it be a percentage of sales? A percentage of something else? What kind of percentage? For how long - fixed term? Until an agreed amount is paid? Is there some other arrangement that would serve better (that doesn't involve an up-front payment; my dad is retiring, and I'm recently laid off)?
Thanks in advance for your input.
I've read up on how to valuate a small business (0-3x discretionary earnings) and think I have a handle on that. What I don't have a clue about is how to structure the actual deal if we all decide to move forward. Based on prior discussions with the seller (we have history), we think he'd be open to some kind of royalty payment for some length of time, as opposed to a lump-sum payment up front.
If we went that route, would it be a percentage of sales? A percentage of something else? What kind of percentage? For how long - fixed term? Until an agreed amount is paid? Is there some other arrangement that would serve better (that doesn't involve an up-front payment; my dad is retiring, and I'm recently laid off)?
Thanks in advance for your input.
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