First a little background. I've worked 12 years for a small business that custom fabricates and installs countertops and other laminate products. The owner is 59 and looking towards retirement. We have discussed the idea of me buying the business.
He is the second owner of the place and had owned it for 3 years before hiring me. When I started working for him (I brought 7 years of expereince with me), he had six fulltime, long term employees and 7 major wholesale accounts, plus a large retail base.
Over the years he has managed to lose all of his wholesale accounts except one. Every employee except me has quit over pay issues, so I've been the soul employee for the last year and a half. I've taken advantage of this situation and have gotten 2 pay increases by threatening to quit or start my own shop.
Very little money goes back into the shop. It is not unusual for him to be 90 to 120 days late in paying his suppliers. Most of his suppliers insist he pay cod, no check,no delivery. A huge amount of money goes to his kids who always have thier hands out.
When I've confronted him about making more money his response was. "Bill, when you start bringing in more than the $24,000-$26,000 a month that you are now then you can have a raise. I shook my head at that response,got pissed,crawled up his ass and got my raises.
Last week he gave me a rather simple buyout proposal. Most of it rubs me the wrong way and puts sour taste in my mouth over the whole thing. Here is what it says:
We have met with our accountant to establish a fair price for the purchase of CTB,inc. In order to determine the price of the corporation,we have averaged the net profit over the last 5 years with the assets and inventyory of the corporation. This amount figured to be:$220,000.
The terms of purchace will be 25% upon signing the purchase agreement and three equal payments due on Jan.15th over the next three years.
WORK AGREEMENT: Three years of continuous employment at an agreed salary or buyout of remaining time if three years of employment not completed. Work duties will be realigned over course of time.
Accounts payable and accounts recievable would be a stop- start on the date of purchase of corporation.
I already do most do most of work in the shop. Fabricating,installing,shop maitanance,sales,Pricing, strongarming payments out of deliquant customers. I refuse to do jobsite measuring, again a wage issue.
The shop itself isn't worth $220,000 by any stretch. The building is rented. In my opinion the equipment and current inventory is worth about $50,000 and that's a generous.
The company has a reputation of poor service among the local contractors. I would change the name of the business if I bought it.
Is this a lagit offer or Am I being suckered into providing my boss a nice little retirement egg?
For $200,000 I could start one hell of a shop on my own.
I'd be gratefull for any advice or opinions. Thanks!
If you are bringing in $25000+ / month in sales, I would take the $55,000 he wants as a down payment and start my own shop with the sales you are bringing to the table. (or are you producing $25,000 in product?)
If those customers are your contacts, will they follow you, or will they continue to do business with him?
No reason to buy him out at a premium. If his company was growing and healthy it might be a different situation.
If your heart is set on buying him out, make him a lowball offer. If he turns you down, start your own shop.
It is easier to buy an existing business, than start a new one, but you seem to be in a unique situation to be successful quickly.
According to my boss I'm personaly averaging $25,000 in fabricated product a month.
If I started my own shop I could easily take what few regular contractors he has away from him. I've developed friendships with all of them. I've smoothed over many a bad feeling between them and my boss. I could easily offer them a better price.
I've done this work for almost 20 years it's all I know. I do enjoy it most of the time.
1st question is can you run a business. I started with myself and now have 10. Good money but also a lot of headaches-taxes, payroll, accts rec., suppliers, customers, personnel, feds, etc. Not everyone can run a business. The vast majority go broke in a couple of years.
2nd, why buy a declining, overpriced business. If you can do it for $200,000 and get the customers, why pay $250,000?
3rd, are you sure the customers will go with you? Sometimes people are surprised about that.
4th, have you had your own paid advisor look at the terms
These are a start
I do not mean to anger you, I am only offering personal experience. If you have to ask your boss what the average fabricated product your putting out is, you don't know enough to manage a business much less run a business.
If you think you can steal the business, think again, there is a chance that you are being played so they can get what they want. If you can easily offer better pricing, see my first comment, you don't understand many factors that are involved in a business.
And just a personal observation regarding countertops, that laminate product is dwindling faster than brass lighting. Solid surface is everywhere I look in stick-built new home and remodeling construction. Or are you talking about Hud-Code homes??
Thank you all for your honest thoughts.
Pnut, I'm gratefull for sharing your experience. First It's not my intention to take business from anybody. My boss is planning on retiring. I have worked hard to keep his shop running, sometimes ignoring my own personal interest to do so. I'm 41, within 3 to 4 years I'm going to have to make some major decisions in my life. I've got to start thinking about my future.
When i confronted him about a pay increase, he tried to use my average monthly production as an excuse to not give me a raise. I didn't ask to know what it was.
I more or less run his shop now, there's not a aspect of his business, other than the finacial part, I'm not familiar with.
I'd appreciate if anybody else would share thier thoughts
BTW, Pnut welcome to AR15.com
"I more or less run his shop now, there's not a aspect of his business, other than the finacial part, I'm not familiar with. "
the financial part of a business is the hardest part. you need to do tons of reaserch and you will still make expensive mistakes. an IRS audit can give you a heart attack.
Sorry to hijack the thread
You sent me a Private Message, asking if I had gotten your email. I attempted to reply, but you have your Private Message settings set up so people can not send you Private Messages. I don't believe that I received your email.