purchase into existing company

[vun87]

Hey Everyone,

I need some advice or general guidance. I currently work for a small health care company. It's owned by 2 owners with 50/50 ownership. One of them is leaving had the other owner has offered me an opportunity to buy in. I don't think I can afford the asking price (%50) of the company. What are my options besides a massive lump sum loan? I really believe the company has a great chance to grow and mature into a profitable company.

1) Since I work there, does becoming a partner gurantee me some sort of salary?
2) Is it typical just to write a check for half the company and sign the agreements? or can it be phased in over 2 years (making monthly payments)

I've always wanted to build my own business but this opportunity came up and it's right in my ally.

What kind of questions do I need to ask before I make this agreement?
Is it even worth the risk to invest in a company?

apologies for my ignorance.

[Freelancier]

1) No. Having the cash flow to support it tends to guarantee a paycheck, but only if your partner agrees, since that partner has 50% interest.

2) Can go either way... you can buy in over time or you can buy in all at once, whatever structure you agree to with your new partner.

3) Ask to see the audited financials. If the financials have not been audited, call in an independent auditor to test the numbers put forth by the partner and the firm's accountant. Determine the way decisions will get made. A 50/50 structure is actually the worst structure, just because it's never clear who is really in charge. Better to either be a 49% owner and know the other person is in charge or you get 51% and know that you are in charge.

4) That's up to you whether the risk is worth the money. That's what the disclosure period helps you determine, whether the existing finances provides a clear path to a long-term cash stream that you can profit from.

[Twhansbury]

I agree with Freelancier and would add that you can structure your deal pretty much how ever you can imagine it, and the partners are ok with.
On a personal note and to be realistic you should also weight how it will effect your quality of life and family if you have one.
you don't want to go 10 year with out making any money so you can say you own a business. Having the view of what is best for you long term is key

[vun87]

Thank you for your input. I'm currently in my mid 20's and don't have a family but it's something that I plan on doing (getting married) before I'm 30. My personal thought is I take the financial risk now, and if it doesn't pan out (knock on wood), I can at least start over before I get married or when I'm married. I try to stay pretty grounded and not get sucked into the whole "owning a business is the best thing in the world". I think that I understand the hard work and sacrifice's that go into it.

Are there any major pitfalls that you did not expect when owning your own small business?

[Fulcrum]

Are there any major pitfalls that you did not expect when owning your own small business?

The demands on your time. You need to be able to budget your time correctly as it is the one thing you can never get back. I've found that I can only make tentative plans as emergencies can, and will, always crop up at the worst possible times. Also, I find these emergencies generally come in sets of three (I've come to calling it the "DBT Meets Murphy's Law" rule).

As for your purchase into the business, I bought mine privately and the vendor financed 60% of the purchase price (6% interest amortized over 5 years). If memory serves me correctly, 80-90% of all business sales, whole or in part, have some form of seller financing.

[gregcooper420]

1) Not entirely, it all depends on the business finances and what the partners agree. Some business owners like to reinvest there profit back into the business for a certain period of time. But this can go either way, so talk to your potential partners about this asap and come to an agreement.
2) Do not worry about what is typical, do what is best for you and your finances.

Joining an existing partnership can have some benefits, like having a business partner that is knowledgeable about the industry, there will already be a business model and operation in place so you won't have to worry about the headache that come with starting a business. Also before you purchase, you will want to go over all the businesses documents, especially finances with an attorney and accountant.