Buying a job?

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Discussion

RobinOakapple

Original Poster:

2,802 posts

111 months

Tuesday 26th May 2015
quotequote all
A guy I know has a nice little business but it's getting too much for him on his own. He needs to take someone on but doesn't want an employee. So he's offered half the business to me, with a view to my taking it over eventually (he's getting on a bit).

So on the one hand it amounts to buying a half share in the business, but another valid way of looking at it is that I am buying a job, because I would still have to work in it, although something would have to go badly wrong for me to not be quite a bit better off if I take him up on it.

I know his business well and have done bits of work for him from time to time.

Interested to get other people's thoughts on this. My wife isn't keen but it looks like a good opportunity to me.

jesta1865

3,448 posts

208 months

Tuesday 26th May 2015
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i'd go for it, buying into a successful business is much easier than building from scratch.

i love being self employed.

Liszt

4,329 posts

269 months

Tuesday 26th May 2015
quotequote all
It's not just a job, it's buying a stake of a business.

Do your due dilligence.
What are the accounts like?
Is there a business plan?
How would it work between you and the current owner? How would responsibilities be divided up?
What could go wrong, what are the liabilities?
Could trade fall? How? What are the consequences?

Do your sums, think about all the scenarios and think twice.

Nothing wrong with doing it but go in eyes open.

boxst

3,699 posts

144 months

Tuesday 26th May 2015
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As long as you do your due diligence to make sure you know financially what you are walking into and the contract is drawn up properly, looks like a good opportunity to me.

ex1

2,727 posts

235 months

Tuesday 26th May 2015
quotequote all
Gets someone who knows what they are doing to take a proper look at some up to date accounts. 50% of a business = 50% of any liabilities too.

Davel

8,982 posts

257 months

Tuesday 26th May 2015
quotequote all
Liszt said:
It's not just a job, it's buying a stake of a business.

Do your due dilligence.
What are the accounts like?
Is there a business plan?
How would it work between you and the current owner? How would responsibilities be divided up?
What could go wrong, what are the liabilities?
Could trade fall? How? What are the consequences?

Do your sums, think about all the scenarios and think twice.

Nothing wrong with doing it but go in eyes open.
This!

And are there any claims / liabilities in the pipeline for anything that you don't know about?


Edited by Davel on Tuesday 26th May 14:25

Jasandjules

69,825 posts

228 months

Tuesday 26th May 2015
quotequote all
You will need to draw up a contract frankly setting out a large number of things including what happens when he retires - does he retain 50% of the profits etc..

RobinOakapple

Original Poster:

2,802 posts

111 months

Tuesday 26th May 2015
quotequote all
I'll look into it, but I'm pretty sure there aren't any hidden liabilities.

As for what happens when he retires, the current offer is half the business (including a half share in the machinery), and I match the hours he puts in (about 50hrs a week at the moment). When he retires then I buy him out at whatever the business is valued at at the time (which could be quite a bit working on the reasonable assumption that I can pretty much double the current output, and the money I'm putting in will be invested in the business). Otherwise he is free to sell his half to someone else.

None of this has been put into a contract yet, as we are still discussing the ins and outs of it all, before approaching a lawyer to sort it out properly.

Hoofy

76,253 posts

281 months

Tuesday 26th May 2015
quotequote all
Liszt said:
It's not just a job, it's buying a stake of a business.

Do your due dilligence.
What are the accounts like?
Is there a business plan?
How would it work between you and the current owner? How would responsibilities be divided up?
What could go wrong, what are the liabilities?
Could trade fall? How? What are the consequences?

Do your sums, think about all the scenarios and think twice.

Nothing wrong with doing it but go in eyes open.
Agreed. That is a good liszt. Sorry.

If the business really is doing well then buying into it and having to work for the business isn't an issue.

StuTheGrouch

5,714 posts

161 months

Tuesday 26th May 2015
quotequote all
RobinOakapple said:
I'll look into it, but I'm pretty sure there aren't any hidden liabilities.

As for what happens when he retires, the current offer is half the business (including a half share in the machinery), and I match the hours he puts in (about 50hrs a week at the moment). When he retires then I buy him out at whatever the business is valued at at the time (which could be quite a bit working on the reasonable assumption that I can pretty much double the current output, and the money I'm putting in will be invested in the business). Otherwise he is free to sell his half to someone else.

None of this has been put into a contract yet, as we are still discussing the ins and outs of it all, before approaching a lawyer to sort it out properly.
Something about this doesn't seem fair to me. You add the value but then pay that to him for the other half?

Perhaps I'm looking at it all wrong. I suppose your half will also increase in value too, so swings and roundabouts.

Bodo

12,368 posts

265 months

Tuesday 26th May 2015
quotequote all
You should see two entities: working in the business, and owning shares of it.

For working, all active shareholders should get a salary. That way, everyone can adjust the amount of work they put in and will be compensated fairly.
For owning shares, you can payout a dividend for each share owned - or invest all or part of the companys earnings into the company. Come time one shareowner wants to sell, you can calculate the companys value/ offer on the market / etc.

If you'd need to invest more than 100k, do not only get a lawyer to help with the contract, but also consultant who can show ways of getting a sustainable model for sharing the company!

Monkeylegend

26,226 posts

230 months

Tuesday 26th May 2015
quotequote all
Never go into business with friends or family.

photosnob

1,339 posts

117 months

Tuesday 26th May 2015
quotequote all
Monkeylegend said:
Never go into business with friends or family.
Worked out okay for steve jobs.

And Richard Branson!

otherman

2,190 posts

164 months

Tuesday 26th May 2015
quotequote all
StuTheGrouch said:
RobinOakapple said:
When he retires then I buy him out at whatever the business is valued at at the time (which could be quite a bit working on the reasonable assumption that I can pretty much double the current output, and the money I'm putting in will be invested in the business)[/b]
Something about this doesn't seem fair to me. You add the value but then pay that to him for the other half?
I agree. You seem to be buying it twice. Would you be better buying it outright now, agreeing to keep him on as an employee?

mikees

2,745 posts

171 months

Tuesday 26th May 2015
quotequote all
With regard to him selling his 50% you need a clause that is referred to as "drag along tag along" ( or something like that) that means you get first option and if you turn it down you can insist the buyer buys your half as well to protect your investment

As said get a lawyer before you do anything.

Du1point8

21,604 posts

191 months

Tuesday 26th May 2015
quotequote all
otherman said:
StuTheGrouch said:
RobinOakapple said:
When he retires then I buy him out at whatever the business is valued at at the time (which could be quite a bit working on the reasonable assumption that I can pretty much double the current output, and the money I'm putting in will be invested in the business)[/b]
Something about this doesn't seem fair to me. You add the value but then pay that to him for the other half?
I agree. You seem to be buying it twice. Would you be better buying it outright now, agreeing to keep him on as an employee?
This because at the moment, if your share is say £150k to buy 50% of the business (worth £300k) and you double it up to £600k, then you now need to find another £300k to buy him out due to your hard work.

He can probably see that and is onto a money winner with the way its set up now.

RobinOakapple

Original Poster:

2,802 posts

111 months

Wednesday 27th May 2015
quotequote all
Du1point8 said:
otherman said:
StuTheGrouch said:
RobinOakapple said:
When he retires then I buy him out at whatever the business is valued at at the time (which could be quite a bit working on the reasonable assumption that I can pretty much double the current output, and the money I'm putting in will be invested in the business)[/b]
Something about this doesn't seem fair to me. You add the value but then pay that to him for the other half?
I agree. You seem to be buying it twice. Would you be better buying it outright now, agreeing to keep him on as an employee?
This because at the moment, if your share is say £150k to buy 50% of the business (worth £300k) and you double it up to £600k, then you now need to find another £300k to buy him out due to your hard work.

He can probably see that and is onto a money winner with the way its set up now.
I believe I see what is being got at here, but I can't see what other system I could suggest that would be fair to both parties. Firstly, it will be his hard work too, and it's one of those businesses where there is always the opportunity to re-invest some of the profits in more and faster equipment and in developing better sales systems. And we already have plans for what some of those investments could be.

So he certainly won't accept fixing a price for his (eventual) half now, as unless something goes badly wrong his half (and mine) will be worth more in a few years time.

Hoofy

76,253 posts

281 months

Wednesday 27th May 2015
quotequote all
photosnob said:
Monkeylegend said:
Never go into business with friends or family.
Worked out okay for steve jobs.

And Richard Branson!
And that laughing Amazon guy.

AyBee

10,522 posts

201 months

Wednesday 27th May 2015
quotequote all
RobinOakapple said:
Du1point8 said:
otherman said:
StuTheGrouch said:
RobinOakapple said:
When he retires then I buy him out at whatever the business is valued at at the time (which could be quite a bit working on the reasonable assumption that I can pretty much double the current output, and the money I'm putting in will be invested in the business)[/b]
Something about this doesn't seem fair to me. You add the value but then pay that to him for the other half?
I agree. You seem to be buying it twice. Would you be better buying it outright now, agreeing to keep him on as an employee?
This because at the moment, if your share is say £150k to buy 50% of the business (worth £300k) and you double it up to £600k, then you now need to find another £300k to buy him out due to your hard work.

He can probably see that and is onto a money winner with the way its set up now.
I believe I see what is being got at here, but I can't see what other system I could suggest that would be fair to both parties. Firstly, it will be his hard work too, and it's one of those businesses where there is always the opportunity to re-invest some of the profits in more and faster equipment and in developing better sales systems. And we already have plans for what some of those investments could be.

So he certainly won't accept fixing a price for his (eventual) half now, as unless something goes badly wrong his half (and mine) will be worth more in a few years time.
A difficult one to play, it depends how much work he's really going to put into this extra growth and how much you will put in. If it really is 50:50, then buying him out at whatever the value is at the date he wants to sell is probably the only option unless you agree a discount now (not sure why he'd agree to that though). Is the business going to grow far quicker with you on board than it would otherwise?

johnfm

13,668 posts

249 months

Friday 29th May 2015
quotequote all
All sounds good - just get a decent lawyer to advise you and draft the shareholders' agreement and so on.