There is this small business in my area that is for sale for ~$1.2 Million. I know that the business is a bit struggling (and I know the reasons). As a customer in the sector, I know that there is demand and I have some ideas to increase the gross revenue and the profit margins. This is an absentee-run business with ~12 employees and a manager.
I have a full time job (in a different sector) and I want to keep it. I have never run a business but I have successfully managed big long-running projects. I have a CS degree but read some books on finance and business. I am married with a kid and we have a net worth of $500k. It is a bit scary to buy a million dollar business.
Question: I am curious if anyone has any suggestion on how to tell if it is okay to buy a business twice someone’s net worth. Is it too big of a step for a first business? Any suggestion on risk analysis or minimizing the risk here?
It’s impossible to tell. 1.2m should get you 500k in your pocket every year. If the number is around that and you know the business, buy it and quit your other job.
The number is not around that. The net profit is around 100k/yr and I think I can take it to 200k or maybe 300k range in a year or so. I don’t yet see a 500k opportunity :)
OP this business is extremely overpriced. Something is off. Proceed with caution. Most non-tech local industries are trading 2-3x net profits. Unless there is real estate or some other tangible assets the business is worth less than half that.
Stop it right there and forget about this. 12x is asinine for a business like you have been describing.