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?

  • nova9001@alien.topBEnglish
    1·
    10 months ago

    Can you share what is the net profit for this business and how long it will take you to recoup the cost? Also how are you going to buy the business up? Loans or??

    Its really missing many details for me to even comment.

    • SnooOranges8397@alien.topOPBEnglish
      1·
      10 months ago

      The listing only tells me that the gross revenue is 1.5m. I have not yet reached out for more information (because I know that they will ask me to sign an NDA and I was not yet ready for that step). This is an indoor playground business. By looking at some similar businesses, I guessed their profit margin as 6-7%. That is how I arrived at 100k/yr profit.

      I am still investing how to buy. I don’t yet know if there will be a seller financing, that would be my first option. If not, maybe that’s already a red flag and I should reconsider this whole thing. I can afford putting down 100k. I can probably raise some more 100k from my network for down payment and get a loan for the rest.

      • nova9001@alien.topBEnglish
        1·
        10 months ago

        You see the problem here is you don’t have any details on the business and you don’t even know how you want to afford this business.

        • SnooOranges8397@alien.topOPBEnglish
          1·
          10 months ago

          Yes I know that I don’t know all the details yet. I will learn all of them if I convince myself that buying a million dollar business is not a terrible idea. I was trying to get some insight here on how big of a business one should try to buy as their first business.

          Do you think it is at least worth to keep investigating or should I focus on a business more in the range of 500k?

          • nova9001@alien.topBEnglish
            1·
            10 months ago

            It’s impossible to convince anyone because you don’t have the details. Please share the details.

      • biizzy67@alien.topBEnglish
        1·
        10 months ago

        Paying a 12x on net revenue probably isn’t feasible for an established stable business. If one paid this for the business, you would theoretically operate it for 12 years without making anything or having any extra to “build” the business up. Don’t pay for what you think you can grow the business to, pay what it’s truly worth today. Sign the NDA, time for dd.