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?
Do you mean that getting a loan would definitely cause losing life savings? That is something I am afraid of. It feels too much is at steak. Would it make sense to ask for a seller financing somehow tied to future earnings to avoid the risks of a sinking ship?
If you get a loan and default on it, yes, you would expose your life savings to being taken for repayment.
This is fairly typical in small business when it comes to debt and a lot of people get ruined financially as a result.
Extremely unlikely you’ll get the seller to carry the whole note, especially if the business is making money. A lot of buyers will do 80% bank note, 10% seller note, 10% equity