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?

  • Happy_N_Mountains@alien.topBEnglish
    1·
    1 year ago

    Hi SnooOranges (“love your oranges, State of Florida, thank you.”). I was in a similar situation as you 15 years ago. I had a good corporate job and was looking to buy a playground business. My first point is you need to be asking different questions. 1st question is you need to understand if the business can afford itself if you were to buy it. In other words can business provide enough cash flow to fun the monthly payments? Yes or no? If no, the business can not afford you buying it. It does not matter if you have “good ideas “ to increase cash flows. If the business isn’t generating the cash flow’s needed to fun the purchase you can afford it. Question 2. Why is the owner selling now and is it still a “good business? 3rd point. Your risk increases hugely when you buy a business you are not actively managing and running. (“When the cat is out the mouse (ie employees) will play). I know first hand as a former semi absentee business owner. 4th point. If the thought of losing everything you have is a deal breaker for you (ie. Personal bank guarantee) than don’t do it. Your not ready, respectfully. 5. Go ahead and sign the NDA and get all the information. It’s not a big deal at all from your side. It’s simply providing protection to the seller. Good luck!