Get someone to help you. There are lots of methods for business valuations. I wouldn’t pay attention to them. What I would do is focus on cashflow, and how you would manage this business.

DO NOT PASS THIS OPPORTUNITY UP WITHOUT EVAULATING IT VERY CLOSELY. THIS LITERALLY COULD BE LIVING CHANGING FOR YOU.

IF this is a good business you might have a GOLD opportunity here. Because it’s not on the market and you aren’t competing with anyone for the sale, and you’ve got a seller(owner) who clearly wants to work with you and pass it on to someone he knows and who knows the business. The other side of the coin, you don’t want to buy into a ship if it’s sinking. It seems like based on how your talking that the owner has been somewhat successful in this business for some time, if that’s so you should really consider this.

Ask him to go over the numbers with you. You need to review a P&L, and you want to calculate what’s call the SDE which is “Seller Discretionary Earnings”. It’s more complicated but in the end no different the budgeting your own finances. All the money coming in, minus all the money going out for necessities, equals your disposable income.

Why do you want to make everyone remote? Are you afraid of owning real estate or do you not think the business supports the real estate it currently has? What kind of business is this. Is “the office” owned by the business? Does the business rent it from a 3rd party. Does the owner own the property in another holding co and simply want you to guarantee a long-term lease so that he has a long-term real estate investment that he can keep profiting off of? There is no wrong answer here. Just things you need to consider.

If the business has 1 million in sales, and each of the employees makes 100k, and there is 120k in rent (or mortgage payments) and let’s say another 200k in expenses. Thats 720k cost on 1 million. Putting you at 280k in your pocket. If you could just buy 280k a year, what’s that worth to you. Most companies have different multipliers of cashflow or other metrics that are fairly industry standard, which is how a lot of companies are valued, but personally I ignore that and focus on what it’s worth to me personally. What I would pay in order to have a 280k a year of cash. Would you pay your old boss 100k a year for 5 years in order to have that 180k of profit? Do you have ideas that could drive that 1 million a year to 1.5 million a year? Do you have any idea for modernizing systems to automate Backoffice and commodity tasks and activities.

Now on the other hand. If the bossman is only making 50k a year, or worse less. Your talking about a pretty basic salary for taking all this risk. So don’t do it, or not do it, purely based on feeling, or something silly like office, or no office. Focus on hard facts. If there is good cashflow, then yes buy it.

I am in a similar boat. But after recently going down the YouTube rabbit hole of buying a small business starting with Codie Sanchez, then looking at other content providers like Acquiring Minds, and David Barnett, and then branching into looking at Tax Strategy and business structure and other related business topics I have become completely convinced that this is what I have to do. I’ve never really calculated my net worth, but I have a 6 figure W2 Salary that is closer to 200k then it is 100k and have a fair amount of equity in a home that is decent size, although not one that most would consider luxury, and I don’t have a lot of liquid. My wife earnings are fairly minimal compared to mine. I am looking at a business right now that would likely cost me between 3-4m which includes two real estate properties associated with the business. I’ve already met with the owner and more due diligence is occurring.

I don’t know enough to judge you on what your actually paying. Location matters a lot and no one seems to be talking about that. 18 and hour in NYC and 18 an hour in rural Montana is not the same thing.

Does your Office Manager make more than him? Maybe this stems from a position of not pulling his financial weight in their relationship? Are they teenagers? Early 20s? Early 30s? Is he at a stage in his career where he should have developed more skills but hasn’t? You shouldn’t pry into these things, but know there may be more motive here beyond just the money itself.

Good employees are worth investing in. It’s easy to replace people, it’s hard to replace really good people that are willing to do more than the minimum, even if their current role isn’t highly skilled. Be straight with the guy. Tell him you really like his work ethic, and you value his reliability. People value leadership that feels genuine and honest. If you are transparent about what is and isn’t reasonable for you to do and give him some criteria for future advancement. You may feel indifferent, but you have to show him that you’re not indifferent, and your take his ask seriously. Your excited for his potential, but you need to work with him on his development.

How do you do that.

1. Give him a raise and talk through it. $28 is too much. But talk through why it’s too much, and also talk though how things are typically done, and show that you’re doing more than what is typical.

No one is getting assumed 10% raises in this economy. Most large companies are doing between 0 and 5% with and overall pool of 2 or 3%. Meaning in order to give one person 5% you have to give someone else 0% instead of 2% to offset. Here are example scenarios. 10% yoy raises would be $24.96 (not 28) ,5% yoy raises would be $20.84 an hour, 2% yoy would be $19.10 an hour. In a normal company a 5% raise every single year for 3 years would be extraordinary. I’d suggest doing something between 3% and 5%.

2. Invest in him. You mentioned other employees having skills he does not. Talk to him about developing those skills in him. I assume these skills are important to your business. Talk to him about pairing him up with a team member who has those skills and letting him take some of his time to act as that person’s assistant or something like that. Tell him you’ll have him a one-off raise when he gets to a certain level of competence in that skill. You’ll have to figure out how to measure his growth.

You do these things; he’ll see you as a mentor and coach. At some point in the future, he will see his own success and partially attribute that success to you. Of course, he was willing to do the work, but he needed someone to believe in him and that he was worth developing. You will be developing a loyal employee, and who knows maybe he eventually get to a point where he can take a leadership role or even operate the whole company in your place, and you can be more absentee and do whatever you want, including may focus on another business.

Bottom line. If you treat the right people well, they will be loyal which is difficult to put a price on. Having a company full of people that take pride in their work and will run the business with integrity when the boss is gone vs you having to fix all sorts of random problems and customer complaints because they do the minimum. You can’t put a price on that benefit.

Another thing you might consider. And this is just in general. Instead of giving out bonus. Consider sending the employees on some kind of memorable vacation. All the bonuses I’ve ever gotten I completely forget when and where I got them and for what reason and where the money went, who knows. But give them something that imprints memories on them, and they will forever associate those positive memories with you.

Good advice. Definitely proceeding with caution.

I don’t want to post the location on here. But it’s a smallish midwest town that is about an hour away from the nearest Metro area.

This is actually my strategy. My worst-case scenario would be that the bank takes the property. I don’t intent to have a significant amount of debt that isn’t secured by the business itself.

High priority question to answer as I go over the financials.

All questions I’ll ask when meeting the owner. Thank you!

Thanks. Something to think about.

Thanks for the feedback.