Working as an employee in the business prior to being owner/operator

searcher profile

August 02, 2024

by a searcher from University of Minnesota - Twin Cities Campus in Albuquerque, NM, USA

Hey there,

I'm looking at a business that's got a favorable valuation (400k SDE @ 1.8x), however that may in large part be due to the fact the owner is highly involved in many aspects of the business. I've heard of some individuals acquiring businesses by arranging a period of paid employment where the buyer works in the business to learn operations and gradually take on owner responsibilities until taking full ownership.

Does anyone have any insights or experience with this kind of structure or arrangement?

0
13
156
Replies
13
commentor profile
Reply by a searcher
in London, UK
^redacted‌, thanks for the tag!

^redacted‌, What you describe is a working buy out, WBO. Great model for situation where you have motivated seller and/or distressed business, where you (potentially by having the right experience in the field) come in and start to fix and build value from the get-go and the cash flowing business you can earn a salary in the meantime aswell as opting for a bonus on the revenue that by accumulating it will be needed at the time to fully buy out the owner as you'll be required to inject some equity. Win win situation, where the right elements like the ones mentioned above are found.
commentor profile
Reply by a searcher
from Purdue University in Bellevue, WA, USA
If I were to go into this scenario I would treat this as a rent to own type deal with an accepted LOI that stipulates I will be purchasing the business at whatever the terms are but to begin I will be an employee for the first say 6 months to learn the ins and out's and get full owner training until transitioning. The big thing is that those terms are laid out ahead of time and signed on the dotted line with an exit strategy/allowance that says you can re-nig if something happens during both due diligence or during your "working interview/rental period" AND the seller is motivated and OK to stay on for however long you would need.
commentor profile
+11 more replies.
Join the discussion