Working in the business 1-3 years before buying it?

October 01, 2024

by a searcher from Brigham Young University in Salt Lake City, UT, USA

Hi all -

I'm curious if anyone has had the experience of working in a business 1-3 years before buying it. Maybe the business had a lot of potential, but wasn't sellable and you worked there for a couple of years to make it more actionable and bankable. If you've done this, or seen this, I'm curious about:
- What agreements did you have in place to give you an option to buy?
- How did you think about the acquisition price? e.g. original asking price vs. updated valuation?
- How did you know the business was 'ready' to be acquired vs. still needed your focus as an employee?

Thanks!

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Reply by a searcher
from Fundação Getulio Vargas, São Paulo in São Paulo, SP, Brasil

Some very good perspectives here. I believe this approach can be smart and effective if interests are well-aligned. It may minimize typical barriers encountered in standard acquisitions, especially when the buyer lacks firsthand experience of the business - like in most SFs. I see benefits for both sides. Some critical conditions:

1) Business Readiness: The business should not be fully ready for sale yet. If it were, why someone would hire the buyer? Part of your role would involve putting certain things in place to ensure a successful transition, which also serves as your due diligence.

2) Transparent Agreements: A clear agreement with predetermined multiples / transaction conditions based on the business's performance prior to your involvement is essential.

3) Fair Compensation: You should receive a salary aligned with your responsibilities and milestone incentives (maybe stock options...), reflecting both your and the seller's aspirations for a successful transition

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

Grab the opportunity. I am assuming this relatively small.
1) Sellers sell to those with whom they bond. So, help him and build trust.
2) If you become important to the business, seller will have difficulty selling to other party w/o your continuity.
3) Make sure there is reasonable understanding on valuation, structure, etc.
4) Imagine you are going to buy another business, and seller had hired someone (Y) to pump it up. You would have to pay for the recent performance. Would seller tell you that Y kicked up the business? If he did, would you buy w/o Y?
5) You would have gotten a tremendous experience even if you are unable to.

My main point is don't be greedy. Grab the opportunity to learn "How to run a business?" with no risk.

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