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    6 Replies Latest reply on May 25, 2009 4:56 PM by dublincpa

    Want to purchase established business from father.

    rikoral Newbie
      I have been thinking about approaching my father in regards to purchasing his electrical contracting company. He's going on 61 years of age and has talked about wanting to retire soon. The business has been opertating now for 8 years and in that time we've built a solid reputation as an excellent contractor that stands by its services. I say "we" because I have helped him since startup. I am 32 yrs of age, licensed master electrician and general manager of the company. I've been in this industry all my adult life. I have built a solid management team which is both experienced and formally educated. In a time of financial distress and lack of work we have been able to continue to conduct business as usual. The outlook for our company looks very promising, and we are continually looking for ways to grow our business. We generate $4-5 mil. in annual revenues and are profitable. The problem is that I don't have capital or assests to even make an offer. My father's annual salary is $140K. He does not have a retirement plan. His company is his retirement plan, since he has invested most of his capital into it. It is pretty much all that he owns asides from his home and ranch.

      What are my options for purchase? Do I have any at all? I appreciate any suggestions.

        • Re: Want to purchase established business from father.
          LUCKIEST Guide
          Want to purchase established business from father, Welcome

          The key seems to be "communication". Talk to your father, Talk to his lawyer and his accountant.

          Also go to Members page and share some info.
          • Re: Want to purchase established business from father.
            phanio Pioneer
            I would suggest approaching it two ways:

            First, see if your father will offer owner financing. This would essential set the purchase up like an annuity. Although your father would no longer be the owner - you would make monthly payments to him based on the purchase price or enough to provide him the same $140K he was getting. Thus, you can use the business's future revenue to purchase the business from your father. May even be a better method given potential tax liabilities for selling the business outright.

            Second, management buyout - banks love managment buyouts of existing, profitable businesses. There is not much risk to these deals - especailly if being bought by a family member who can still get guidance from the owner.

            Business Money Today
            • Re: Want to purchase established business from father.
              creditmagic Newbie

              We can help you organize a leveraged buyout. This approach will provide your father with the cash and you will end up running and owning the business. Contact us for more information.


              Finance Solutions Of America


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              • Re: Want to purchase established business from father.
                dublincpa Scout
                I will start with LUCKIEST's post as I believe it to be the most important. I would not start with his lawyer and accountant until you have been through things thoroughly with your dad. They may not know what his feelings are. They might interject their own two cents and not be clear about whose opinions they are expressing.

                If your dad does go for it, GET YOUR OWN ACCOUNTANT AND LAWYER at least for the transaction. Even if you only use them for the transaction and you continue to use your dad's guys/gals for the ongoing work, it will serve you and your father better in the long run to have independent advice. His advisors cannot fully serve both sides adequately. I would use people outside their firms too. If you are in a small town with limited options, get someone from the next town/county etc.

                I am not being condescending, but family buyouts can be the most complicated because of the personal relationships and issues going back a lifetime. There are a lot of hard questions to be asked. There is a lot of room for feelings to be hurt.

                What is your working relationship? Does he take you seriously now and/or will he in the future? If he doesn't now, can you right that ship with him? Family members can have a long memory. If you were a party hard screw up as a youth, but now have become a top notch professional, start laying the groundwork. He may not see it on his own.

                Is he still with your mother? Either way is there another voice in the picture? What will that voice be telling him? I am not suggesting to use that person to manipulate him, but take into account what he will be hearing. In fact, don't enlist that person as an ally. It will more likely bite you in the end than help.

                Is there anyone else in the business that has been around a long time that he trusts and might have a similar agenda? Does he have a old pal with another existing business that might be working a buy out?

                Do you think he shares your view of how significantly you contribute to the success of the business?

                Does he treat you more like "Oh, Junior works with the old man" or is it more like "Oh, Junior helped me make this place what it is today. I can't wait until he can take the reigns from me."?

                Do you have siblings? Do they work in the business?

                How is your father's health? How is your health? If he offers you the seller financing, life insurance can be purchased to cover the balance due to the estate in the event of either of your deaths.

                If he is not likely to have health insurance post retirement. As a sweetener, you can offer to help him maintain his coverage where an outside party may or may not do that.

                Does he just want to cash out and be done? Or do you think he will seriously consider some seller financing?

                Can you and the business afford to pay him what he can get on the open market for the business?

                You will carry both of your livelihoods on your shoulders with this business. If the proverbial you know what hits the fan and the industry and more specifically your business tank, how will you support your family and your father?

                There are a bazillion ways to structure a deal from a financial and tax aspect, but you have to get past a whole lot before that even matters.

                Feel free to email me if you have specific issues that you don't want to post. mlaird at Replace at with @.

                Best of luck.

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