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    3 Replies Latest reply on Aug 24, 2008 9:20 AM by Milleisen

    Looking for feedback on a buy-in opportunity

    Pocketchange Newbie
      Greetings to all

      I have an opportunity to buy into a company. Trying to get folks thoughts on the buy-in. The company is a service business in the construction industry. Company background:

       

      -Company is $4M in sales.

       

      -Margins after overhead and expenses are in access of 20%
      -Less than 10 salary employees and 4 sales people who are all commission
      -Sales commission is 25% of profit

      Readers digest version of the buy in:
      -Complete three years of service
      -During that three years, take the average profit and multiply it by the percentage of buy-in (between 33-40 percent)
      -Five years financing at 0% interest. financed by the company and taken out of commissions

      Company Assets
      -Zero (no physical assets such as equipment, building, ect.)

      I estimate the average three year profit to be $1.5M. This means my buy-in would be between $500,000 and $600,000. There is a definite financial upside but does this sound like a reasonable buy-in offer. Thoughts and comments are appreciated.

      Regards

      Pocketchange
        • Re: Looking for feedback on a buy-in opportunity
          Tracker
          Hi,

          Is this equity tied to a vesting period? I take it that is the 3 years you mention but want to be sure.

          If it is, are you vested and additional amount or percentage each year as it completes or do you have to do the full 3 years?

          I'm not clear on how much comes out of your commission that is paid towards your buy-in? Is there enough left over that make it acceptable income for you?

          Dennis Lowery
          Adducent, Inc.
          • Re: Looking for feedback on a buy-in opportunity
            LUCKIEST Guide
            Looking for feedback on a buy-in opportunity, Welcome Pocketchange

            What is your background?? Do you have the funds for this buy in??

            Two thoughts. One, You should have both an Accountant and a Lawyer

            Two. Do you know about SCORE?? SCORE is FREE and can help you both in person
            and also on line,

            Tell us more. Go to Members page and share more with us.

            LUCKIEST
            • Re: Looking for feedback on a buy-in opportunity
              Milleisen Scout
              Pocketchange,

              If I understand your summary correctly, those seem like reasonable terms. From what I've read, it looks like how much you pay is determined by the companies future performance, and that the cash to repay will come directly out of cash flow and not your pocket. Those both seem like good deals for you, as you have a lot of upside but not a lot of downside....which leads me to a question...is there any cash required from you upfront?

              You may want to consider using a cash flow measure (like EBITDA) to multiply by the ownership percentage, as cash flow should be of greater concern to you than net profit.

              For a deal of this size, you should consider engaging a professional to review the historical financial statements of the business to get a good understanding of cash flows and operations. There are ways to find out what similar companies are selling for, so you can compare your deal to others. I offer assistance with acquisitions if you are interested.