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Thread: Taking over existing company

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    Default Taking over existing company

    Hi all - At some point within the near future i'll have to make a decision and as I type this I do not know which direction would be best, or which makes more sense.

    I work for a small consulting office, along with a coworker and our employer. The employer is looking to retire and wants either myself or the two of us to take over the company with compensation to him. I do not know what the compensation will be, but I assume somewhere around 20-25% of the company's annual profits for a number of years. Gross profits can be anywhere between $200 - $400 thousand.

    The company has been around for over 20 years, and we have a few active clients that give us work regularly, including one very large one.

    I am the biggest contributor to this company. My coworker was absent for a few years (but has since returned) and I was responsible for 95% of the work being produced. I handle all stages of our operations including roles that should be performed by our employer. My coworker shares the same responsibilities but it is uncertain that he will stick around when the time comes.

    If given the opportunity, I don't know if I should take it over and pay him or venture out on my own. My initial feelings are to venture on my own, and my reasoning is explained below.

    What options does my boss have? I suppose he can sell the company to a larger firm, but I don't know who would be interested considering the limited clientele along with the fact that neither myself nor my coworker will move with the company... if it mattered. It would be a company with no profits.

    I interact with our clients every day, especially the big one (in fact, I alone communicate with them) so should my boss decide to close his doors, there's a good chance I can pick up where he left off. But in reality nothing would change.

    I think it sounds harsh, and I like to think that i'm a fair guy, but I feel it would be a poor business decision if I bought the company. Am I being selfish? I talk to my wife about this but she doesn't offer much advice, except do what you want. It would be good to hear what other professionals think. Thanks

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    Member Needs New Keyboard Array huggytree's Avatar
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    first off if you are going to buy his company dont do a partnership...buy it all yourself

    if your sure you could capture his existing clients w/o buying it thats the route id go......you may hold the cards here....make sure you didnt sign a non competing agreement....when i left my old company to start my own i picked up a couple of the bosses old customers....not many, but a few....remember some day a worker of yours may do the same to you....get a non-competing agreement drawn up before YOU hire.

    your boss may 'give' you the business even....i know a few who did this....depends on how much he likes you

    you have to weigh how many people his company brings in that you couldnt capture...figure out what that is worth...buying an existing business is a neat way to start out without having to suffer for a year or 2 while you build it up.....if the price is right it may be worth it...pay now or pay later is how you should look at it

    business can be harsh....it is what it is.....i always try to be fair....if your boss wants $100,000 for the business and you think its worth $10,000 to you then id offer him $10,000 and see what happens....

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    i sure wouldnt do a partnership.
    ...if it were me i would hope to take it over and on my own...so much cleaner....but the relationship with the owner is the hard part.... what can he do if you dont buy it? maybe he would sell it really reasonable to you...since without you it might lose a lot of value....
    the fairest thing, imho, would be to buy it from the owner...
    ann at greenoak www.greenoakantiques.com

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    Thank you for your thoughts. I did not sign any non competing agreement, so no problem there. I don't intend on being on my own while he's still in operation, so technically I wouldn't be stealing any of the clients. I just feel that if he's retiring and the company isn't profitable without me (or us) therefore he has no choice but to shut down.. so why would I pay. It's unfortunate for him, sure... but in my opinion he's not really in the position to sell in the first place.

    I also agree that being on my own would be for the best.

    Thanks again

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    Quote Originally Posted by whlhop View Post
    What options does my boss have? I suppose he can sell the company to a larger firm, but I don't know who would be interested considering the limited clientele along with the fact that neither myself nor my coworker will move with the company... if it mattered. It would be a company with no profits.
    I hope you'll allow me to play devil's advocate for a minute. Suppose you make it clear to your boss that you don't want to pay him to take over the business, and that you'd capture his clients anyway when he retires and/or closes up shop. He could terminate you on the spot, sell to another consulting firm (perhaps one with better resources) and cooperate with the new company to ensure that all his clients go along with the new program. After all, the new company may offer more services, reduced pricing, or "better" consulting. No offense intended here - just because you were the main contributor and principal point of contact, it doesn't mean the client(s) wouldn't be happier or better-served with another company. If this scenario were to unfold, you would be in a battle with your old boss for the same clients.

    Another possibility is that he doesn't sell the business, stays on (possibly) part-time, but hires your co-worker or some outsider to take over the daily operations of the business. At that point, you're no longer in a controlling position and you're faced with the choice of continuing as an employee, or quit and try to compete against him. He could sue you even without a non-compete in place.

    Really, it's a matter of how much are you willing to pay for the "goodwill" -- consisting of the existing relationship with current clients and the future cooperation of your boss in transitioning the business to new ownership.

    On the other hand, if you managed to take ownership of the business even with your boss' cooperation - how much of a contribution will he make to it say a year or two down the road? Probably zero or negligible. Would you want to pay him a percentage of profits then? My advice would be to secure his cooperation during the transition, negotiate your best deal, but try to cap the goodwill payments to about 1-2 years' worth, or have it diminish drastically after a year.

    Best of luck!

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    There is value in picking up the existing business simply for the sake of maintaining clientele. Don't change the name and continue along as seamlessly as possible. You should also consider having your boss sign a non-compete agreement should you choose to take over... it should be for the duration of the agreement plus a number of years following completion of said agreement.

    Do not be afraid to make a counter-offer. If 25% is too high, then offer what you feel is fair, or a bit less to give you room to negotiate. Sell him on the concept that if he wants his share to remain valuable, then he would be wise to have you take over. Having someone else take over could cost him more in loss of business resulting in his earning a percentage of the reduced profit.

    Do you know what profits are for this company? You need to know the financials before you even consider moving forward. If your cut would be close to the same after the agreement then there is no value for you here.
    Pete - Reflo Ltd - A smart alternative to sippy cups
    www.reflo.net

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    There is value in picking up the existing business simply for the sake of maintaining clientele. Don't change the name and continue along as seamlessly as possible. You should also consider having your boss sign a non-compete agreement should you choose to take over... it should be for the duration of the agreement plus a number of years following completion of said agreement.

    Do not be afraid to make a counter-offer. If 25% is too high, then offer what you feel is fair, or a bit less to give you room to negotiate. Sell him on the concept that if he wants his share to remain valuable, then he would be wise to have you take over. Having someone else take over could cost him more in loss of business resulting in his earning a percentage of the reduced profit.

    Do you know what profits are for this company? You need to know the financials before you even consider moving forward. If your cut would be close to the same after the agreement then there is no value for you here.
    Pete - Reflo Ltd - A smart alternative to sippy cups
    www.reflo.net

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    Member Needs New Keyboard Array Paul Elliott's Avatar
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    Whlhop, there are some good thoughts here.

    In going your own way, I would add that you should also consider how easily you can develop new clients of your own. The current owner's cooperation and good blessings are certainly worth something and may be worth a lot.

    On the other hand, if you are doing most of the real production, you might simply consider offering him something like a "finder's fee" of something like 5-10% of the gross that each of the company's current clients yield for 1-2 years. You could also make him the same offer for any new clients he generates for you.

    No matter which route you take, I suspect that you need to have a clear understanding with the 3rd member of the team based on his or her actual production, rather than his or her perceived value to the projects.

    As a marketer, I usually find it easier and better to generate new, high quality clients than to try to repair a limping business. As Ann, greenoak, said, it's cleaner. Of course, the field of your consulting and your marketplace must figure in, as well.

    Paul
    Last edited by Paul Elliott; 01-14-2012 at 07:07 PM.

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    one thing id think about......are you over confident on your skills to take his existing customers? what if your wrong? what if you only get 1/2 or 1/4 of them? is purchasing the business a better decision since odds are youd keep 75% of the existing customers or more

    your very confident....sometimes that means your damn good at what you do....most people who are damn good are that confident......sometimes it can mean your a fool who is OVER confident too......you may be one or the other ...odds are your in between.....

    dont tell your boss any of your plans...let it all play out and look for an opportunity...i would recommend starting a LLC now and getting the ball moving so you can take over seamlessly when he goes out of business....you dont want to miss 1 day

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    A lot of good info and advice here. It is much appreciated.

    Quote Originally Posted by rshughes View Post
    I hope you'll allow me to play devil's advocate for a minute. Suppose you make it clear to your boss that you don't want to pay him to take over the business, and that you'd capture his clients anyway when he retires and/or closes up shop. He could terminate you on the spot, sell to another consulting firm (perhaps one with better resources) and cooperate with the new company to ensure that all his clients go along with the new program. After all, the new company may offer more services, reduced pricing, or "better" consulting. No offense intended here - just because you were the main contributor and principal point of contact, it doesn't mean the client(s) wouldn't be happier or better-served with another company. If this scenario were to unfold, you would be in a battle with your old boss for the same clients.

    Another possibility is that he doesn't sell the business, stays on (possibly) part-time, but hires your co-worker or some outsider to take over the daily operations of the business. At that point, you're no longer in a controlling position and you're faced with the choice of continuing as an employee, or quit and try to compete against him. He could sue you even without a non-compete in place.

    Really, it's a matter of how much are you willing to pay for the "goodwill" -- consisting of the existing relationship with current clients and the future cooperation of your boss in transitioning the business to new ownership.

    On the other hand, if you managed to take ownership of the business even with your boss' cooperation - how much of a contribution will he make to it say a year or two down the road? Probably zero or negligible. Would you want to pay him a percentage of profits then? My advice would be to secure his cooperation during the transition, negotiate your best deal, but try to cap the goodwill payments to about 1-2 years' worth, or have it diminish drastically after a year.

    Best of luck!
    I plan on keeping my feelings about this private, at least until he's ready to approach me on the subject. I can't take the risk of being let go without having something else lined up. But I agree, he will not like hearing how I feel. But who knows, he may only want compensation for a only couple years in which case I will more than happy to oblige. But knowing him I feel it's unlikely. As far as his contribution, I figure once he retires he will want nothing to do with it anymore, at least that's the impression I get. That could change things a bit i'm sure.

    Quote Originally Posted by Reflo Ltd View Post
    There is value in picking up the existing business simply for the sake of maintaining clientele. Don't change the name and continue along as seamlessly as possible. You should also consider having your boss sign a non-compete agreement should you choose to take over... it should be for the duration of the agreement plus a number of years following completion of said agreement.

    Do not be afraid to make a counter-offer. If 25% is too high, then offer what you feel is fair, or a bit less to give you room to negotiate. Sell him on the concept that if he wants his share to remain valuable, then he would be wise to have you take over. Having someone else take over could cost him more in loss of business resulting in his earning a percentage of the reduced profit.

    Do you know what profits are for this company? You need to know the financials before you even consider moving forward. If your cut would be close to the same after the agreement then there is no value for you here.
    I hate the name of the company. Haha. But it's true that the name itself has some worth to it; especially with a history of over 20 years. I do plan on negotiating, regardless of what kind of offer he makes. He is going to want something, and his best chances of getting something is with me I think. Chances are that my coworker will not be licensed so unless he sells to a third party, i'm all he has.

    I had a good idea of what the profits are. He comes to me to price every job that we take on so it's figurable.

    Quote Originally Posted by Paul Elliott View Post
    Whlhop, there are some good thoughts here.

    In going your own way, I would add that you should also consider how easily you can develop new clients of your own. The current owner's cooperation and good blessings are certainly worth something and may be worth a lot.

    On the other hand, if you are doing most of the real production, you might simply consider offering him something like a "finder's fee" of something like 5-10% of the gross that each of the company's current clients yield for 1-2 years. You could also make him the same offer for any new clients he generates for you.

    No matter which route you take, I suspect that you need to have a clear understanding with the 3rd member of the team based on his or her actual production, rather than his or her perceived value to the projects.

    As a marketer, I usually find it easier and better to generate new, high quality clients than to try to repair a limping business. As Ann, greenoak, said, it's cleaner. Of course, the field of your consulting and your marketplace must figure in, as well.

    Paul
    I like the finder's fee idea. I will keep that in mind for when we talk. I definitely think it will be easier to 'take over' as the clientele is there. Though even if I got away with the one 'big client' I would be set enough so that time would be available to grow on my own. If I could manage to keep the same telephone number, even while being on my own, would be highly beneficial.

    Quote Originally Posted by huggytree View Post
    one thing id think about......are you over confident on your skills to take his existing customers? what if your wrong? what if you only get 1/2 or 1/4 of them? is purchasing the business a better decision since odds are youd keep 75% of the existing customers or more

    your very confident....sometimes that means your damn good at what you do....most people who are damn good are that confident......sometimes it can mean your a fool who is OVER confident too......you may be one or the other ...odds are your in between.....

    dont tell your boss any of your plans...let it all play out and look for an opportunity...i would recommend starting a LLC now and getting the ball moving so you can take over seamlessly when he goes out of business....you dont want to miss 1 day
    I wouldn't say that i'm over confident, or that i'm the best at what I do (actually I know i'm not), but i've been doing this for so long that I know what it takes and how to handle the responsibilities. My biggest concern would be to take on too much work, so I would have to know how to say no. Something my boss lacks. Getting a LLC started also sounds like a good idea... I will keep that in mind.

    Thanks again to everyone.

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