Factors to Consider Before Buying the Business Where You Work
It’s not uncommon for Los Angeles and Southern California business owners and entrepreneurs to offer their employees the opportunity to buy their business when they’re ready to sell. For example, maybe the owner is ready to retire or wants to move on to another business venture, and there are one or more employees who are both willing and able to purchase the business and become the new owner or owners.
If you are an employee who has the chance to buy the business where you work, this could represent the opportunity of a lifetime for you to make the transition from employee to owner. This can be tremendously exciting, but there are many things you should consider before taking the leap.
The Financial Commitment … and More
Your first consideration should be the financial commitment that will be required in order to buy the business. It could easily cost hundreds of thousands, if not millions, of dollars to purchase a closely held business. While you will likely finance the bulk of the purchase either by borrowing from a bank or via owner financing, this doesn’t lessen the financial risk you will undertake in buying the business. Also keep in mind that a bank may require you to pledge your personal residence as collateral for an acquisition loan — so if the business does not succeed, you could lose your home.
There are other factors you should also consider before buying the business where you work. For example:
§ When you’re the owner, the proverbial buck stops with you. You must be prepared to deal with all of the challenges and problems that used to be “the boss’ problem” — because you’re now the boss. You will also be the one who has to make the final decisions and then live or die with the consequences.
§ While it might seem like the owner is the one who is making the “big bucks,” the reality is that business owners’ compensation is often uncertain and volatile. Owners get paid after everybody else has — if funds are ever running short, it’s the owner’s paycheck that will be docked. If the business is successful, you may reap tremendous financial rewards as the owner. But if it isn’t, you bear the financial risk.
§ Your relationships with coworkers will change after you become the owner. You might not change, but your position has changed drastically. This doesn’t mean that you can’t still be friends with coworkers who are now your employees, but you should be aware that they will view you differently.
§ Your job responsibilities will also change drastically when you are the owner. As an employee, you were probably responsible for performing certain tasks. As an owner, you will likely need to delegate most of these tasks to others and instead concentrate on leading the company and casting a strategic vision for the business that others will follow.
§ As the owner, you need to have at least a basic understanding of the financial side of the business. This includes being able to understand your company’s financial statements. Your bookkeeper or controller may oversee the day-to-day details of the financials, but you must remain aware of the financial big picture.
Owner vs. Employee
Buying the business where you work without considering all of these factors and more could be a tremendous mistake. Even if you’re comfortable with the financial risks of borrowing the purchase price and pledging your home as collateral, and you can live with the potential uncertainty regarding a regular paycheck, you should spend plenty of time thinking about all of the ways that being a business owner is different from being an employee — and whether these differences are something you’ll be comfortable with.
It’s often helpful to talk these factors through with an outsider before moving forward to buy the business where you work. An outsourced CFO services provider can offer an objective, unemotional perspective, as well as a detailed analysis of the business opportunity. An outsourced CFO can also provide:
§ A review and explanation of the financial statements and what they reveal about the health of the business.
§ An evaluation of the risk vs. reward equation of buying the business.
§ Assistance with business budgeting, forecasting and cash flow management.
§ Help in implementing proper and effective internal controls.
§ Assistance in arranging the right kind of acquisition financing.
§ Guidance in formulating strategic plans for the business.
By taking the time to consider all of the factors involved in buying the business where you work, not just the financial implications, you will help ensure that buying the business is the right move — both for you personally and for the business, its employees and other stakeholders.
If you are an employee who has the chance to buy the business where you work, this could represent the opportunity of a lifetime for you to make the transition from employee to owner. However, there are many things you should consider before taking the leap. These include not only the financial implications of buying the business, but also changes that will occur in your relationships, lifestyle and job duties. It can be helpful to talk these factors through with an objective outsider like a CFO services professional before moving forward.