Would you buy a percentage of the company you work for?

[donk.]

Have any of you purchased a percentage of a business?

Have any of you purchased a percentage of a business and were also part of that company for years to come?

The company I work for, the owner will most likely be offloading 49% of the company within the next few years.

Seems like the offer is for senior internal staff to buy that 49% first. Assuming they come up with the funds.

Questions:

1. At what point is it worth to invent into a business vs stonks or real estate? ROI is a greater percentage than anything else > go for it?

2. There will most likely be 4-10 people splitting that 49%. What comes to mind first in regards to paperwork, legal, etc?

3. If you have been at this company at 5-20 years, and would be investing, how would that change your mindset vs simply putting 100k into stocks and getting your 3-7% back annually hands off.

I figure I do the math, and go from there. these are general numbers, because I know some of you will have a stroke that I left out 75% of the details and variables

Stocks = 3-7% ROI (zero involvement, no leverage)
Real estate = 12-20% ROI (20hrs per year involvement, + leveraged money)
Investment in company = ???

-Off the top of my head, if I was to be a blind investor in a company, and I could get a 80% loan, I would want similar or greater return than real estate. Say 15-23%.
-If it was not leveraged, I would want 6-10% at minimum, as a blind investor (hands off).

Since I will be a part of the company, making decisions, pushing profits, being involved, add an extra 5% to the numbers above. Otherwise what's the point of going above and beyond, for minimal return.

If anything, I may just push the idea to run the service side of the company as it has been brought up before.
Ask for a heavy raise, and keep my investments in RE.

[Hondaracer]

My old boss was a pretty savy businessman and he gave me a lot of good advice over the time working there. Used to be a senior construction manager for big companies like Bosa etc. eventually the company he started on his own grew to about 30 employees managing 6-8 sites at a time.

He told me one day, that while the company has millions of dollars in assets in heavy machinery etc. and all this work, the company itself is only worth the phone number.

In that, the reputation and the relationships he has mostly single-handedly built are where the value lies in the company. Without those, the company is largely worthless.

So with that said, is this a company that can rely on its reputation to get business into the future? Or will you always have to work to seek out business? If it’s the latter, imo, the company really isn’t “worth” much at all

[Gerbs]

Probably around 2-3x EBITDA or 15 - 33% Return on the dollar for the high risk you're taken with pretty much no control.

The selling clause when you exit is unfavorable too, I don't think anyone will buy out the business as a higher valuation in the 5 years.

[PeanutButter]

I'm in a similar position with my work. The man in charge is pushing 60 and he wants to slow down and wants to sell the business.

We haven't talked numbers, but he has floated the idea of me buying the business from him. I told him it would depend on the numbers, but realistically, I can't see it being worth it.

The amount of work he does for the business is a lot. It's the little things that he has to deal with. Our company is about 12 people, so everyone does everything, and he does the most. He's pretty stressed most times and there's always something going on. I can see the amount of work he does and I don't think I want to do it.

The return would have to be minimum 25% for me to even consider joining the company. When you have an equity stake in the business, your mindset has to change. My job is pretty relaxed and I don't need to deal with the majority of the stress, but the moment you become the big man, you have to.

Even though his net worth is a lot higher than mine, I feel like i'm enjoying life and doing more things than he is. I definitely go on more vacation than him lol. I still have my retirement plan and I have savings for my kids, so I don't think owning a business will drastically change my life to be honest, besides making MORE money, which I don't know if I need at this point in my life.

[bcrdukes]

Who will own the remaining 51%?

[donk.]

Originally Posted by bcrdukes

Who will own the remaining 51%?

The current owner. He will be selling 49%

Long term wise, I would guess he would pass the 51% onto his family, or slowly sell to internal staff as second pick, or just simply tell to anyone if need be

[JDMDreams]

Yea is it a business that runs itself? Or will you be the one actively seeking the business.

[bcrdukes]

There are so many ways to slice and dice this. I work on M&As and succession planning often but you have to see what his long term plans are.

There is no one size fits all answer to this but if he controls 51% stake in the business, and lets say the diversification of the remaining 49% is splits between 3 or 4 of you (hypothetically) decision making may end up in a not-so-friendly walk in the park.

Word of advice: Don't make a decision based on what you read on this forum lol

[murd0c]

one of my good friends did that a number or years ago and then the company was bought out by another company and was bought out again a couple months ago. When the new company bought it out they got him to sign a letter that after 5 years they will buy him out for a total of 10 million. He's 43 right now and couldn't be happier and is just waiting to retire in his late 40's.

[mikemhg]

^This is why I've always found it interesting when firms are bought out by larger conglomerates, especially in the finance/consulting space. Absent of that relationship, often times the client simply terminates at their contract end and go somewhere else.

Buying a block of business has always seemed super risky to me for that very reason (unless you're able to retain those key partners on a consulting basis, etc.).

[quasi]

Originally Posted by Hondaracer

My old boss was a pretty savy businessman and he gave me a lot of good advice over the time working there. Used to be a senior construction manager for big companies like Bosa etc. eventually the company he started on his own grew to about 30 employees managing 6-8 sites at a time.

He told me one day, that while the company has millions of dollars in assets in heavy machinery etc. and all this work, the company itself is only worth the phone number.

In that, the reputation and the relationships he has mostly single-handedly built are where the value lies in the company. Without those, the company is largely worthless.

So with that said, is this a company that can rely on its reputation to get business into the future? Or will you always have to work to seek out business? If it’s the latter, imo, the company really isn’t “worth” much at all

Totally agree, the reputation and the relationships of a construction company are its biggest assets. Even as a sub contractor, the largest reputable GC's are probably not going to even consider your pricing seriously unless you've done work for them in the past and have a proven track record.

Now if you have relationships, even with a new company you might be able to squeeze your foot in the door.

I went to a Xmas dinner on the weekend within the industry I'm in and there were so many new faces. I was talking to my dad about it and he's like yeah well you're now the old guard......I'm like fuck you I'm not old but he's right I'm old as shit now haha.

[donk.]

I think the big thing in the back of my head is: what if this company goes IPO, or gets bought out again later on. Just like murd0c said.

I think that's the big ticket, and the big risk to take.

I know some other mid range companies have been sold recently to bigger corporations, and the numbers are massive. (Without knowing any details)

I asked my boss why he doesn't go IPO and he literally had no idea what it even was lol. Can't blame him, in the same time he genuinely wants to "pass it onto" the guys that helped him grow it for the last x-xx years.
Supposably you can go IPO on TSX as long as the company is worth more than 4mil, with a min of 1mil float. Maybe il be the guy that buys in, then pushes the agenda to go IPO. Pump and dump baby. Lol

Appreciate everyone's comments.

[donk.]

Originally Posted by murd0c

one of my good friends did that a number or years ago and then the company was bought out by another company and was bought out again a couple months ago. When the new company bought it out they got him to sign a letter that after 5 years they will buy him out for a total of 10 million. He's 43 right now and couldn't be happier and is just waiting to retire in his late 40's.

What percentage of the company did he own?

[bcrdukes]

If you want it to go IPO, your boss needs to be willing to let go of his 51% share. I think you know the business better than all of us here (we can only speculate and make assumptions.)

If you have a solid business plan and you know the numbers of this company or business, you can potentially make it big, but also be prepared to fail hard. Your investors (whoever the remaining 49% are) have to be of sound mind and then you have to deal with your boss who would be majority controller.

Regardless, best of luck on this. Keep us posted on the outcome. I am following this thread.

[6793026]

i ain't buying nothing until isee the finances.

1) lady was funneling 300k + 50K to gambling during her years being there. wasn't until she was on vacation and asked a 3rd party bookkeeper coming in and found out.

2) in China 10-15 people working there for 18 mths, was told to travel to _____ for training offsite... once they landed, they took their passports and sold them off. WTF...

i ain't buying nothing.

[Badhobz]

these are the opportunities that comes by once in a lifetime. I suggest you whole heartily do your research and dont dismiss this too quickly. it might just change your life for the better in profound ways.

Its the willingness to take these sort of calculated risks that differentiate the wage gobbling scum like us, and the ones that are truly wealthy.

I dont know anything about these type of things, but i wouldnt be where i am if i didnt gamble the shit out of my student loans back in the days. Big risk, big reward.

[GLOW]

you'd probably have to look at the books, who the management and staff are and see if the company is going to have life after owner leaves. the vibe of a firm can instantly change with the guard

did he future proof the company by putting pieces in place for the next generation?

spot on with relationships, my old company did good business with 1 firm and after owner retired and passed it on to his son with dreams of running his kingdom his way, the past long/good history basically didn't mean shit all to the son

[Wormiez]

How will you be setup as a shareholder or partner?

Is your owner aware of LCGE, Lifetime Capital Gains Exemption? If you are set up correctly, you as a partner/shareholder can benefit and incorporate as a # subsidiary with the company/corporation and take advantage of the lifetime capital gains exemption (LCGE) limit of $913,630... tax-free. This will reflect future profits distributed to the shareholders and provided as a redemption or dividend.

If this is new to the owner, consult with an accountant.

[murd0c]

Originally Posted by donk.

What percentage of the company did he own?

Sorry that I have no clue and it's only the local branch if a larger company, all I know is he played hard ball was given a certain percent and he's laughing straight to the bank now.

[Gerbs]

I don't think a $4M valuation company will IPO and see any success. Unless we perform the classic rug pull lol. IPO's in Canada cost at least $200-500K+ to start. You're better off knocking on the competitors door and see if they wanna buy your books/clients.

[punkwax]

Originally Posted by 6793026

i ain't buying nothing until isee the finances.

This. Have an expert go through the books for sure.

[Hehe]

IMO, this is a lousy deal unless the owner is selling to you guys at a discount. I don't even need to see the finances.

Businesses sometimes do this to ensure critical people stay in the business.

If not, the owner is just cashing out while still retaining the majority. And if he's remotely thinking to bring the company to IPO, he wouldn't have chosen 51-49% split, but rather 52-48%.

This shows me that the owner just wants to cash out, make you guys their slaves while not changing much in the whole thing... he's still the boss.

I used to do acquisition for a living, from the limited information provided here, I smell a lot of BS.

[Badhobz]

^ was waiting for hehe to jump in on this. He would be the guy to talk to as he does commercial RE and this sort of thing.

[68style]

Loving all the info in this thread, it's fascinating even though I'm not in the same position as donk.

[bcrdukes]

Close and lock the thread as the Messiah has answered.