Buying into a small business.

Leinsterguy

New Member
Messages
4
Hi, looking for advice.
Small wholesale company near Dublin, owned 60% by an accountant, with other business interests, 40% by the guy who runs it.
Own warehouse, 3 staff, turning 900k.
Offering 10% of the company to get a good person in to help, then when the 40% guy wants to retire, he will sell another 10%, maybe more, any idea what the company value might be, or the extra 10% might cost.
40% guy took 100kmlast year in salary/income.
Business needs to be refreshed though, as it’s getting tired, needs new lines to sell, needs new energy, this they know.

The main thing is I will likely go in for the 10% on offer, and get a salary, but ideally I want to be at 40% in 5 years when the 40% guy is fully retired.
 

dublin67

Frequent Poster
Messages
211
I'd suggest you sit down with an accountant and/or a corporate solicitor for an hour or two and you get a feeling for the issues involved here. The 40% chap will want to bought out and will this be with retained profits or external finance (i.e. money you provide most likely). There is no mention of profit here and this is the key driver.

If you are working in the company then you will need a salary and will the company be producing enough profit to cover two salaries for five years. Personally I'd want an option to get 40% of the company at an agreed price before I paid up for 10%. 10% of a company isn't worth anything unless you are going to float (unlikely from the description) or be sold (also sounds unlikely as you are the exit mechanism for the 40% guy.

I'd also want to be equal shareholders if I'm putting money in or working towards it so the accountant chap would need to be diluted to 50%. These are obviously just personal views and you will get different views. The last thing you want is to be buying a job.
 

Blackrock1

Frequent Poster
Messages
355
i take it they are offering the 10% equity as an enticement to join? you will have to check the tax implications of this also.
 

Leinsterguy

New Member
Messages
4
Thanks, the 10% is not going to cost me anything, the 40% guy will want out no doubt there, and he does not hide this, I will at some point want another 30%, and I will have my own accountant heavily involved at all stages, I do need the 40% guy there for at least two years, as I know a lot about sales, but nothing about the day to day running of the business.
If a company is turning 900k now, I wonder how much the other 30% worth would be calculated ?
 

newtothis

Frequent Poster
Messages
542
I would treat with extreme caution. Fundamentally, a minority shareholding in a private limited company has little or no value in the absence of shareholder and/or other agreements in place, and even then, it’s hard to cover yourself for all eventualities. I’m not suggesting that anyone is out to do you out of anything, but things happen, and the lack of a market for minority stakes in companies has a real impact.

I would treat shares given for free as something like a lottery ticket with better (but still not great) odds: they may realise some value at some point in the future, but there’s every chance they won’t.

First question if I’m putting real cash in (as I understand it, you’d be facilitating another shareholder to cash-out at some point?) is how can I get my money back? What has to happen for me to make a return?
 

Leinsterguy

New Member
Messages
4
Plan is to come in, get 10% at no cost in cash terms, after maybe 1-2 years, buy another 10%, maybe more as the current shareholder retires, what they need is my experience, as not everyone knows what the right pathway for growth is, I feel I do know, and will formulate a 5 year growth plan, with min investment from the company, I will also want a salary and a company car as I its going to 70% field based for me to grow, by introducing new products, and selling to more customers.
 

Purple

Frequent Poster
Messages
8,863
Why not take your 10% and structure your package to include a good salary and a bonus on sales, profit or turnover.
That way you get a return on your hard work and the majority shareholder knows that your interests are aligned with the companies interests.
I certainly wouldn't be putting cash into a business in order to end up with less than 50% of it.
If the 40% guy wants out then he should sell his shares back to the company. You certainly shouldn't be paying for them.
 

DeeKie

Frequent Poster
Messages
340
I would treat with extreme caution. Fundamentally, a minority shareholding in a private limited company has little or no value in the absence of shareholder and/or other agreements in place, and even then, it’s hard to cover yourself for all eventualities. I’m not suggesting that anyone is out to do you out of anything, but things happen, and the lack of a market for minority stakes in companies has a real impact.

I would treat shares given for free as something like a lottery ticket with better (but still not great) odds: they may realise some value at some point in the future, but there’s every chance they won’t.

First question if I’m putting real cash in (as I understand it, you’d be facilitating another shareholder to cash-out at some point?) is how can I get my money back? What has to happen for me to make a return?
This is spot on. Shareholders agreements can be painful to put in place, especially for a novice, but essential as explained above. If you need the 40% guy in for two years the SHA is the place to agree it, and any option or first refusal too.
 
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