Taking Over

Buying out your boss? You can do it--and get a good deal.
Magazine Contributor
2 min read

This story appears in the August 2008 issue of Entrepreneur. Subscribe »

Question: My boss wants to retire and offered to sell me his business. I don't know how much it's worth, and I doubt I'd even have the money to pay for it. Any advice?

Answer: Unlike large public companies with many shareholders, your boss's business isn't likely to attract many buyers, so you are in a good position to get a relatively low price without a lot down. There's no firm rule for valuing private companies, so your boss may be willing to sell for some multiple of his annual earnings (say, three to five times the company's bottom line). If you can't get a bank loan, ask your boss if you can finance the purchase out of profits on a schedule that doesn't pinch the company's cash flow, says Joseph Fulvio, a management consultant for startups and emerging businesses. Another option: Ask your boss to "hold paper," lending you the balance over a fixed number of years at a set interest rate.

Make sure you consider tax consequences. "A sale of shares or a third-party brokered sale results in a capital gain for the seller, whereas interest income paid on a loan made by the current owner is treated differently," says Fulvio. "The same goes for buyers with a loan on the books vs. some other form of payout, like a profit-sharing agreement." So, consult an accountant or tax attorney.

Rosalind Resnick is founder and CEO of Axxess Business Consulting, a New York City consulting firm that advises startups and small businesses, and author of Getting Rich Without Going Broke: How to Use Luck, Logic and Leverage to Build Your Own Successful Business. Reach her at rosalind@abcbizhelp.com or through her website, abcbizhelp.com.

loading...

More from Entrepreneur

Our Franchise Advisors will guide you through the entire franchising process, for FREE!
  1. Book a one-on-one session with a Franchise Advisor
  2. Take a survey about your needs & goals
  3. Find your ideal franchise
  4. Learn about that franchise
  5. Meet the franchisor
  6. Receive the best business resources
Entrepreneur Insider members enjoy exclusive access to business resources for just $5/mo:
  • Premium articles, videos, and webinars
  • An ad-free experience
  • A weekly newsletter
  • Bonus: A FREE 1-year Entrepreneur magazine subscription delivered directly to you
Try a risk-free trial of Entrepreneur’s BIZ PLANNING PLUS powered by LivePlan for 60 days:
  • Get step-by-step guidance for writing your plan
  • Gain inspiration from 500+ sample plans
  • Utilize business and legal templates
  • And much more

Latest on Entrepreneur