M&A HELP: My supplier wants to sell his business to me for 250k. I work a job making $25/hr, and I start selling my first product December 1, < year >. How can I raise 250k capital by the end of the year?
Good Evening r/Entrepreneur
Last year I (24M) started working with my supplier to acquire inventory for my business's first product (Jewelry/Watches). I am now finally receiving the final product (500 items) next month and will begin selling December 1. The total profit from this first batch will be ~100k. I also work a full-time job making $25/hr.
This week, my supplier scheduled a meeting with me because he is looking to move on from watches and do something different as his business is 30 years old. His brother and him own the entirety of the company.
The offer: My supplier is looking to sell his brother's 50% share to me for 250k. After mentoring me for ~1 year, he wants me to buy out his 50% share and then I will be the 100% owner of the business.
He already has a buyer lined up, but he likes my character and thinks his company needs a young person to lead it. Which is why he is giving me a chance to purchase. His brother only wants 250k cash and is not interested in any sort of financing. His brother also wants to sell his share no later than the end of the year.
My dilemma: My business currently has no revenue as I have not started selling and I only make $25/hr. How would I go about raising 250k capital in two months? From the research I have done, some options are: Bridge loans SBA loans Private equity financing How viable are these options and what are some others I should be considering? What are some key details I should know when presenting the offer to investors/lenders? My supplier and I are meeting once again this coming week to go over documents such as profit/loss statements, tax documents, etc.
Final comments: I am 100% confident that I can pay back the 250k to whoever by the end of < year >. And I am also very confident that I will make his and my business even better. This is a very advantageous buy for me because it will reduce supply costs for my original business. I am 24 years old and I know this is the opportunity that will make me a millionaire and I'm willing to do anything for it.
Thank you so much for your time and help. I truly do appreciate it and am very grateful. 62 💬🗨
Copora Before you get all excited, let me ask how he came up with the 500k valuation. One doesn't just pick numbers out of thin air – there are formulas by which you arrive upon the business valuation.
For the typical owner-operates business, I'd start by estimating its value as 2X the EBITDA of the most recent completed fiscal year. Add back in any owner salaries (you'll need to pay yourself or an experienced manager a salary, but that's a separate issue).
Subtract any liabilities (outstanding debt).
Your best bet is to get an accountant who's experienced with mergers and acquisitions to help you with the due diligence before you sign anything. You'll need to see financial statements, the P&L statement, etc. before you can know whether this is even a deal worth consideration at the current quoted price.
ProfZuhayr ✍️ Thank you so much for this information. We are meeting to discuss the fiscal details this week. These are definitely key things I need to get from him.
I am currently in talks with a business broker. Will also consult with an accountant.
Copora Keep one thing in mind: you are under no pressure to buy. He is the one motivated to sell, especially given that he claims he has another buyer lined up – it may be true, it may not. Even if it is, that just means he's been trying to sell and for whatever reason the deal isn't going exactly how he wants.
So, there is zero rush. Take your time, do the due diligence, proceed with both excitement and caution.
Also, if you decide it's worth pursuing, then you may want to ask about seller financing – basically, he lends you the money to buy, and you pay back from the business income. If the business is doing well, then that should be acceptable, at least for some portion of the purchase price.
All the best! ProfZuhayr ✍️ He already said no to seller financing. I understand but the structure of his business is very thorough and his mentorship to run every aspect of it is what I am most excited about. He told me many times during our first meeting that he knows that I have no experience running a business and he wants to mentor me.
His business covers a large chunk of the vertical chain for the watch industry. He has a parent company that does distribution. The parent company owns three sub companies that have their watches sold in retail. He also has a watch repair service.
So many students go into 250k debt for a bachelors that won't pay. I know that this 250k loan will give me great returns. Even if it doesn't work out, I'm willing to deal with the consequences. rrowland As someone who has bought and currently runs multiple businesses for over $100k each: do your due diligence. If you don't 100% understand with absolute certainty how the valuation was made, the current P&L and how you'll make your money back, DO NOT INVEST. If he's pressuring you, I'd just pass. No legitimate business deal hinges on pressuring someone to buy quickly ProfZuhayr ✍️ He's not pressuring me, I'm the one pressuring myself because I really want this deal.
We're meeting this week to discuss the fiscal details more thoroughly. Are there any additional specific details you recommend I keep an eye out for rrowland • Understand why they are selling. Many business owners will want to time an exit to make a multiple of peak profits. Most will say "it's just time to move on" or "I'm interested in another project". Usually it's BS and there's trouble in the water they hope you don't discover
• Scrutinize the P&L. They should give it to you digitally so you have time to review. Not in a meeting. Understand which expenses or other line items may change after a transition.
• Make sure you understand the time investment required to run the business. Both partners are selling you their share – will there be too much for one person to handle? My first and most expensive business purchase was advertised as 27 hour weeks, with 20 of those being customer support hours. This was bogus. I hired 24/7 support staff to cover missing hours and have still been spending 40+ hour weeks putting out fires in this business for years now. You don't want to take out a $250k loan for a job that ends up paying you less than what you're making now (trust me, I've done it)
• Understand the risks. Every business has risks. All of my businesses have been at risk of collapsing multiple times over the past few years. Blogs worry about competitors and Search Engine Optimization (SEO) algorithm updates. Product or service models worry about market down trends or losing contracts with affiliates. Your specific business will have plenty of pitfalls that you may miss and could easily sink your business. If you had $250k in the back would you risk it on this business? What would have to your life if you had to bankruptcy to get out of over $200k of debt for a dead business? This type of loan will need to be personally secured, meaning you're personally liable.
This is a big decision. It's easy to get blinded by the potential profits that easily outpace the stock market indexes but there is also a monumental level of risk that is not advertised. rrowland • Understand why they are selling. Many business owners will want to time an exit to make a multiple of peak profits. Most will say "it's just time to move on" or "I'm interested in another project". Usually it's BS and there's trouble in the water they hope you don't discover
• Scrutinize the P&L. They should give it to you digitally so you have time to review. Not in a meeting. Understand which expenses or other line items may change after a transition.
• Make sure you understand the time investment required to run the business. Both partners are selling you their share – will there be too much for one person to handle? My first and most expensive business purchase was advertised as 27 hour weeks, with 20 of those being customer support hours. This was bogus. I hired 24/7 support staff to cover missing hours and have still been spending 40+ hour weeks putting out fires in this business for years now. You don't want to take out a $250k loan for a job that ends up paying you less than what you're making now (trust me, I've done it)
• Understand the risks. Every business has risks. All of my businesses have been at risk of collapsing multiple times over the past few years. Blogs worry about competitors and Search Engine Optimization (SEO) algorithm updates. Product or service models worry about market down trends or losing contracts with affiliates. Your specific business will have plenty of pitfalls that you may miss and could easily sink your business. If you had $250k in the bank would you risk it on this business? What would happen to your life if you had to file bankruptcy to get out of over $200k of debt for a dead business? This type of loan will need to be personally secured, meaning you're personally liable.
This is a big decision. It's easy to get blinded by the potential profits that easily outpace the stock market indexes but there is also a monumental level of risk that is not advertised.
Edit: also, make sure the valuation is based on reality. Most companies under $5 million sell based on a multiple of average monthly net income over the past 12 months. Median depends on the industry but for blogs and other online businesses the average is around 36x monthly net and personally I've bought between 27x and 44x crismack Straight up dropping GEMS here. This will not bode well for the OP. A dollar and a dream does not make for a successful business. Copora I just read through all the responses on this thread . It sounds to me like you are hyping up this opportunity for yourself.
If you are truly bound and determined to buy the business, then get a fair valuation (accountant, not a business broker) first.
Also, you need to remember that in business, just as everywhere else, your money is made right when you start: negotiate the price down as much as you can. You wouldn't be doing yourself any favours to just buy at whatever price the seller wants – a purchase only happens after a bunch of negotiations about price and terms.
My instinct, given that the seller has already told you he has another buyer and that he'd prefer to sell to you is this: the other buyer approached him (basically a cold call) and asked if he wanted to sell – he hadn't originally been planning to sell.
Then, once he decided he might want to sell, the other buyer, being a savvy investor, tore apart his financials and offered way less (like probably half) what the seller estimated the value at, PLUS wanted to do a multi-year deal and using seller financing at that.
The fact that the seller is walking away from that deal sounds like he (a) thinks the business is worth more than it really is worth and (b) he doesn't have faith a new buyer can make great profits (otherwise why would he not only not sell yo that buyer, but also offer you this same multi-year deal, just at the higher price and no financing?)
If he's the one who mentioned seller financing first, specifically saying he wouldn't do it, then to me that would be a red flag.
AltPerspective You're being taken advantage of. Please don't do this. You're clearly extremely new to all of this. The lack of experience and knowledge is making you think this is a golden opportunity. Golden opportunities don't exist in a free market, there's always a catch. They're tricking you.
Autist Hey.
I got this thing that is extremely valuable that other people want to buy and I want to sell because it is so valuable.
But I'm a nice guy and I like you. So even though it is so valuable that I probably would continue to make money off of it. And even though I already have another buyer lined up at the same exact price without financing or any complications. I want to sell it to you because you're a good person and I'm a nice guy.
And even most important. Even though the other buyer wouldn't require much hand holding or training in business and operations. I want to spend a good amount of my time after selling you the business to help it be successful and make sure you can keep it running well to make a profit off of the deal.
Don't worry about the fact I won't do seller financing. Because while I 100% trust you to succeed and believe that this is a sustainable business. I just want the cash in hand because it feels better. And I'll do whatever it takes to help you get a positive return on this business because I'm that good person that does those things.
But remember, I'm going to spend six months traveling to Hawaii next year and the rest of that time on another new businesses that I'm going to grow. But don't worry, I'm 100% here for you and want to make sure that you're successful; even though I have no real obligation to.
Sust-fin There isn't really enough information here to opine about the price. It could be to high, too low, or about right. But we don't know what the businesses are, how they are performing or how they would perform without the owner involved.
I personally think it might be good deal after some serious discussions and negotiations, right now it has a lot of red flags.
• A very logical way to sell a business like this is with some seller financing, with the seller staying on for a period of time to ensure a smooth, and a price that is linked to realist during the transition period. If someone agrees to this, you have a very solid assurance that things are as they are claimed and that it can be transferred. If someone wants 100% of the money up front, provides no transitional support and no exposure to risks then the probability of "things going wrong a d them not answering the phone" goes up.
• I don't know if there is any way that he can "prove" the other offer to you. I am somewhat skeptical that it exists. He claims to have a full cash offer exactly like he wants, but is dilly dallying around risking that because he really likes you?
• The 50/50 thing is a complete mess. I think you are going to get hung up on negotiations over the shareholder agreement. I am almost certain that your 50% of the business will not give you 50% of management control. All it does is give him a risk-free $250k. If things don't work out and you don't have control you will never be able to get out if that.
• A big problem here is that all of the details you list above are really secondary items. They are useful after the primary items are covered. These primary items are the same as the ones you would bring to investors so I am listing them in #5 below. But if you don't know revenues and profits; assets and debt; and some key business model elements, neither you nor an outside investor should move forward.
• What are some key details I should know when presenting the offer to investors/lenders?
Business models of three businesses, financial statements or key financial data, understanding of suppliers and buyers (who are they, how many, would they stay on after the sale), key staff or management, what key contracts are in place, what additional investments would be requires to operate or grow the business.
6. Getting outside investors for a business of this size will be very tough if you want a meaningful share. I expect that new investors will basically want to own what ever the buy and what you will get will be full dependant on whether you can seriously grow the business Bellairtrix I agree with everyone else here. You have shiny shoe syndrome right now, which is getting distracted because everything looks "shiny." Focus on one thing at a time- in this case, is your watch business. Make sure you're making consistent $100k profit before you take on anything else. You're just on your first batch and your business is still new. Don't get distracted and stay laser focused. If you take on another business, you're going to burn out, especially if you haven't even started a business before. Yes, buying that business is a great opportunity-but that's the thing. There's going to always be opportunities around us. Don't get distracted and focus. There will be another time where you can buy a business but it's not your time yet.
You should:
• look over their financial statements and see if they have any debt. Revenue doesn't matter, make sure their profit is where it's at. Are they making enough profit to serve your lifestyle and other personal and business finances you have?
• Do you really want to take out $250k of loans?? That's a lot. Pay off your personal debt with the profit from your business first. Become financially free with your watch business.
• You say you're going to profit $100k once the supplies come in but you have to think about where that $100k is going towards.. taxes, ads, business expenses, paying yourself, paying the supplier, etc.
You have to be realistic here. If I was selling my business and have been working on it for 30 years, $250k is way too low to sell it for. I wouldn't take it. Just don't bite off more than you can chew. Alawyer Lots of great answers here. I agree with all of them, this does not seem like a good idea. Also one thing that I haven't seen mentioned is that the jewelry/watch business is not going to be doing very well in the next few years due to the recessionary climate. We had a Bull market for the past 10 to 12 years and everybody made a lot of money, especially in the past few years, where all the crypto and finance bros buy watches and jewelry to flex on social media.
With so many losses in the market and recession and likely hard landing, people just aren't gonna have as much money or appetite to buy jewelry in the next few years. If I had to guess I think the seller has probably seen that and that's why they want to leave the business and pass it on. When you look at the numbers make sure to look at the changes in the past few years and especially the past few months. I'd be willing to bet very substantial amount that the sales have gone down consistently in the past few months Due-Studio 500 watches at $2,000 a watch profit gets ~100k in profit. That's a big profit number, why wouldn't the watch makers go after that?
Cutting down your costs are great, but without any information, I guess the question is how quickly you will be able to recoup 500k.
Your numbers don't make any sense to me, but the math would be how much you save owning the supplier + whatever the supplier projects to make in profit without the brother and then subtract out all of the risk that there are fundamental isses with the business.
Personally, if I was making 100k just doing business with these guys, that is what I would keep doing. There isn't enough upside to wade into the unknown. Agame Dude! You're excited. A new HUGE opportunity is on the horizon. And you believe you're getting a great deal. A deal you can't let go!
It's okay to be ambitious and excited. But…
Look at the facts.
From what you've outlined there are massive red flags here.
• You haven't sold a watch. I've started 10+ companies. When people come to me for advice I tell them the same thing: the hardest part of any business is getting profitable customers. Read that again.
• He says he has a buyer but likes you better. He says you have until the end of the year. This is called the "scarcity principle" in marketing. He's putting pressure on you with FOMO and a rapid deadline. This means you're currently working from feelings instead of logic. Recognize you're being marketed to.
• You did not mentioned anything about due diligence. Why is the valuation 500k? Where are the certified bookkeeping records? Where are the tax returns? Where is the proof of everything? You glossed over the most important part of a deal. People get attorneys and accountants involved because due diligence is #1.
Considering the above I'd run away. Focus on selling your watches. You are young. You have time. Don't get yourself in a horrible situation that you will spend 20 years digging yourself out of. There will always be more opportunities – saying no to the bad ones is what makes you successful.
P.S. I've launched 10+ eCommerce businesses. I'm trying to help you because I see this going poorly. MaxTest I'm so pleased for you that you don't have 500k in the bank because you would have just handed it over to this dude.
What's the companies turnover? Profit margin? Liabilities/debts? Assets? How many staff? And pension liabilities it owes? What about its order book? Is he going to take the customers/suppliers with him and directly compete with you?
You know NOTHING about this company but he saw a young naive kid and spun you a dream and you bought it.
If you're so confident this business is going to make you a millionaire then please answer how they haven't made it that big in 30 years? Why do they want out now?
So many questions and you have no answers. Be glad you haven't thrown any money into this pipe dream and for god sake don't take on any debt for it! If you are going to get into negotiations hire lawyers and maybe an accountant to tear the books apart and find the real value, I doubt it's anywhere near 500k.
