Buying a Share in a Private Business - Help

G

gronk007

Hi All,

Am in the middle of getting legal and accounting advice of course, but hoping to get some specific advise if anyone has been in this situation before, so thanks in advance.

An old work colleague who I've been on good terms with has approached me to join his company - what I thought was a job offer was a request to become a business partner.

Some very rough figures:

Gross Profit of $900,000 per month
Net Profit of $180,000 per month (am waiting to see if this is before or after tax)

They are asking me for inject $300,000 into the business, for 1/3 share of the business, and 1/3 of the dividends distributed back quarterly.

Sound too go to be true? If they're doing this well, why the need to have external funds/partners? I know that expansion is on their mind so funds are always needed...but again, sounds too goo to be true.

And if they ask anyone else into the business, what are the dilution effects, and so on.

Any help appreciated if you've been on either side of the transaction...
 
That 900K a month, are you sure that's not gross revenue as opposed to gross profit. Gross profit is revenue after cost of goods sold. If their gross profit is 900K a month, there is no way on gods green earth they would need 300K from you.
 
Hi

Could be worth investigating. But why are the current owners offering you this? Do they want to free up some time and bring you on to run the business whilst they aren't in attendance?

Or are they that good of a friend they want you to be a partner as well?

If it is just for the money well then I think something doesn't add up in this case. For someone making that sort of money I am guessing they are looking for an urgent lump sum of cash to cover something you haven't been told as yet.

It would be interesting to know what response you get if you tell them you are keen but will pay after 12 months of operation with 15% interest. Try that and see what response you get.

Regards,

alicudi
 
300k for 1/3 share of 180k net per month... works out to be about 0.42 times ebit. The two months it'll take you to organise all the legals and financials, they would have made the 300k.

Is your mate a Nigerian prince with access to some gold?
 
Need more specific figures to evaluate.
If the directors/partners are building the biz and not taking a fair market salary, the net profit could actually be zero or negative if they were to step out of the biz and have to pay others to take their place....
Or maybe sell a share of the biz, step away and expect the new guy to make it fly.
 
Ace in the Hole said:
Need more specific figures to evaluate.
If the directors/partners are building the biz and not taking a fair market salary, the net profit could actually be zero or negative if they were to step out of the biz and have to pay others to take their place....
Or maybe sell a share of the biz, step away and expect the new guy to make it fly.
Click to expand...

Very true

We look at a lot of businesses that advertise profit figures and then no salary to the owners. Although if the $180k a month is correct would still be good even after accounting for it.
 
300K is less than 2 months earning according to the figure you given, they can go on holiday and come back and they have 300K they don't need your 300K :)

something doesn't add up sound like 900K Gross revenue, 180K Gross profit
yearly rather than monthly so 5-7 times Net earning sound about right for a private business.

ASX business trades around 8-12 times net earning but better business command 15-20+ times earning.

probably need to find out what the business do first, this is important you dont want to get into a business that are in decline or model that about to get killed by technology or some other emerging start up etc...

I have reasonable knowledge evaluating ASX business so if you tell me what they do and some other information I can give you my opinion
 
No mention of the industry or type of business. I would hazard a guess it might be a consulting business in a specialised field. Revenue/Profit numbers may be current but may not be a long history of such performance. They're willing to sell equity cheap because the business relies on the directors and a couple of key client relationships, and the new partner will potentially bring new relationships which can growth or sustain the business. Just guessing.
 
If the business is really that profitable and they want you "in" for what you can bring to the business, perhaps you can "earn your share" by working and not drawing your profit entitlement for a few months.
 
Mr. Fabulous said:
That 900K a month, are you sure that's not gross revenue as opposed to gross profit. Gross profit is revenue after cost of goods sold. If their gross profit is 900K a month, there is no way on gods green earth they would need 300K from you.
Click to expand...

Hi there,

Yes, sorry, $900K a month in gross revenue
$400K is in gross profit
$180K net profit
 
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