Buy the Business You Work for?
Yes!
Turn your job into your first business acquisition.
I walked into the office for my first interview at the tax firm. Pow! It hit me like a ton of bricks! I thought I was on the set of The Brady Bunch. Everything was orange and brown, the furniture, the carpet, the paneled walls. And I love puzzles, but as an activity, not as the center piece of my interior design. Not Ralph. He framed his puzzles and hung them up in the lobby.
Once I got over that initial shock, my eyes rested on a magazine featuring Napoleon Hill, Think and Grow Rich. I had been reading a lot of his works and knew it must be a sign! And so it began…
Ralph hired me to do drop-offs. That’s where you sit in a room by yourself in the back of the office and do data entry on personal tax returns. You make a list of questions and missing items. No customer interaction. No pressure. Someone else who knows what they’re doing checks and corrects all your work. I was still waiting tables at Cracker Barrel during this time and in addition to balancing two jobs, I was room parent and Girl Scout Leader. I was also taking extra accounting classes and studying for the CPA exams. Busy, but loving the challenge! Over the next several months, I absorbed everything I could about that small tax practice. There was even a period of time when I worked for free just so I could gain more experience and more knowledge. And it paid off because I turned that part time seasonal job into a business acquisition.
Ralph’s setup was a little unique. There were two separate firms operating in the same space. Ralph and Doug shared overhead items like paper, printers, postage, utilities, and rent. They did not share clients. They operated very independently from each other. I worked for the old guy, Ralph. He had had an established practice for many years. Then at some point, Doug asked if he could use part of Ralph’s office space to go out on his own. That relationship started long before I came around, and Doug had a booming practice of his own. But since Ralph was there first, he controlled the space, the phone number, and the fax line if you remember those.
As Ralph’s health issues became more burdensome, he got more serious about selling, and I’m sure Doug became more and more nervous about the impact on his own business. Someone else would control the lease, the phone number and so on. I wanted to buy Ralph’s practice and we discussed it quite a bit, but I had just earned my CPA designation and Ralph was, understandably, hesitant to turn everything over to a newbie.
Doug thought about buying Ralph’s practice, but he didn’t really want a second business. He did want control. So much so, that he ended up approaching me with the idea of him buying Ralph’s practice, and me managing it for him as an employee. I was super excited, but I told Doug I wanted to be an owner, not an employee. I was upfront with him. I told him I didn’t have any money for a down payment and I didn’t think I could get a loan at that point. I did have time. I wanted to work and learn, and I was good with the clients, an accountant with a personality! Unbelievably, Doug came back and offered me 49% equity in exchange for running the practice and handling the day-to-day tasks!
We made it official at the tail end of 2011, right before my 40th birthday. Whew! That was a close call. I was finally going to “be somebody”. As I said, Doug didn’t really want another business, so we continued to keep the two firms very separate. Doug ran his original business, and I ran the new business, the one that used to belong to Ralph.
Here is how the deal went down:
For $0 out of my pocket, I received 49% equity.
Doug paid Ralph $10,000 upfront for the office equipment and supplies.
The purchase of the business itself was comprised of monthly payments over five years, based on revenue generated from the acquired clients. The business paid for itself. No loan.
Ralph stayed on as a part-time W-2 employee.
I ran the entire practice, with lots of behind-the-scenes guidance from Doug, and Ralph for that matter.
I received a small salary which covered all my living expenses. (Way more than I was making at the Barrel!)
Plus, I received a bonus at year end, based on new clients I brought in.
Every December, we emptied the bank account, except for $15,000 or so to cover the next year’s beginning working capital.
We split that distribution based on our 51/49 ownership percentages.
I was in heaven! I finally had some control of my own destiny! And I’m just going to shout this out, I still love taxes!
If being a business owner is in your heart, but not yet in your life, I highly recommend the Buy Your Boss Out path to Acquisition Entrepreneurship.
Is it possible that he or she is considering retirement? Are there health issues making it harder for them to keep up? Are you positioning yourself as the perfect answer to your boss’s dilemma?
Selling to a knowledgeable, trustworthy employee is a great solution for the business owner. It’s “easy”, it’s a built-in solution, and it often allows the owner to stay involved with his business baby during a longer transition period. “Partnering” with your boss can also present unique challenges, but maybe your current job can be your first business acquisition.
