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AdvisorNet

For a buyer small business broker, would you consider this?

Veteran

Eddie Starr Spokane, WA

​As the broker, you want to help facilitate the transaction, and make it close, creating wins for everyone, ideally. Here is a scenario, and I'll try to keep the numbers simple, for this example.

​A person is looking to sell their business, because they are looking to retire, and have health reasons. The business is for sale for $60k. The annual cash flow (net) is $120k. Over a period of 12 months, that would be ​10k/mo. 3% of that is ​300 * 12 = ​$3,600.

In lieu of your normal fee, would you consider a 3% ​share of equity (profit) in the deal? Each year, you would earn $3,600, for as long as the business is in operation--without having to actively help manage the business--for one transaction.

​Then, when the buyer looks for another business, the same would apply, with another "$3,600/year," as long as the business is in operation.

​Thoughts?

11 November 2018 2 replies Small Business

Answers

Veteran

Curtis Hays Castle Rock, CO

It doesn't sound worth it for the buyer or the seller to me. For the seller, they have an albatross eating into their profits forever with no advantage. For the buyer, you front the money to buy the business but it's going to take 16+ years before you start to get a return on your business.

Advisor

Andrew Klarman New York, NY

Hi Eddie,

Thanks for utilizing ACP AdvisorNet! That's an interesting question and I'm not really in a position to offer my insight, but I would recommend you reach out to an advisor directly, and you can search for advisors using our Community tab. You can send any advisor a private message and it will populate in their inbox.

Hope that's helpful!

Andy

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