Buying In Debt Free
John doesn't want to do the debt thing when taking advantage of a small business opportunity. How does Dave think he should do it?
QUESTION: John has heard about buying an existing small business without going into debt. He can buy a landscaping business where the owner says he made $250,000 last year. He has three employees and is asking $390,000 for it. What advice would Dave give for doing something with the business without debt?
ANSWER: You take over management for him, and in return you get a percentage of the net profits that you create that pay toward your ownership in the business. You have an option on the business and take a living wage out of it, and everything else goes toward buying the business.
It could be grossing $250,000, but it could have $350,000 in expenses. Don’t just look at gross revenues. I would rent the building from the owner with an option to purchase as a separate transaction later, after buying the business.
If he’s not charging rent in the calculation, that’s not realistic. You have to add that and utilities, those types of figures into his actual calculation of profit before you figure out of there is any profit. I’m not sure this guy is making a profit as you describe this.