Family friend wants to hire me before selling his business.
September 29, 2021
by a searcher from Utah State University - Jon M. Huntsman School of Business in South Jordan, UT, USA
Hi all,
I have a family friend that wants to hire me in his business prior to selling it to me. His reasoning is that 1) He feels like the transition will have a greater likelihood of success, 2) I won't have to assume a PG on an SBA loan as we could work out a deal 'in-house'.
His request is that I put together a structure on employment/transition. Any thoughts on things I should keep in mind or consider? Any resources you'd recommend as I begin?
from University of Texas at Austin in Austin, TX, USA
As for employment structures, this depends on what he's looking for from an "exit" perspective. Is this an elevator deal, where he's looking to gain an equity partner / sweat equity partner, while taking some chips off the table?
While you might avoid the PG on an SBA loan, depending on how this transfer or creation of ownership for you - could create some other pitfalls for you.
I would recommend, at minimum###-###-#### a third party valuation, if this is going to be a partnership "purchase" - you should have an accurate assessment of the business, 2) a discussion with your CPA around taxes, and finally, 3) a consultation with an M&A attorney, about the structure of this 'employment' agreement.
While I think it could be off-putting, and you'd want to tread carefully - I would want to do some of the basics of due diligence before moving forward with this. I.e., is the business healthy / good standing; while generous for an employ to own offer from your family friend - another potential pitfall would be that the personal relationship causes you to overlook some flags about the business health.
I'm sure others here may chime in with other thoughts.
from Texas A&M University in Johnson City, TN, USA
Structure employment contract such that you get market rate wages if you decide to back out. If he backs out, maybe he owes you double market rate. This is incentive for him to keep promise. Also set deadline, maybe 12 months, etc.
3rd party evaluation could be bad if it creates a valuation gap.
Add in put/call options if he remains a minority partner. You may be OK now, but you for sure want majority control and he should also want a way out as minority owner.
Maybe your friend read "Hire your Buyer" by John Mill.