Stupid Tax

#14 - Matt Wants to Buy His Uncle's Business: Mitchell and Scott Weigh In

Dec 4, 2023

Experienced business advisor Mitchell and seasoned entrepreneur Scott offer advice on buying a business, specifically when it involves purchasing from a relative. They discuss the importance of trustworthiness, avoiding becoming a key employee, and having difficult conversations. They also emphasize the need to explore opportunities, treat the process seriously, and create a purchase sale agreement that aligns with both parties' confidence.

37:49

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Episode guests

Scott

Mitchell

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Quick takeaways

When purchasing a small business, it is important to work in the business beforehand and communicate clearly with the seller about terms, price, and ownership transfer.

When negotiating the terms of a small business purchase, focus on factors such as pricing, timelines, and financing structure, and consider options beyond traditional loans to finance the purchase.

Deep dives

Key Points on Buying a Small Business

When purchasing a small business, it is important to work in the business beforehand to understand its operations and determine if it is the right fit. It is crucial to communicate clearly with the seller about the terms and timeline of the purchase, including price, ownership transfer, and potential growth. For buying from a family member, defining the terms of the agreement, such as payments and exit dates, becomes even more crucial to avoid misunderstandings. It is recommended to avoid taking on excessive debt through loans, especially from the SBA, and instead negotiate favorable purchase agreement terms directly with the seller. Consulting with trade associations or industry experts can provide useful insights. Lastly, it is essential to have a well-drafted purchase agreement in place, defining the assets being acquired and the terms of the deal.

Introduction

3min

Buying a Business from a Relative

10min

Buying Businesses from Family Members or Acquaintances

9min

The Importance of Having Difficult Conversations in Business

2min

The Importance of Having a Conversation about Buying a Business

4min

Creating a Purchase Sale Agreement

10min

Matt recently wrote into the show to ask about best practices for buying a business, and more specifically his uncle's pest control business. Matt has worked in the business some, and has an opportunity to buy the business, but isn't sure about the best way to go about it -- generating a letter of intent and purchase agreement, how to value the business, how to stucture terms, financing, etc. Mitchell and Scott review his email and offer advice for aspiring business owners in a similiar situation, sharing their own successes as well as lessons learned from deals gone wrong.

One key takeaway -- once you decide you want to buy the business, get the purchase agreement signed as soon as possible. Don't delay! Many people in similar situations have gotten with a verbal agreement to buy the business, but the owner procrastinates, the papers never get drafted and executed, circumstances change, and the deal never comes to fruition. The potential purchaser wastes months and years with nothing to show for it. You owe it to yourself and your family to get serious about making a deal, or move on and look for the next one.

Get in touch with the show!

Email: show@stupidtaxpod.com

Mitchell Baldridge

Twitter: @baldridgecpa

https://baldridgecpa.ck.page

https://baldridgefinancial.com

Scott Hambrick

Twitter: @hambrickscott

IG: @ogscotthambrick

https://onlinegreatbooks.com

https://scotthambrick.com