Someone wants to buy me out and I need some advice.

[knight_toolworks]

First here is the company http://www.inkwellgroup.com/#/home/
I did a small job for them an emergency job. They are the ones I posted about doing the roofing boards.
Well anyway when I talked to one of the main guys today he came to my shop. They have been thinking of buying a cnc machine themselves. But they want to buy my business. Now first of all my business is dirt small. Been doing it two years and it is slow going. I am terrible about selling my services. I know this and it has hampered things
I made about 30k or so gross last year. . it comes out to maybe at most 18k left over after expenses.
No medical or anything else.
So they want to make me a offer of 35k a year and full benefits. I will also sell them my business.
I have never made that much so that is good income. I can bring in outside work still. But I would be mostly doing their jobs.
All I have to sell are my tools in my shop I don’t have vehicles or property that goes along with it. My shop space is 900sf.
I don’t mind working for someone. I am not good at the business end. I just want to keep busy and be able to pay my bills. To have some income to buy something if I want or need it.
What I don’t want to do is get stuck with nothing if it does not work out. I want to have enough money out of it to buy another machine and get going again.
I need to do more research on the company of course.
It’s a pretty big step for me.

[ken]

Steve,
In addition to you becoming their employee at the salary you have indicated they should be paying you for all the assets of your business. That includes your machine, all your tools that you’ll sell them along with any inventory. You should also include in your list of assets (inventory) all of your cutting files and any proprietary or copyrighted products that you may have. Do not forget to add in the money you spent on your web site. Additionally, if you are selling them your business you should expect to get compensated for the volume of business that you are currently doing. After all, I am sure you spent a great deal of time and energy to get the customers you have and build the business to the point that it is now. I would also insist on a royalty predicated on future sales of any of the products that you have designed.

Good luck!!!

Ken

[bob_s]

Steve;
just from the practical point of view I would do the following;
Decide if you want to make this change - it seems that you do?
make a list of what you have now - equipment wise
price that list with realistic prices for replacement
be sure your buyout check brings you a realistic amount for your inventory, too much kills the deal, too little puts you at risk if it does not work out long term. Taxes need to be an important part of this calculation - get pro help.
Get an employment contract with an early termination payout amount. If the "big boss" decides you are not really needed after X months you get Y dollars to go on your way. This is standard stuff - BUT do it in writing - if it doesn't work out nobody remembers the verbal agreements.
Have someone pull a credit report on your future employer - you are not snooping - just do not get involved with a poorly run company & this is the easiest way to tell - check their references - many people spend more time checking which cell phone to buy than who to do business with.
If the parts add up then it sounds like you may enjoy the lower stress - good luck

[dakers]

We bought a one man shop company in the 70's. He wanted a 5 year contract which was renewable after 5 years.
the contract stipulated salary, etc.
it was good for him. We did not renew after 5 years but we did find him a better paying easier job locally doing more of what he liked to do. I was in my 20's and he about 50.
It worked out good for both of us for 5 years.
The selling price of his business was low but the salary was high so in 5 years he got what he really wanted for the business anyway.

Probably good idea to have an accountant and attorney advise you on selling cost and other things.
If you have to sign a non compete agreement there should be a time limit on it that you are comfortable with. Best not to sign one unless you have a employment contract that guarantees you income.

[knight_toolworks]

I brother recommends a higher wage and I keep my tools and their upkeep.
that's the part I don't like selling my tools. even if I get enough I would have to refit my shop that's hard to do. my tools are not worth that much my shop is only 900sf.
I will also make sure they pay my legal expenses. I sure can't afford them right now.
I was pretty clueless about this so I need all the advice I can get.
insurance is a big deal my wife is blind so she is on medicare but the prescription part is running out already and her pills are 550.00 a month she found some state help but it will cost me 100.00 a month. More bills I can't afford.
but one fellow said 35k a year is not much. it seems a lot to me but I guess in the real world it is not much.

[myxpykalix]

You say they want to buy you out but i didn't see you mention what they will give you as a lump sum for the business and assets?

If you aren't getting at least the price of the equipment UP FRONT then you are essentially making them money with your equipment that they in turn pay you with and that's not logical.

If they aren't willing to give you the price for the equipment and a salary then i would suggest that you look into just creating an exclusive contract for them and the work they want done with them paying you an upfront fee and you retain the ownership right to the equipment.

This way you won't be giving your ownership of the equipment away and depending on their expertese to make you money with your machine.

Unless they have a monetary stake in this by buying your equipment YOU are the only one who stands to lose it all.
I have seen people who have gotten in to these types of deals and walked away losing all their equipment and business because they got deperate.

I suggest you go and have a lawyer go over any legal arrangement you make. There are legal aid societys or AARP chapters that will give free advice if you can't afford it. Just don't let yourself get suckered.
"If it sounds too good to be true it probably isn't". Good luck and give us more details.

[GlenP]

Hey Steve, tough call you have to make. It does sound like you prefer working for someone instead of yourself. I would advise to be careful about who you will end up working for. Is he the type that treats employees well or does he yell and degrade his employees. I worked for a friend for a few years back only to help him out after he and his business partner split ways. Man you think you know a guy...yell, complain, talk down to you. I told him I didn't need this and left him to tough it out on his own. If someone walked into my shop and offered to buy me out and offer me a job they just might have a deal providing the $$ are right. Get a fair deal for all your existing customers and the doors you have banged on in the past. You may have pitched a deal to a guy and he is sitting on the fence and after you sell the new owner will reap YOUR rewards. Be careful if he wants a competition clause in the deal and get your own lawyer not his.Good luck and keep us posted.

[knight_toolworks]

I don't mind working for someone. sometimes I know I am not good with pushing myself. I am terrible about records and such.
I do like the idea on how it would be to work for someone. not sure who would be the boss.
more things to find out.

[knight_toolworks]

This is scary for sure. But I do know I will never be able to sell myself. I have known that for years. I am slowly gotten word of mouth out and I get referrals from local woodworking stores. But will it ever be enough? That’s hard to tell. I am the one they come running too for fast or emergency jobs. That’s how this company found me.
They were fine with me bringing in work too. I only have one steady customer so far.
I will make them pay the legal fees.
It’s hard to give up your tools even if you can buy more. My shopbot was bought with my inheritance from my grandma. She saved the money from my grandpa the carpenter.
She invested something like 1200.00 and got 60k out of it. That’s hard to do these days.

[bruce_taylor]

Steve,
If they are a secure company and you ant some security it may work well for both of you. To have access to a cnc and operaor at that rate is a good deal for them.,Sounds like you are open to it as well. Many great things can come from things like this.My humble advice is o get to know the people you want to involve yourself with,and then work out the best deal you can. Always have an exit strategy incase things don't work out so you are in at least as good a shape as you are now if you need to start over.
One last thing,Make sure you pick your attorney and you pay him.The money can come from them,but your attorney needs to
really understand your situation and represent YOU. Talk to several to find one you feel comfortable with and is good at this sort of thing.That can make all the difference. Good luck

[dakers]

Steve,
if possible tell them you need several months to think about it.
Emotions need to settle. Give them in writing your concerns about security, etc. Ask them to propose something in writing with the details so you can think on it over a few months.

You have mentioned some deficits you feel like you have to continue selling. There are solutions to those deficits in various methods of marketing.

As for the sentimental value with your Grandma and the inheritance. If you sell she would have helped you improve your situation in steps. if you do not sell she would have also been involved in your development. It is nice that you are grateful and respectful of her.
Take your time.

[dana_swift]

If they really want to be in the CNC business, they will have already read this thread. If not, I suspect they just want to lock-in an employee.

I would sell outright, or nothing. Businesses get sold all the time, so the value of assets, goodwill, + customers is something that can be computed. Would you like to start up another business.. this is that opportunity. If you prefer the business you are in, there is very little opportunity-cost in staying put. They may decide to go into competition with you tho, thinking you own a gold mine. If so they should pay a reasonable price for all your efforts in establishing the place.

Their side of things is due-diligence, have they made any serious investigation of you? Part of that would be likely to discover this forum, so they should have read this. To them: "Howdy"

If they suggest that you should say hello to me in reply, I would think that an indication of the situation-

D

[coolhammerman]

Steve,
Companies are bought and sold all the time. It is very normal for current management (you) to stay on for a specified time period after the sale. You get a lump sum payment at least equal to your start up costs for a new venue and a reasonable salary during the stick-around-period. Reasonable salaries can vary greatly depending on where you live. Take what you are comfortable with, but plan for "D" day when you will depart.

Ask them straight out why they want to buy your business and why they want you around. Ask point blank what they are trying to accomplish and what they see as their alternatives. Then don't believe everything they say.

You might ask for a couple of different offers from them so you can pick the best one for you.

Use an Attorney, CPA, and a family advisor to give you clear direction. There is wisdom in many counselors.

Pray about it if that fits your style and do what is right for your family. Good luck and God bless.
Ron

[gundog]

Steve,
It does not seem to me you are getting enough $$. I once thought about selling my business and I still might. I was told you should get 75%-100% the gross sales for one year + the cost of equipment. This is just a rough estimate but a place to start.

Maybe you should look into some different markets than what you are doing now. There are many things you can make with CNC equipment and the knowledge of how to use them.

My business is a side business but it keeps getting bigger even in the economy we have now. I created a new product for fishing boats that I could not buy I patented the device and make and sell them. I started 3 1/2 years ago from nothing and now have about 30 dealers in the Pacific North West. I am telling you this not to brag but I am saying you may have something you could make that no one else does. Do you have any hobbies? Is there a widget or item made from wood or whatever you could make with your CNC that would be supper cool and nobody else makes? Thinking this way might get you the extra business to stay in business by yourself.

The thing about people who have the skills to make things is we think different than most folks. They see a need for something and say gee I wish somebody made something to make this easier or better. We look at it and start planning on how we can make that new part.

How long have you been in business? You are getting referrals from woodworking stores that tells me a couple things you are not screwing people over and you probably do good work for a fair price. Word of mouth takes a while to get around but it is better than any advertising you can get.

I am a lousy salesman I hate selling my own stuff because any negative comments I take personal. As for marketing I feel I have made a few good decisions. I have my business name web address and phone number etched on every part and second I became a sponsor on a fishing web site for one that was huge for me. It took me a year and a hlf of asking to become a sponsor before I was finally accepted. This allowed a little advertising and people started discussing my products on line. My web site had no hits before I did that. Back then when you googled my business name it did not even show up. Now when you google or yahoo my business name it is at the top this happens because your business is googled or discussed most often. Try it type in Miller Marine Products then look up www.Ifish.net (http://www.Ifish.net) and do a word search for miller marine and look at the results and conversations.

I hope some of my ramblings are of use to you.

Good luck Mike

[dakers]

Michael, great contribution.

[henrik_o]

Step 1, get a lawyer.

There are no more steps. ;)

Really, you need a lawyer who was done small biz acquisitions to look this over. If you already have a family/biz attorney, they could do this or recommend someone.

If I were you, I'd tell them I am really interested and that I just need their offer in writing and have someone look it over for me. That's the stage where most of these deals fail, talk is cheap but once you get it in writing you'll know how serious it is.

Good luck, it seems like this could work out quite well for you but again: get a lawyer.

[Brady Watson]

Having someone interested in buying YOUR company is flattering...But you really need to ask yourself if you REALLY want to be an employee again & endure everything that goes along with that - including a commute, having others tell you what to do when you know best otherwise, and being abused by the 'salary system'. At this point, the decision should come naturally if you hold it against your life's dream for yourself. Does it or does it not go in the direction of your dream for yourself? The choice is then an easy one, with out without the dangling carrot.

-B

[rb99]

Do some investigating...ask people who have worked for them if they are good in the long term.

It will be a big suprise when they start acting like pr*cks after you have sold out to them...

I would sell out completely. Have a way out and be sure all cash is up front.

RIB

[gc3]

Try posting your question on this link, post it in the business/management forum. You do not need to register. www.woodweb.com (http://www.woodweb.com)

[knight_toolworks]

I don’t know Brady my boss has been pretty lousy never pays me. No health benefits no paid vacations.
I have been self employed for 11 years I think and I have been broke the whole time. My plane business did a little ok for 5 years but it died out because of the same thing. I can’t sell myself at all. That’s something I have never overcome and may never overcome I am not a outgoing person.
How far will I get on word of mouth?
I will still be able to bring in outside jobs so my rep will still be going. I will get a contract for a certain number of years and enough money to re buy my tools. So if it does not work out I will not be out anything. Some weeks I work of nothing. On a good month I paid most of the household bills and have a little left over.
But I sometimes can’t even pay my basic bills.
Now if I could hire someone to bring me work that would be the way to go.

[Gary Campbell]

Steve...
A few things I would want to consider if I were in your shoes:

You mention $35K + benefits...Is this a Salary? Piecework? by the hour?

If THEY do not have any work for you, do you get paid?

What happens if some of your previous customers like your work and dont like their business practice?

What are the options for you to opt out? Timing? Non compete clause? Time? Distance?

What are the options if they want you out? Timing? Non compete clause?
Time? Distance?

What if you wish to make your Planes as a paid hobby?

Full Benefits? What is "full" 401K?, Medical? Deductable? Dental? Vacation? Profit Sharing?


Remember 2 things:
1) Do not sign until YOUR attorney looks over the contract.
2)Remember the "Golden Rule" HE WHO HAS THE GOLD, MAKES THE RULES!

Good Luck, Gary

[knight_toolworks]

OK I went and visited their place of business. Cool old grain towers that are converted.
Anyway 35k is the max they would go. I did not get all the details on the medical yet but it sounds good but no dental.
They really only want my tools they don’t want much of anything else from me beside me. I will just do work they need done for them so my clients are no value for them.
40 ore less hours a week and I can work less if I get the work done. So I get paid even if there is no work.
I can keep my clients and do other work as long as I get their work done. That kind of deal is hard to come by. It would be what I am doing now really. I would just get a wage for once. I did not talk 401k but I guess I better. A contract for an amount of years is no problem. Now I know what to ask for.
But this is a bad time to sell as there are lots of cheap tools out there.
They are thinking of another cnc shop but it is a bit big from what they need. Two cnc’s a truck and all. For about 45k.
So I won’t get much. And most of my tools are not high end. I am thinking I might get 23k total out of my stuff.

So that’s about it. Right now I never know if I will have work my wife’s new job is not secure and it does not have any insurance. She needs 550 in meds a month. She is on medicare because she is blind but her coverage runs out this month. She got on a state program but that will cost me 100.00 a month.
So having an income and some security would be nice.

[beacon14]

It sounds like a sweetheart deal to me considering your situation. Keep using your own tools, guaranteed income, insurance, a lump sum up front, sounds to me like the answer to your prayers...

[knight_toolworks]

the two things that worry me are I will be lucky to get enough out of my tools to buy another shopbot. so if something happens I may get another machine but that's all I will have.
I talked to a friend who dies big business buyouts. he had some good advice. that what happens if they decide to break the contract? will I sue them? I mean for 35k a year and it may take 3 years to get it and cost me how much in fees? I would be SOL with not enough left to make a shop again.
what would be best is to get the salary and do all their work first give them up to 40 hours a week. and do my other customers as time permits. they pay for materials and expendables and some machine maintenance. then they have a person do do the work needed far less overhead and I have my tools still. saves them 10k a year I bet.

I am just worried about ending up with almost nothing and unemployable since I have been self employed for 12 years.
I think I would be lucky to get 23k or my full shop. I think I would be lucky to get enough to buy anotehr shopbot.

[myxpykalix]

As i suggested in this thread earlier i would simply make a "exclusive contract" for work for them and you retain ownership in your tools because believe it or not this scenario could happen:

They agree to buy your equipment on a contract and you move it to their shop. They agree to hire you and pay a salary.
Then things go wrong they file for bankruptcy. They can fire or let you go and keep your tools and write it in to the bankruptcy filings. Now you are out a job and your tools.
I really don't see an up side to this deal by you giving away ownership of your tools and I still haven't heard you tell us how much they are paying you for your tools and what terms of payment for the tools are?

[bleeth]

Steve:
One thought is to make a buy-back deal on the tools tied to your employment contract. If for any reason other than your own mal-feasance employment is terminated in less than 36 months you get to buy back your tools for a fraction of what they paid. Or if you set it up as a 3 year lease with a lump sum up front and final payment not due or payable until the end of the three years you retain ownership of the tools in case they have second thoughts or their own financial meltdown.
I had a similar deal going a while ago in which I sold them the misc tools and rented them my Bot. When their company (now deceased) started crashing I just took my Bot with me.
My concern is that their main product is marketing ideas. Having you produce certain special items in house looks like it would entail some interesting projects, but what if down the road they decide that the "Value Added" part of having a custom fabrication department in-house may take away from their main focus which seems from their website to be graphics creation. I watched two companies do just that back in Seattle, one a general contractor and the other an exhibit and event planning outfit.
Bottom line is, only you know what your heart is telling you to do. Take that, make your decision, and if you want to go through with it be open with their principal about your concerns. If he is cold or matter of fact about their offer than I would say leave it. If not, he may have his own solution to them.

[dakers]

Steve you bring up a concern that many of us have.
We do not believe we are good at selling our products or ourselves. I have always felt that way.
The solutions i like involve less human interaction on a face to face basis. I sometimes hate labels on people because they can always change but i understand how you feel.

[ken_rychlik]

I have a different suggestion for you. Go get a job selling something,,, anything,,,, for someone else. Make what you can and LEARN how to sell.

Either way I would keep my tools and lease them to the company if you want to work there. They pay for the upkeep, but you retain ownership.

Also if this company sells thier products, make a deal where you get to learn the sales side of the buisness.

Kenneth

[frank134]

I like kenneth rychlik the best. that way no one get hurt. they get to use your tools and you get to keep them. I have done this with another company I own and it work out very good.

[robtown]

Sound's interesting, beware of any new assistant they offer up. I've seen in the past, situations where the thought is "we'll get a high school kid in here that's good with computers"... you end up training your own replacement on your own (previously) equipment.

The working with your own clients WILL end being a point of contention. They say it's ok, but do it once or twice and it will become an issue.

You should be able to get a job at 35k without selling your shop, or 30k w/out selling your shop (I would think)...

[carlcnc]

Steve
been watching this with interest,
its great how the different ways to do this keep evolving,so I guess I will throw in mine:
That big chunk up front sounds great but as a few have said,what if they decide to walk??
unless you really NEED that large lump payment for your tools, leasing of tools + the salary
sounds ideal.
this should be attractive to their acct too,
for a little "pop" in your income ,divide what they would have given you to buy your equipment
divide by the 36mo contract, and take 3-6mos up front,sort of like 1'st,last,and deposit.

good luck
Carl

[knight_toolworks]

I hope they will go for it. I don't think I will do it if I have to sell my tools. I won't get enough to replace them or set up a new shop. if I could get 40k I would jump on it. but even then it would be a lot of work getting a new shop going.
they want me for this one job of cutting out the roofing boards. that's all they need. not a fun job but still. it would cost them less to pay me 35k then 60.00 a hour to do them. it is a million dollar deal for them.

[dakers]

Steve, can you just do subcontract work for them indefinitely at a price that works for everyone.
It sounds like they could be a good account to have rather than sell your business.

If they do not have full time work for you doing what you want you may find yourself routing sometimes then doing other things you do not want to do.

Or tell them to buy a router and you will work part time for them and sign a non compete agreement that you will not go after the customers that they rout for but retain the right to do work for those who they do not rout for.

Maybe you can have both

[jdoug5170]

Steve....interesting thread.

I and my partner have a small vinyl banner and sign operation in Oregon and would love a working relationship with a local cnc operator. So, if you don't sell out, lets do lunch!

By the way, I used to sell cnc services and do the programing for a shop that had 3 industrial cnc routers that ran 20X7 so I'm not new at promoting the services available.

[gerryv]

Steve,

A few thoughts come to mind (I'm the suspicious type).

1. Remember, in a bad economy, cash is king. In a deep recession/depression it's everything. First, I'd make sure they have some and second make sure some of it came to me on closing. You're well within your rights to ask for an audited statement at their cost.

2. There are a good number of games in play but one that seems popular these days is where the acquiring company can't borrow any more money as they are out of collateral so they "buy" another company that has significant value in convertible assets (your equipment for example) and then either use it as collateral or worse, liquidate it to raise cash for what is now their company. It usually goes in salaries and bonuses to them. This works when typically, the seller (you) gets shares in their company, often overvalued, a minority vote (next to useless) or no vote at all, and usually you can't sell your new shares in their company for a significant period of time, etc. There are lots of sophisticated means of finessing you in the acquisitions game, reverse takeovers and the like.

If I could not get at the very least, the amount of CASH UPFRONT from them that my equipment is worth plus something for goodwill (existing accounts) then I'd choose to sell my stuff for CASH with no strings attached to the highest offer.

These days I'd accept zero, nadda, nothing that requires or even implies anything deferred, paid in shares, etc., etc., etc.

Hope I'm wrong :-)

[rb99]

I agree...

Definitely finding out about their net worth, and financial history is important.

RIB

[seana]

Steve;
What did you decide to do on this subject?

[knight_toolworks]

They would not pay me much for my tools I bet not even enough to buy a used shopbot. so I told them they can hire me for the salary they had planned and I would make them my #1 customer and all their work would be first. never heard back.
the job would have sucked but I would have caught up on my bills. nothing like throwing sheets of 1/8" hardboard every 6 minutes. I could do nothing else.

[seana]

Sounds like they would have dumped you once they got the material cut if you would have taken there offer.
Glad that you didn't go that route.

I have always wanted to be in business for myself since i was a little kid. Well i'm going on 15 years of owning and operating my own busines. Most of that time as general contractor. I was going through the same burn out that all of us go through tired of having to wear all the hats and not have alot to show for it at the end of a long and tired day.
A company that i had been doing some cutting for asked if i could help them set up there machines (they have 2 shopbots) and get them running and help setup there cabinet shop. This was all fine and then they offered me a full time offer. I turned the offer down but counter offer a monthly contract fee. This has worked for both of us. The thing is it started the fire again of me owning and operating my business again.
Long story short is that it was good to step out of it for a bit and make sure that wearing all the hats is still what i want to do. It also aloud me to see how other companies do things and things that i can change in my business so i will have something to show at end of long day.
Sorry for the long winded rambel

Sean