I am currently in negotiation with the owner of the small outdoor bootcamp I work for to purchase part of the business. I am looking to buy out the client list of the morning classes for which I teach. The owner has giving me a breakdown of what she thinks the classes are worth and is valuing the classes much higher than I would have thought. Revenue aside, she includes my current salary as the “owner comp add back” in the total discretionary earnings number since I am already teaching the classes and as the future owner the money will be going to me. I am having trouble grasping this as I still need to pay myself a salary and it seems like paying her for my income doesn’t make sense. Has anyone gone through anything similar or can provide some advice?
I sold my first company a few years ago, but I did it as a whole. Personally I wouldn’t buy part of a business because there are many risks and complications in such deals. But to help you with your question I would say the asking price should be between 50%-100% of what the business made the previous year (actually the average of the last 3-5 years would be more accurate).
I’m surprised the current owner is willing to sell part of her business, but it’s not unusual. You might want to talk to a corporate lawyer who specializes in this area before you make any decisions because keeping yourself legally covered is a must in this situation. You can also consult with brokers who specialize in buying and selling businesses so you can have a more clear picture. At the end it comes down to what the current owner wants to make out of this deal and how much you are willing to pay for it. I hope this helps.