Business Magazine | BABM | Dave Ramsey Says | On Small Business l Buying in Debt-Free

I have an opportunity to buy a landscaping supply business. The current owner said he made $250,000 last year, and he’s on track to make even more this year. There are three employees, and he’s asking $390,000 for everything. The building is included in the price, but the land would be either a lease or purchase. Do you have any advice for taking advantage of a situation like this without going into debt?
John

I’m glad you’re looking at this venture with an eye on staying debt-free. There would be a lot more small business success stories if all entrepreneurs thought this way! One of the things you could do is work a deal where you take over management of the company and have an option to buy over time. You would pay the owner a percentage of the net profits, which would go toward your ownership. You’d take out enough to live on, but everything else would go toward your purchase of the company.

You said the guy is asking $390,000, but how do you know it’s really worth that much? He told you he “made” $250,000 last year. Was that how much he carried home? Or was that what he grossed? How much is he paying those three employees? Do they have contracts, or could you let them go? I mean, he could be grossing $250,000 and literally taking nothing home, or the expenses could be $350,000 and the business wouldn’t be worth anything. There’s just a whole lot more you need to know before you do this deal.

As far as the building is concerned, I’d say no to the idea of owning a structure on someone else’s land. I’m not paying him for his building unless the dirt comes with it. You can rent the building and land from him after you become the business owner. I’d put the land and building in a separate deal, and lease them with an option to buy later – after I purchase the business. By doing this, you just lowered the purchase price of the business considerably because you took the building out of the equation.

Is the business paying him rent for the building and land now? If this guy isn’t charging any rent against his calculation of net profit, then the figures aren’t realistic. It’s also not realistic if he’s not paying himself anything to manage and run the business.

The bottom line is this: be smart, and do your research before you make a move on this one!

(Celebrate after the win)

My wife and I bought a franchise and are opening our own business next month. We’ve got $35,000 saved up, but my wife feels like the business is going to consume us for the next two or three years. She wants us to use about $3,000 of our savings and take a cruise before we open for business. What do you think?
Chris

Here’s a good rule of thumb for opening a new business: Everything’s going to cost twice as much as you think and take twice as long as you expect. I’m sure you’re both smart people, but you’re probably not exceptions to this rule when it comes to opening and running a small business.

Every single dollar connected with your business could mean the difference between survival and going under. I can understand where your wife’s coming from, but at the same time, I think this idea is really unwise. You’ve got to look at the big picture. You guys are going to be heartbroken if you have to close up shop in a few months because you ran out of money. On the other hand, if you work hard, stay smart, and make this thing a success, you can take a cruise and really celebrate!

Basically, right now you’re unemployed and have $35,000 with which to start a business. It’s time to rev up your engines and get to work. The time to celebrate is after you’ve won—not before you begin!

About the Author
Dave Ramsey is a personal money management expert, popular national radio personality and the author of three New York Times bestsellers – The Total Money Makeover, Financial Peace Revisited and More Than Enough. In them, Ramsey exemplifies his life’s work of teaching others how to be financially responsible, so they can acquire enough wealth to take care of loved ones, live prosperously into old age, and give generously to others. Ramsey offers life-changing, financial advice as host of a nationally syndicated radio program, The Dave Ramsey Show, which is heard by 4.5 million listeners each week on 450 radio stations throughout the United States. His syndicated column, Dave Says, can be read in more than 300 print and online publications worldwide. For more small business advice, please visit daveramsey.com.

Dave Says – Small Business Edition