Buying a business under management: does the maths still work?

Buying a business under management means a paid manager runs it day to day, so you can own it without working in it. The numbers still work only if the profit left after paying that manager gives you a sensible return on the price. Re-cast the seller’s profit with a full manager’s cost, price the deal on that lower figure, then check the manager will still be there in a year.

The appeal is obvious. You keep your job, your income and your routine, and buy something that earns money while you’re at work. The trap is just as plain. Many listings are “managed” in name only: the owner is really the manager, drawing part of their pay as profit. Once you put a real wage in that seat, the profit you thought you were buying shrinks.

Why does the seller’s profit look bigger than yours will be?

Because it contains the seller’s labour. If an owner works 50 hours a week and takes a modest wage plus the profit, the profit figure includes the pay for work you won’t be doing. The standard fix is the add-back approach: you adjust the accounts for one-offs and personal expenses, then deduct a fair wage for whoever runs the place. Our guide to valuing a small business covers the first half. Under management, the second half is the whole game.

There are two versions of “managed”:

• Genuinely managed. A manager is on the payroll now, and the accounts already show the wage. The profit is close to what you’d get. Your risk is whether the manager stays.
• Managed in the listing only. The owner runs it, and the agent says “a manager could run it”. The accounts show no manager’s wage, so you have to add one and recalculate.

The first thing to ask is which one you’re looking at, and to see payslips or the payroll summary that prove it.

What does a manager really cost?

More than the wage on the offer letter. Build the full cost line by line:

Component	What to include
Base wage	Award rate or market rate for the role and hours
Superannuation	12% on ordinary time earnings, the current super guarantee rate
Leave	Annual leave accrues at four weeks a year for full-time staff, and sick leave and public holidays have a cost too
Workers’ compensation and payroll costs	Premiums and, depending on your state and wages bill, payroll tax
Cover for days off	Someone has to run the shop when the manager is away
Incentive	Many owners add a profit-linked bonus so the manager acts like an owner

Two dates matter right now. Award minimum wages rose 4.75% from the first full pay period on or after 1 July 2026, so any manager’s salary figure from a listing or a 2025 valuation may already be out of date. And from 1 July 2026, Payday Super means super has to arrive in the manager’s fund shortly after each payday, rather than quarterly. That shifts a little more cash out of your account earlier, which matters in a thin-margin business.

As a rule of thumb for your forecast, the all-in cost of an employee is commonly well above their headline salary once super and leave are in. Work the actual numbers for the role rather than relying on a percentage.

A worked example: the managed café

Illustrative example only. The figures are invented to show the arithmetic.

A café is listed at $700,000. The agent says it’s “under management” and shows owner profit of $280,000 a year. Here’s what’s in that figure.

	Seller’s version	Your version
Profit as presented	$280,000	$280,000
Manager’s wage (replacing the owner)	Not counted	–$88,000
Super at 12%	Not counted	–$10,560
Leave, workers’ comp, cover for days off, bonus	Not counted	–$11,440
Profit you’d actually earn	$280,000	$170,000

The price the agent is asking works out to 2.5 times the headline profit ($280,000 × 2.5 = $700,000). Apply the same multiple to the profit you’d actually earn and you get $425,000 ($170,000 × 2.5). That’s the gap between “listed price” and “price that works for a hands-off buyer”, and it’s $275,000.

Look at it as a return instead. If you pay $700,000 and earn $170,000, that is $170,000 of profit on $700,000, or roughly $24 of profit for every $100 you put in, before tax and before any financing costs. If you ran it yourself and skipped the manager, you’d keep the extra $110,000 but give up your job and your weekends. The business is the same. How involved you are changed the answer.

That’s not a reason to walk away. It’s a reason to renegotiate, or to accept the lower return knowingly because you value the passive income. Either is fine. Not knowing is what costs money.

What should you check about the manager before you buy?

You’re buying the manager’s goodwill as much as the business’s. Five checks:

1. Employment terms. Get the contract. Is it permanent, fixed-term or casual? What’s the notice period? Are there restraint clauses or a bonus structure?
2. Tenure and track record. A manager of five years with stable trading is a different proposition from one who started last month, perhaps hired to make the business look good for the sale.
3. Will they stay? Ask directly, with the seller’s permission. Some buyers make a retention bonus, payable after 6 or 12 months, a condition of the deal.
4. Who holds the relationships. Suppliers, key customers and licences may be in the manager’s name or relationships. Make sure you can keep them.
5. What happens if they quit. Write a plan with a dollar figure: the cost of recruiting, a temporary replacement, and the profit lost during the gap.

Your solicitor will cover the contract. Your job is to make the commercial decision about how much key-person risk is acceptable, and the price should reflect it. The checks in our due diligence guide apply here too, with the manager’s payroll record as an extra document to request.

What happens to the staff and their leave when you buy?

If the business is bought as an asset sale and staff take up jobs with you on the same or similar terms, the Fair Work Act’s transfer of business rules can apply. In practice that means a question about whether you recognise their prior service, which affects leave, notice and redundancy, and a question about who pays for accrued leave.

For non-associated businesses, the incoming employer can choose to count or not count prior service for annual leave. If you decline, the seller has to pay out the accrued leave. Many awards, though, say prior service counts regardless, and most buyers end up taking the balances on. Check the Fair Work guidance on annual leave and the relevant award, and settle the question in the contract.

Whatever the answer, put a dollar value on it. Leave balances are a real liability, and our piece on the annual leave liability shows how to estimate it. A manager with years of service might be carrying a balance big enough to deserve a line in the price negotiation, not a footnote.

How do lenders see a buyer who isn’t in the business?

Differently, and not always unfavourably. A lender will look for four things:

• A forecast that already includes the manager. If your projections leave out the manager’s cost, it’s the first thing a credit person will ask about.
• Trading history that holds up. Two or three years of accounts and BAS that agree with each other.
• Enough left after repayments. The test is whether the profit after the manager’s full cost still covers the repayments with room to spare.
• Your own position. A stable day job counts in your favour, and so does a deposit that doesn’t drain every dollar you have.

A rough sizing exercise helps before you talk to anyone. Take the re-cast profit, subtract the repayments you’d face on the borrowing, subtract your own tax, and see what’s left. If it’s thin, either the price is too high or the deposit too small. You can test the numbers in our 13-week cash flow forecaster by adding the manager’s wage as a fixed weekly cost.

If you’re weighing a managed purchase and want to know how the funding might look with the manager’s cost built in, check your options here.

How much deposit and working capital do you need?

Two buckets, and buyers often forget the second.

The deposit and purchase costs. The deposit on the business, stamp duty or transfer costs where they apply, legal fees, and due diligence costs for an accountant and solicitor.

Working capital on day one. Stock, wages for the first fortnight, rent and a cushion. A manager is paid on schedule whether or not takings are good that week, and under Payday Super the super follows soon after each pay run. In the first 90 days, the business is also adjusting to a new owner, which can mean a dip.

The practical sequence: price the deal on the re-cast profit, add a working capital cushion, then see what borrowing and what deposit make the numbers work. Our guide on when to borrow has the tests to apply before you sign anything.

A checklist before you make an offer

1. Which kind of managed? Payroll records for the manager, not a verbal assurance.
2. Re-cast profit with the manager’s full cost, using current award or market rates.
3. Price on re-cast profit, or know exactly how much you’re paying for the seller’s assumptions.
4. Retention plan for the manager, in writing.
5. Leave and entitlements valued and allocated in the contract.
6. Forecast that includes the manager, tested with the first 90 days on a downside.
7. Your own time: even a managed business needs a few hours a week from the owner. Be honest about whether your job allows that.

For the broader process, how to buy a business takes you through search, offer and settlement. The business.gov.au guide to buying an existing business is a useful official checklist to keep alongside.

Keep your job, own the business, fund it properly

Owning a business you don’t have to run is a good plan, as long as you’ve paid for the manager before you’ve paid for the business. Do that arithmetic first and the rest follows: a fair price, a realistic return, and a funding request that holds up when someone looks at it.

That’s where we come in. We look at trading businesses and property-secured purchases for business purposes, with unsecured options typically from $5,000 to $500,000 and property-secured loans from $20,000 to $5,000,000. Tell us how the manager sits in the picture, and we’ll look at the real numbers rather than the listing’s.

Enquiring takes about 60 seconds, and your credit file isn’t touched just for asking. Your details don’t get sent to a pile of lenders, so your phone won’t light up with strangers. A real person reads what you’ve told us and calls you to talk it through. Please fill the form in accurately, including the price, your deposit and what the manager costs, so we can match the right option first time.

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