ReMan
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| posted on 10/7/15 at 07:52 PM |
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Small Business Start-up advice Dragons
Once again to the revered LCB collective intelligence.
Our daughter has had the offer of a buy in to a buy out of a small business that she's currently employed at.
The rationale is that it does not make the the current owner enough money, whilst employing 2 people to keep it open.
Not surprisingly, she's quite enthusiastic, but also even less surprisingly is that she's looking to the bank of Dad for a 100% £10k loan
to buy him out.
I won't go into the full details but its a photo/printing type business.
Now whilst I'd be quite happy to lend (as you would for family), sadly as I've never worked for myself, always employed, I'm
probably not going to know all the right questions to ask her to ensure that she is able to put a "business plan?" together to get my buy
in on it, such that I see it back sometime and we both don't end up in debt!
I also expect that there may be better people for her to ask for assistance in this, but again I don't know who myself, I just assume that
there's small business advisor type folk all over the place??
I appreciate its a big topic and many variables , I'm not expecting a solution, but I'm just looking for any general advice or pointers as
to anything that we really don't know about or really need to ask?
Indebted as ever……..
www.plusnine.co.uk
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blakep82
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| posted on 10/7/15 at 08:03 PM |
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My initial thoughts are (on pretty vague details, and that's fair enough) photo businesses are pretty much out, due to digital photos, people
aren't getting photos printed so much any more. That's if its a photo printing business
If its a photo gift business, mugs, coasters, mouse mat type thing, theres scope, but I think she'll need to expand into something more modern
and different. Not sure how, but I suspect there's reasons the boss wants to sell up 
________________________
IVA manual link http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1081997083
don't write OT on a new thread title, you're creating the topic, everything you write is very much ON topic!
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bart
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| posted on 10/7/15 at 08:42 PM |
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The answer is contained In your post
To quote
It don't currently make money
Your daughter byes in she works more hours for less money
BE ALERT > BRITAIN NEEDS LERTS
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mark chandler
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| posted on 10/7/15 at 09:04 PM |
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I'm afraid I agree with Bart, if it's not making any money just covering the staff then it may be worthless if the machines are tired, he
may be trying to recoup any funds before it goes down the pan.
Value it on its physical value, could you cover your £10,000 by selling the assets, it could be rented property, rented machines so she could start up
her own business for far less with grants etc.
Also look at potential to grow, has it got health Internet business or just a little high street shop struggling to keep up, what can she bring that
is not being done now.
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the constant builder
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| posted on 10/7/15 at 09:28 PM |
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Questions you need to ask:
Who are the competitors?
What are they doing differently?
What can the business do to differentiate itself from competitors?
Where could the business diversify / grow?
What are the fixed out goings. rent, rates etc?
How much (value) stock is needed?
What space is needed to carry the stock )does the current owner store stock else where or use the premises to store some other business?
What investment in new equipment is going to be needed in the next 5 years?
What are banking charges going to be?
How much working capital do you need?
What about holiday cover?
Lots more, but that will maybe give you a starting point.
I've run businesses for national companies in the past and had my own and ended up putting it into voluntary liquidation and making 8 people
redundant, over 10 years ago now and I've almost got over it.
If numbers are forth coming, I'd say add 20-25% on to expected costs and take 25% off expected sales and if there is still a positive at the
bottom then it might be worth a punt for £10k, so long as you are prepared to lose £20K.
Sorry not to be more positive, but the devil is most definitely in the detail, as far as business is concerned.
Best regards
Angus
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dilley
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| posted on 10/7/15 at 09:33 PM |
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First things first, look at the books! Assets and overheads.... Sometimes fresh blood can see the day to day errors.
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trextr7monkey
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| posted on 10/7/15 at 09:51 PM |
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Re comments that it is not working with paid staff there is currently a ruse going on in Web design companies who have forced staff to become self
employed / registered off shore for tax or some other wheeze which effectively cuts the employer's costs.
Not recommending it but it might help existing owner and save your money for car building!
http://www.flickr.com/photos/14016102@N00/ (cut and paste this dodgey link)
Our most recent pics are here:
http://s129.photobucket.com/albums/p211/trextr7monkey/
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ReMan
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| posted on 10/7/15 at 10:17 PM |
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Guys thanks already.
Yes it is around digital photo goods ( and touches on Mugs too!)
Lots of food for thought.
I think the current owners issue is that he owns this branch of the business, but is note on site. So to keep it open 7 days a week needs 2 employees
and as I see it and thats the difference between profit or not.
I expect as advised above, if the margins are that small through, that it's going to need some extra boost in sales through diversity, which
could be possible with the daughters skills, but i'm going to have to be very convinced.
Mr Constant, thanks, just the thought provoking questions I need.
I hope to see the books tomorrow.
My single biggest concern is that there s little real value in the assets, and the goodwill/customer base has little worth as its to all intents
"high st" shop, so the investment could just as well be made, for less as a fresh start-up.
And if thats the way to go, that we need to start looking locally for sponsorship/start-up grants, rent free premises and that sort of thing?
www.plusnine.co.uk
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trextr7monkey
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| posted on 10/7/15 at 10:53 PM |
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We have a dye sublimation set up t work which gets used intensively for short periods then lies idle for long periods we are on our 3rd printer in
about 6 years due to problems with ink floor and improving technology. Latest gel inks cost about £400 to fill the printer. We tend to deal with
Mega (of electronics fame) but have found firms like Xpres and Tech soft, Tilgear and Technology Supplies all good to deal with for consumables.
Heat presses for mugs and t shirts / flat stuff are not expensive and seem pretty reliable so start up costs are low.
It is a very competitive business and we have had groups of Young Enterprise kids wanting to make things and by the time they buy in materials and it
is cheaper to have them done commercially often by businesses offering a much wider range of services.
A good example of this is www.geltgifts.co.uk who are local to us. We have made loads of mugs economically by getting them in a couple of pallets at
a time.
I think with creative thinking and an on line presence exploiting niche markets there's a living to be made but for £10k she would be as
well to go it alone .
http://www.flickr.com/photos/14016102@N00/ (cut and paste this dodgey link)
Our most recent pics are here:
http://s129.photobucket.com/albums/p211/trextr7monkey/
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bi22le
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| posted on 11/7/15 at 08:43 AM |
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If all of these questions get answered and you do consider you need to discuss the b plan.
What happens if further investment is required?
Are you going to add more funds, what is your end limit?
Work out a return on your investment? 5, 10 or many more years?
Track days ARE the best thing since sliced bread, until I get a supercharger that is!
Please read my ring story:
http://www.locostbuilders.co.uk/forum/13/viewthread.php?tid=139152&page=1
Me doing a sub 56sec lap around Brands Indy. I need a geo set up! http://www.youtube.com/watch?v=EHksfvIGB3I
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shindha
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| posted on 11/7/15 at 08:56 AM |
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All of the above and what are you buying for your £10K are there any physical assets or are you buying goodwill (which evidently there isn't any
of), ask your daughter what will she be able to do that will turn it around and make money.
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SteveWallace
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| posted on 11/7/15 at 10:50 AM |
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As a quick look see, look at the previous years accounts and split the costs into fixed items (e.g. office rent, staff costs, business rates,
accountancy fees etc) and variable costs (i.e those that change with turnover - materials etc). Then look at turnover and gross profit margin on each
item. Your profit margin per item times the number of items needs to cover your fixed costs as a minimum before you can make money. If that is not
the case you need to either reduce fixed costs, increase your turnover or increase your margin per item. E.g. my cousin runs a small business with
tight margins and has reduced his fixed costs by doing the annual accounts within the family rather than using an accountant.
The other thing to look at is whether she will be taking on any long term commitments such as property leases and staff contracts that will not be
easy to get out of without costs if doesn't work out.
Before the accountants on here start to have a go, I know that its a little more complicated than that, but it at least gives you an idea of whether
its a viable business or not
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coyoteboy
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| posted on 11/7/15 at 02:47 PM |
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On top of all of that I'd suggest instead of 100% bank-of-dad funding putting together detailed business plan, details of how it will change,
where it will go, future expenditure etc and then presenting it to a bank for 50% with 50% BoD investment assured. IT may cost a little more in
interest (not much on 5K!) but the bank will have much more knowledge of the things to look for and know of ways of getting additional funding and tax
allowances. Like buying in a dragon for a few hundred quid extra. IF they refuse for 5K, it either needs serious rework or is just not viable.
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Ivan
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| posted on 11/7/15 at 04:51 PM |
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Just some obvious comments:
How long has the lease got to run? - what are the prospects for renewal and what is the annual rental escalation and when is it due? - You need a copy
of the rental agreement.
Are rental payments up to date or in arrears.
Are equipment payments up to date or in arrears.
What other debt is there that you will be taking over?
Outstanding Creditors and debtors - short term and long term.
Exact stock list and equipment list that is included in sale and to be made up to after handover stock take. (In case he has a clean-out sale just
before handover.)
Only trust binding legal agreements not peoples promises.
Seller must provide tax clearance certificate.
What outstanding taxes are due for current tax year?
[Edited on 11/7/15 by Ivan]
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TheGiantTribble
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| posted on 11/7/15 at 04:52 PM |
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Might I add, just because someone is willing to sell for 10k, doesn't mean you can't offer them less.
If they are indeed motivated to sell you should be able to get it for less.
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ReMan
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| posted on 11/7/15 at 05:10 PM |
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Thanks again guys, all input valued and noted.
I think I have/had pretty much got he just of the "situation", its now how to discuss the detail and make some sense with the daughter as
to how to proceed, or not.
www.plusnine.co.uk
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ReMan
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| posted on 16/7/15 at 09:23 PM |
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Well having looked at the books, met with the current owner , Got a business plan written up, which has passed first base with the bank, we think we
might go ahead with this.
The bank won't loan more than 50% anyway, so on that money theres little point splitting the debt.
Only thing we've not looked at is the cost of getting a contract written up, or in case the current owner drafts it, then a solicitor to
check/administer/or whatever they would do with on our behalf. Any clues?
www.plusnine.co.uk
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ravingfool
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| posted on 16/7/15 at 09:46 PM |
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All the above are good questions plus I'd reiterate the need to query the detail of the lease.
Even a 'profitable' high Street business might not be worth very much to buy into if the lease is running out (damaging the value of the
good will in the shop as a high Street business) or if the lease is on unfavourable terms or too high rent.
Please also consider what happens in the worst case scenario (in particular in regards to rental payments on the shop). That £10k investment is
unlikely to be the only thing your daughter would lose if things go horribly wrong.
Really worth getting advice from a local solicitor about the business purchase, lease terms and probably some general business risk advice too.
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ReMan
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| posted on 16/7/15 at 10:01 PM |
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There is no lease as such The POS is open ended upfront weekly rent , which in the modern location is unlikely to end.
It could be secured for longer periods say monthly/6 monthly but only by paying up front which is not an option initially.
I will push for a minimum term in principle though as it was one of the concerns.
www.plusnine.co.uk
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swanny
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| posted on 17/7/15 at 08:54 AM |
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i got talking to a bloke at dinner last week who's job it is to buy businesses.
he suggested a number of different ways to 'buy the business' depending on why the current owners want out. is he saying 'it could
turn a profit if only we could do this or that? if so you can perhaps use this when you negotiate
you could use an agent. talk to anyone you may know in the area that has a business. but they will check some of the important stuff and save you
getting stung.
have a good accountant look very closely at the figures - dont rely on the companies. if they dont produce detailed documents forecasting etc create
them yourselves.
look at acquiring the assets for their value as this can be considerably less. (be careful with this - depending on age of equipment and possible
(likely maintenance and replacement costs) if the business isnt making money and has ageing machinery what are you paying £10k for? stock? can you
sell the stock? is it anygood/useable?
what other liabilities are there? long term debt? warranty claims? service contracts? staff contracts (have new pension requirements been taken into
account) are any of the staff an asset? what is customer service like? do they get good reviews? or are people bad mouthing them on social media?
look at striking a deal with the current owners that limit your liability. pay them half up front and half over the next two years based on certain
factors (ie possibly their continued support for a defined period etc) this comes back to my point about is the current owner claiming that things
will get better? if he is get home to put his money where ihis mouth is and offset payments until this has been achieved.
do you have a coherent plan for how to do things differently to the existing owner to make this a genuine sustainable business?
in that line i'd be worried about online competition, rising rents etc.
also if you buy the business rather than start your own do you miss out on funding to support 'new businesses'? check with the local
chamber of commerce to see what is available, some cities/regions have favourable rates in certain areas to stimulate economic activity. also plug
into local networks for support as you and your daughter havent done this before.
if she/you can go into this with limited liability and view it as a learning curve it wont really fail. having 'run my own business' will
be invaluable for your daughters CV and will provide plenty of training for the money invested even if it doesnt work out. if it does happy days and
lets hope she becomes a serial entrpreneur!
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