Purchasing Small Business - advice needed

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steviebilbo
steviebilbo Posts: 32 Forumite
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in Small biz MoneySaving
I am in the negotiation process of buying a small (web based) niche market motor accessories business. The current owner operates as a sole trader as this is his only income. I have a modest income of around £15k from part time agency work and also an armed forces pension so will probably set it up as a limited company in order to reduce my income tax burden and I am currently reading about the various pros and cons etc. to help me decide this.

I will be securing the services of an accountant but in the meantime a few questions I have:

When it comes to business banking, will I be considered a new business or the new owner of an existing business? Some of the accounts available offer discounts for the first 12-18 months of trading or if I open the account within 12 months of trading. Does this apply to me or the existing business?

Current thoughts are to include my wife somehow so she can received dividends too (she has £9k income from property and I currently use part of her tax allowance) so If I appoint both myself and my wife as directors, does that count as two employees or just one (my wife) as I am the business owner? Does the fact that she will or won't be a shareholder alter that status?

Are there any other major considerations? - the business is doing well and is being sold for health reasons.

Is there a good info source (books or online) that covers buying an existing business rather than setting up my own.

tia
Better to be silent and considered a fool than to open one's mouth and remove all doubt! :rolleyes:

Comments

  • Savvy_Sue
    Savvy_Sue Posts: 46,024 Forumite
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    Make sure that you get the books properly looked at by someone with experience in business takeovers before you commit to anything. What the seller understands by 'doing well and being sold for health reasons' is not necessarily what you will find ...
    Signature removed for peace of mind
  • 00ec25
    00ec25 Posts: 9,123 Forumite
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    edited 5 November 2017 at 9:39AM
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    steviebilbo wrote: »
    When it comes to business banking, will I be considered a new business or the new owner of an existing business? Some of the accounts available offer discounts for the first 12-18 months of trading or if I open the account within 12 months of trading. Does this apply to me or the existing business?
    entirely down to the policy of the respective banks - wait and ask them
    steviebilbo wrote: »
    Current thoughts are to include my wife somehow so she can received dividends too (she has £9k income from property and I currently use part of her tax allowance) so If I appoint both myself and my wife as directors, does that count as two employees or just one (my wife) as I am the business owner? Does the fact that she will or won't be a shareholder alter that status?
    she cannot receive a dividend unless she is a shareholder. A director is not a de facto shareholder and a shareholder is not a de facto director

    given the wife is very close to the start of the basic rate tax band there seems little point in her being an employee/director and receiving a salary as she would end up paying income tax on it UNLESS it is necessary for her to have an earned income so she can obtain NI credits for her state pension? Just make her a shareholder drawing dividends, that would have the added advantage of not treading on the "risks" of the company having 2 employees, potentially needing to run a payroll, and have employer's liability insurance.

    for yourself there is no point in you drawing a salary from the company since you already get NI credits from the agency work (I assume that will continue?). Therefore you would only draw dividend

    overall do not assume that a Ltd Co will automatically be more tax efficient if it means you are spending money on its admin and higher accountancy costs. Let your accountant give you a costing before you commit to that route
  • martindow
    martindow Posts: 10,218 Forumite
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    You also need to be wary of valuing stock which in a sale of this type is sold with the business. The longer businesses have been running the greater the proportion of stock that is difficult or impossible to sell becomes. You want to be sure that you do not pay too much for clutter that really should be written off.
  • bris
    bris Posts: 10,548 Forumite
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    Forget the books, they mean nothing, you need to see the companies tax returns to see the true value of the company.


    Any monkey with a computer can cook the books, they can't cook the tax returns.
  • Pennywise
    Pennywise Posts: 13,468 Forumite
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    bris wrote: »
    Any monkey with a computer can cook the books, they can't cook the tax returns.

    Yes, they can, and yes, they do. Tax returns are based on "the books" and people can and do submit false tax returns for their own reasons. Some show profits lower than reality to reduce their tax bills, others show profits higher than reality to increase the business value - I've seen plenty of instances of both.
  • antrobus
    antrobus Posts: 17,386 Forumite
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    bris wrote: »
    ...

    Any monkey with a computer can cook the books, they can't cook the tax returns.

    I am not a monkey. I am an accountant with certificate to prove it. I could 'cook' anything you like including the tax returns. :)

    Hypothetically. In practice, if anyone had ever asked me to, I would have told them to **** off. I've never fancied the idea of being prosecuted for fraud.
  • 00ec25
    00ec25 Posts: 9,123 Forumite
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    bris wrote: »
    Forget the books, they mean nothing, you need to see the companies tax returns to see the true value of the company.


    Any monkey with a computer can cook the books, they can't cook the tax returns.
    LOL shall I show you the books supporting the (large) mortgage application, or the books that tally perfectly with the (small) tax return, or shall I show you what is in the bottom draw where all cash income goes - the one that gets "overlooked" when books are mentioned?
  • steviebilbo
    steviebilbo Posts: 32 Forumite
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    martindow wrote: »
    You also need to be wary of valuing stock which in a sale of this type is sold with the business. The longer businesses have been running the greater the proportion of stock that is difficult or impossible to sell becomes. You want to be sure that you do not pay too much for clutter that really should be written off.

    The stock is limited to around 10 items in various guises as it's a fairly niche market. I am currently making sure the contracts with the various suppliers are what I expect such as intellectual rights to design and tooling, sole supply and such.
    Better to be silent and considered a fool than to open one's mouth and remove all doubt! :rolleyes:
  • steviebilbo
    steviebilbo Posts: 32 Forumite
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    edited 7 November 2017 at 10:31AM
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    00ec25 wrote: »
    entirely down to the policy of the respective banks - wait and ask them

    OK, noted

    she cannot receive a dividend unless she is a shareholder. A director is not a de facto shareholder and a shareholder is not a de facto director

    That's made it clearer, I got the terminology wrong!

    given the wife is very close to the start of the basic rate tax band there seems little point in her being an employee/director and receiving a salary as she would end up paying income tax on it UNLESS it is necessary for her to have an earned income so she can obtain NI credits for her state pension? Just make her a shareholder drawing dividends, that would have the added advantage of not treading on the "risks" of the company having 2 employees, potentially needing to run a payroll, and have employer's liability insurance.

    Actually, she only has 27 full years, we do however have the option of paying for missing years, around £60 each for two more years - that 29 will probably mean close enough not to pay the 3rd year which is over £250 so do you reckon it's worth employing her for a year, paying the £250 or just take the cut in pension payment down the line?

    for yourself there is no point in you drawing a salary from the company since you already get NI credits from the agency work (I assume that will continue?). Therefore you would only draw dividend

    That's reasonable, I already have 37 years ... would I still be classed as an employee or just a non-paid shareholder.... does a limited company have to have employees at all?

    overall do not assume that a Ltd Co will automatically be more tax efficient if it means you are spending money on its admin and higher accountancy costs. Let your accountant give you a costing before you commit to that route

    will do, just trying to get my ducks in a row with advice first ... then I need to find an accountant rather than an accountant finding me - if you get my drift?





    thanks for the responses!:T
    Better to be silent and considered a fool than to open one's mouth and remove all doubt! :rolleyes:
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