Staff hoping to take over business

Dagmar72

We recently found out that the owner of the business we work for is thinking of selling it, and very quickly too, it's not been made public but he has 2 offers already (one from local people he knows who want to keep it as is including all the staff; and one from a chain who lease other buildings from the same landlord and want to expand, who have a major refurb in mind, and don't seem so keen about keeping the business as is, which probably means we'll all be out of a job soon!).

According to figures the business is viable, and we all want to keep it going, and the main drain at the minute seems to be the owners themselves. They don't seem to do any work (they just pop in occasionally) but still take money away from the business, leaving it to struggle.

4 or 5 of the people who work here (including the current manager) want to form a company and take over the business. They're not looking at it as an investment, they just want to keep their job and everyone else's jobs, and hopefully improve things too (as the current owners are so out of touch it's difficult to get them to agree to anything).

The problem we have is that none of the people involved have significant money to put in, so they'll have to rely on other investors / bank loans.

Does anyone know what sort of amounts banks may be prepared to loan for a new company buying an existing business that has been going for 15-20 years? The current manager can provide accounts for the past 3-4 months but not before that.

Also, anything we should think of when trying to get private investors interested? We've been speaking to a few people, but ideally we'd like to avoid anyone who'd have too strong ideas as we want to run the business ourselves (without having having to go by stupid rules made up by someone who is never there and doesn't really have a clue about the business).

The current owner has hinted at the fact that depending on the offer he might be willing to become a private investor, but that comes with another set of problems: he doesn't really have a good record when it comes to paying VAT, so from what I understand a new business buying over his company would have to pay a hefty VAT deposit to even be allowed to trade.

So we have to carefully weigh the pros and cons: would HMRC require a VAT deposit if none of the people involved in the new business have debts (but maybe not much of a credit score either)? would it be worth having a private investor who's gonna trigger alarm bells with HMRC and mean we might have to pay a deposit that's higher than his contribution? Is there a way around it where we can give him shares of the business but he's not one of the directors, so HMRC / the bank don't need to know?

HappyMJ

If the current business is in trouble with the HMRC then my advice is to avoid. Maybe you could set up a new company and buy the assets from the old company and let the owner wind his company down. You can then trade under the new company name and can continue as you are with no surprises. Banks will lend against your own personal property such as a second mortgage. Then you are taking the risk personally. It's highly unlikely they will lend you the money secured against the business only especially with only 3-4 months accounts. Why aren't there 6 years? The records should have been kept for 6 years. More reason to not buy it. There may be unpaid tax to pay.

podperson

Could be a little off the mark here but if as you say the people involved aren't that bothered about having the business as an investment but just want to keep their jobs and try to improve the business then have you considered approaching the 'local people' who are already interested - if they want to keep the staff on anyway and keep the business fairly similar then they may welcome having the staff on board. If you could raise some money then they may even agree to giving the staff a 'share' in the business in exchange and a say in how it's run. Also if there was extra moey raised then the old owner would be more likely to accept that offer rather the one from the big chain.
It just seems to be it would be easier to try and arrange a deal with someone you know is interested in buying it and wants to keep things basically the same - rather then trying to find new investors and then you will have no idea what 'plans' they may think would be good for the business.

steve1980

So, the business is in debt to HMRC and you're thinking of taking over?

There are no accounts prior to the last 3 - 4 MONTHS and the business has been running for 15 years.

Are you mad?

Pennywise

So many issues, where to start???

You need far more accounts than a few months to get any form of backing at all - the owners must have these, as they will have been needed for annual tax returns. It's completely unreasonable for a seller not to provide a potential buyer with the accounts.

You may think the owners don't do anything, but there's a lot more to running a business than just the front line that you see. Don't assume that you can do it all yourselves - properly evaluate what needs doing.

As for finance, if you've not got a decent deposit, then forget it. I'd suggest you need to find a deposit of around 35-50% of the purchase price, plus stock and costs - banks will lend maybe 75% on freehold, but probably nothing on stock or goodwill. Obviously, this depends on the split of the purchase price, whether it's freehold or leasehold, etc etc. You're going to need to re-mortage against your own properties to get some cash together. How are you going to be able to repay the capital and interest (probably over 10-15 years)?

Don't fall into the trap of buying a dead-duck of a business just to save your jobs. You'd be far better losing your job and going on benefits or getting a new job, rather than re-mortgaging your home, risking all your savings, etc., only to lose the lot if you can't make a go of it.

The more people involved, the worse it is going to be. You're going to have disagreements, you'll all be putting different amounts of money it, you'll all be doing different work, how on earth are you going to decide how to share the profits and if it's loss making, how do you deal with not everyone being able to put in more.

To move this forward, you need at least 3 years of accounts and a definite selling price to start with. Then you need to find out which staff actually have any cash to put in (or willing to remortgage to get it). You can then see if you're anywhere near being able to find the say 35%-50% you're going to need to put in with the bank matching it. Then you can forget all the staff who aren't putting anything in. Hopefully, you'll be left with 2-3 people which is a more manageable number. Then you all need to start talking to accountants, banks, solicitors, etc., to get an idea of feasibility.

bris

It's a difficult one for you, banks will not lend to this existing business with only 4 months accounts and a poor VAT history. You need to form a new company and buy out the old one (as has already been said).
This brings it's own problems as the banks wont lend to new companies without considerable security from it's directors. In the old days you could use equity from your properties to secure the loans but nowadays they like to see the directors put in hard cash, about 50% to match the banks loans. This means remortgaging which brings another expense. This is not a quick process, if a quick sale is needed then time is not on your side.
Another problem you face is the building lease, tha LL may want the client who has a good track record with them. They may see you as a risk and refuse the lease transfer. Best case in this one is a huge deposit, 3 or 6 months as well as the quarter up front.
It's not easty to get started theses days.

jexygirl

Dagmar72 wrote: »

4 or 5 of the people who work here (including the current manager) want to form a company and take over the business. They're not looking at it as an investment, they just want to keep their job and everyone else's jobs, and hopefully improve things too (as the current owners are so out of touch it's difficult to get them to agree to anything).

To be in business you have to REALLY want it, and want to do it with people that you know and trust - it isn't something that you do, go risk everything because a few of you might lose your jobs... Had you ever, for one second, considered starting a business with any of these people before this?

Those owners that you think do nothing, very likely do far more than you can imagine - when you look into running your own business, or even begin to scratch the surface of what is involved, then you will realise this.

This is one can of worms I would not go near in a month of Sunny Sundays, with the wind behind me, going downhill, even if I did have the cash to invest. Sorry if it seems harsh, but this sounds like a disaster waiting to happen on so many levels.

paulwf

Loads of good points raised, take them all on board OP!

Think also about the state of the premises, you will have a fully repairing lease so will need to keep repairs up to date. There is also the general shop fittings, signage, uniforms and that sort of thing. Really a few thousand needs to be injected every year to keep the property and image up to scratch, if this hasn't happened for a while you might need to set £10-20K aside to get it back up to standard. Also think carefully about stock, you will probably have to buy all this and chances are a lot is out of date or the wrong sort and so you'll be buying dead stock.

There are pros and cons to starting with a clean slate over an existing business so weigh them up. Also think of alternatives, such as can you buy the goodwill but not the stock and premises?

If you are really hard nosed business people then there is a chance the business is going to go into administration soon, so talk to the owners and offer to buy it out of administration. That is where the money is to be made, waiting until it is wound up instead of paying over the odds for a going concern.

antrobus

I was going to ask a lot of detailed questions in order to establish what it was that you wanted to buy. People often talk of 'buying a business' without specifying what it is. Is it a limited company? What are the assets? etc etc. But then I realised something.

None of you have "significant money to put in" so you need to get some "private investors interested". I can point you in the right direction. There are some "local people" who want to buy the business aren't there? Find out who they are and go and talk to them. The 'local people' presumably want to keep the business as is because it offers something to the community (I'd guess it was a pub), they'll want a dedicated and hard working staff to make it a success. There might be a deal to be done.

artichoke

hi


if there are workers who want to run the business themselves and local people who want the business to keep going and maybe invest in it i would suggest contacting the Co-Operative Enterprise Hub...

who help and advise new and existing businesses who want to work as co-operatives.

http://www.co-operative.coop/enterprisehub/


If the business is a pub there are a lot of successful examples of community owned and co-operatively run pubs, and a lot of support out there to help you
http://www.plunkett.co.uk/newsandmedia/news-item.cfm/newsid/358
http://www.communitypubs.org/

if it is not a pub let us know what type of business it is and we can all offer more tailored advice...





art

paddyrg

Also, if you did find private investors, wouldn't they want to 'take money out of the business' too? That's how risktaking works!