General Advice Seeked...

needpracticaladvice

Good Afternoon all,

My partner's parents are selling thier house and moving area due to a job his step dad has accuired. They are selling thier house and intend to rent. I know they have about £140k equity in the property.

There thinking of buying an already established food business, this food business has been trading for 5/6 years, operates from a building and delivers food, after staff wages etc business costs etc shows a net profit income of about £35k PA. The Gross Profit is £110k PA.

They want my partner to run it (thier son), I know he is worried though as they would need to invest approx £55k of there money to buy the business and obviously have some funds in the transistion period of it. He has a job at the moment (not great) but still a job, it would involve us moving, which I do not mind doing, but he is very nervous, obviously with it being his parents money and having to manage a business his parents have invested in.

Any thoughts?

Thanks

phill99

2 basic rules of business: never employ anybody that you aren't willing to sack and never work for anybody that you sten't willing to walk out on.

needpracticaladvice

I see your point, they would not work with him though as such, let him run it.

Savvy_Sue

needpracticaladvice wrote: »

I see your point, they would not work with him though as such, let him run it.

I'd say same principle. I think he's right to be nervous. Personally, I wouldn't run a business for anyone else unless I was satisfied that it was a go-er, seen all the books, asked all the questions, identified all the risks, and knew that the people I was running it for knew what they were doing, knew I was capable, and weren't going to hover over my shoulder the whole time.

Only you know your in-laws, of course, but it's a big commitment to move.

Just as an example, many people think when they take a business over they can get rid of any existing staff if they feel they don't need them. Often they can't: the staff will be taken over by the new owners under TUPE regulations (google it). If the new owners want to reduce staff, they'll have to make redundancies, and pay for them. If you haven't budgeted for that - either retaining all the previous staff or making them redundant - it's a bit of a nightmare.

fguk

The other way i see that is that it might be the start of a family run company that can provide for lots of people (not just family) and be really successful.

...but you have to want to do it and make a success of it!

paulwf

When you say net profit of £35K was the previous owner hands on and how hard did they work?

My line of thinking is: son has to relocate and take a risk with his new job and lets say for sake of argument gets a £20K wage. Parents pay £55K, they will have to invest perhaps £10K more (any business being sold isn't going to keep up with ongoing reinvestment) and end up with £15K a year. In turn they now have to rent instead of have a paid for house, and of course if the business folds they will get nothing back (unlike property a business has no intrinsic value).

Not sure it's worth the hassle really?

needpracticaladvice

Hi Paulwf and others,

My partner had said to them he is unsure as if the business folded it would not be worth the tension it may cause between the family, however they keep stressing its thier risk and they would not blame him.

The business has a few vans and all equipment, lets say £10k worth of value. The amount of wages would be near what you stated above.

Thier going to be selling thier house and relocating regardless and seem hell bent on getting the business wether it will be with or without him, but they would really much prefer he ran in and kept it within the family.

The current owner is selling due to illness so I would imagine he has not put everything in to it.

Thanks

Mistral001

Parents buying businesess for their sons or daughters is not all that uncommon, but in my experience they are usually fairly rich parents and have good track record in running a sucessfull business or businesses themselves.

The OP has not given any details of the parents track record in buisness. I do not mean dabbling in buy-to-lets etc. or property development or selling financial services or self-employment, but business employing several staff and organising suppliers etc.

paulwf

If they are 100% going to get it then all I'd say is get a good book keeper/accountant on board from the start and make sure there is regular reporting going back to the parents. There should be a detailed monthly p&l (profit and loss sheet) and they should know how to read it and act upon it.

Basically the parents should be kept fully informed and should be the ones setting the broad strategy and be able to spot any warning signs immediately, and there should be a monthly management meeting. That's good for growing the business anyway, but it will also give your partner comfort knowing the fate of the business doesn't rest on his shoulders.