Advice for investing in local company

gozomark

Malky wrote: »

There are no loans and overdrafts outstanding.

does that include no loans from directors ?

Malky

Getting a clearer picture now as to how they got to the valuation.
Cash £500k+
Customers £450k
Stock £200k
Truck £3k

Total £1,153,000 so not too far off the mark.

No loans to anyone I believe.
I doubt the staff will walk but I suppose it could happen. If they did, I doubt it would be them all.

bowlhead99

Would be unusual if they had 450k owed to them from customers (almost 2 month's worth of invoices at 3m a year) without also owing something to their suppliers. You would presume some of the cash and customers/ debtors will be used up in paying off those creditors, the vat man, the tax man etc.

But then you haven't said what they do, for us to have any chance of understanding the business model, what its balance sheet should look like or what multiple of earnings it might be saleable for without the continuing dedicated hard work of (or salary payments to) its founders and most senior directors. Presumably they don't make anything, if their only asset is a cheap truck and they don't have a factory full of machines? So they must be just in the business of buying things in and selling them on, so you'd expect them to owe a month or two's worth of purchases etc.?

If they do really have 1.2m of net assets which are mostly cash, recoverable debts and saleable stock, I'd be surprised if they would let you buy a fifth of it for anything under 0.2m as that would be valuing the customer base, brand, goodwill and basically the whole 'business as a going concern which makes 200k clear profit a year', at less than zero.

So, you'd need to find 200k+ for 20% (or 10k+ per percent) and you only have 5k of liquid assets. Presumably having worked with you over the years and knowing what type of car you drive, clothes you wear and what you do for fun, they must realise you are the sort of guy who has less than a year's worth of ISA savings tucked away for a rainy day, not 100-200k. They don't expect you to take up all 20% that might be available at that valuation, unless they're idiots. Maybe they'll offer you some kind of deferred payment scheme where bonuses you receive in the future will clear off some loan funding from the compamy or the sellers. Would be a a stretch to expect them to do this for 100k+ on your probable salary.

Maybe you could mortgage yourself up to the hilt and take 50k out against your property to buy in for a 5% share. 19/20ths of the business would be owned by persons other than yourself so your shareholder votes would not be enough to appoint board members or have a significant influence on any decisions. Maybe they would let you become a director, but if that's just because you're buying some shares rather than being on merit, I would be wary of what real decision making power you would have in a small business controlled and owned by the founders and existing directors(and whoever else they have buy-in to make up the difference for the rest of the 20% available).

Not sure what if anything else you want us to say, but I'd go with the overwhelming majority of people here and suggest caution: taking a large chunk of this business could lead to riches or bankruptcy, both beyond your control. Being great at your job does not make you great at investing in private businesses or running and owning them profitably, especially if you don't have a head for finance. No offence intended, good luck.

gadgetmind

You are looking at paying to be a minority shareholder. While there are some legal protections for minority shareholders, it's still a shaky position to be in.

There has been a lot written on the subject, but maybe start here with one of the first useful google finds.

http://www.charlesrussell.co.uk/UserFiles/file/pdf/Commercial%20Dispute%20Resolution/Briefing_note_-_CDR_-_Minority_shareholders_and_their_rights_-_Jan_2009.pdf

You need to understand the underlying business and its capital structure. You need to make sure that the shares you'll be buying are of the same class as all the other shares and also understand what you rights will be to dispose of your shares in the future. You also need to be clear about what happens if other shareholders decide to sell the company and/or issue new capital.

Malky

bowlhead99, you have made some interesting comments and seem to know what you are talking about so I thank you for that.
The nature of the business is indeed buying in and selling on. No manufacturing or machinery. Monthly purchases would be a minimum of £200k based on average sales.
20% was a figure mentioned but on affordability then 5 or 10% would get me a foot in the door so to speak. A deferred payment scheme has been mentioned before but wasn't sure exactly what that meant but you have shed some light on this. I was thinking I may have to extend my mortgage to fund this and if the business model is sound, then it's something I'm prepared to do if need be.
I'd like to think becoming a director would be on merit and not because of being a shareholder. I am good at my job and have been in the business for 22 years. For 8 of those years I was branch manager for a similar company so feel I have gained enough experience over the years.

Thrugelmir

Malky wrote: »

Cash £500k+
Customers £450k
Stock £200k
Truck £3k

Are you sure?

What you appear to be saying is that the business in the course of 7 years of trading has retained £1.2 million of after tax profit.

The Company must have liabilities. Trade creditors, VAT, Payroll Taxes, Corporation Tax etc.

Malky

Thrugelmir wrote: »

Are you sure?

What you appear to be saying is that the business in the course of 7 years of trading has retained £1.2 million of after tax profit.

The Company must have liabilities. Trade creditors, VAT, Payroll Taxes, Corporation Tax etc.

Cash is 1 x £500k. You have listed this twice.
Yes they do have VAT to pay and payroll taxes. Trade creditors and corporation tax, I'm not too sure but likely

Thrugelmir

Malky wrote: »

Cash is 1 x £500k. You have listed this twice.
Yes they do have VAT to pay and payroll taxes. Trade creditors and corporation tax, I'm not too sure but likely

Do you have a copy of the Company's latest filed accounts?

oldtoolie

A one truck business that does nothing but buy wholesale products and resells them? Does the business add any value to the product? What would stop a competitor offering the same product at a 10% discount and stealing all the customers? It might not be nice but what is to stop you or a work colleague from doing that?

Malky

Thrugelmir wrote: »

Do you have a copy of the Company's latest filed accounts?

No but can easily get hold of them