Buying parents business

freshdoughnuts

Just need a little advice as to whether I should start considering this option and seek my own legal advice on the matter.

Here is the scenario.

Parents have run a business for 20 years and are looking to retire / pass on my inheritance.
The Original business (no.1) turns over around £300,000 per year.
In the last 6 years they have started a more profitable business (no.2) that turns over approx £250,000 per year. This is much more profitable as all costs are about half of the other company (storage, staff etc etc)

Now they have had someone take over running business no. 1 for about the past 10 years. 5 years ago He had to move 3 hours away due to family commitments and eventually my parents decided it was easier to move the business to him than replace him and they could then wash their hands of any stress and just receive their pay cheques. They have spent the last few years moving everything down there, piece by piece, this has crippled the companies cash flow. They are now in a CVA with approx £70,000 in arrears to HMRC.

Meanwhile, I have taken over running company no.2, which makes consistent money without too much risk due to the low overheads.

The proposition on the table to me is that I buy company no.2 with all assets, pay off the CVA and I get 100% ownership of the business.

Now, a third company has emerged since company no.1 has moved site. My parents own (mortgaged) 8 warehouse units and now most of them are occupied by tenants. This generates £240,000 per year in rental income.

Company 3, I would take 51% and my parents retain 49%.

The commercial property is worth £1,400,000 from a recent valuation.
Business no.2 which I would take and run as I currently run anyway has not yet been valued. We hold approx £150,000 of stock.

The bank is not happy to lend to me and for the businesses to change hands due to the CVA.

I would need to raise £700,000 to buy out the property from the existing mortgage (so looking for a 50% mortgage).
I would also need to raise another £70,000 to pay off the CVA in full.

So the figures are :
Value of property and stock - £1,550,000
Turnover from company no.2 & 3 - £490,000 pa
Value of existing business with excellent reputation and business contacts £?????

Money needed for buy out - £770,000

I know financially on paper this looks viable. We have only spoken with the current bank and they are not willing. I have approached another bank and they were happy until I mentioned the CVA.

First question is : Will anyone entertain this idea?
Second question is : What legal implications could this have?

Thanks for reading if you made it this far and understood all of that.

Pennywise

With respect, given those amounts of money, you'd be foolish to take advice from an anonymous forum. You and your parents need proper professional advice - you all need to be talking to accountants and solicitors.

I can see some glaring problems straight away concerning capital taxes, i.e. capital gains tax and inheritance tax. You seem to be thinking only in terms of the borrowings and funding to buy the business(es) and completely ignoring the potentially huge tax liabilities that may be triggered if done the wrong way, or avoided/reduced if a different course of action is taken.

A forum isn't the place for this kind of money - sorry if that's not what you want to hear.

podperson

I would agree on getting professional advice for it - but am a little confused. If it was the relocating of Business 1 that cost all the money then why does the CVA seem to be associated with Business 2? Or are they all under one 'banner' at the moment and you're looking to split them up now?

freshdoughnuts

Pennywise wrote: »

With respect, given those amounts of money, you'd be foolish to take advice from an anonymous forum. You and your parents need proper professional advice - you all need to be talking to accountants and solicitors.

I can see some glaring problems straight away concerning capital taxes, i.e. capital gains tax and inheritance tax. You seem to be thinking only in terms of the borrowings and funding to buy the business(es) and completely ignoring the potentially huge tax liabilities that may be triggered if done the wrong way, or avoided/reduced if a different course of action is taken.

A forum isn't the place for this kind of money - sorry if that's not what you want to hear.

To be honest i'm on the verge of walking away entirely and having the property and businesses sold completely.
The Tax aspect I know nothing about, thanks for reminding me of this.
The purpose of the thread was to try and gain some clarity as to whether this is do-able and/or worthwhile before we get too deep in seeking professional advice.

freshdoughnuts

podperson wrote: »

I would agree on getting professional advice for it - but am a little confused. If it was the relocating of Business 1 that cost all the money then why does the CVA seem to be associated with Business 2? Or are they all under one 'banner' at the moment and you're looking to split them up now?

That is correct, thank you.

Savvy_Sue

Pennywise wrote: »

With respect, given those amounts of money, you'd be foolish to take advice from an anonymous forum. You and your parents need proper professional advice - you all need to be talking to accountants and solicitors.

And possibly, you and your parents need separate professional advice - what's in YOUR best interests may not be in theirs ...

Mistral001

Pennywise wrote: »

With respect, given those amounts of money, you'd be foolish to take advice from an anonymous forum. You and your parents need proper professional advice - you all need to be talking to accountants and solicitors.
.

Perhaps the reason the OP comes here for advice is that he/she cannot get it from the professionals presently advising the owners as he/she is not an owner and presumeably not authorised to contact these advisers on behalf of the owners. It would be difficult for him/her to go to his/her own professional advisers for advice as they could end up having to comment on advice given by another professional ie. the accountant and lawyer/s presently advising the parents.

The first move has to come from the OP, as far as I can see. He/she perhaps has to express an interest in putting his/her own money into the business/businesses. When he/she does that he/she might become a bit more involved in the financial workings of the businesses.

somethingcorporate

IMO turnover is not a great valuation of a company - the value of a company is in its profit.

Which would you rather, a £200k TO company generating £150k net profit or a £1m TO business making a £150k Net Loss? The first is probably worth more.

You can generate turnover by selling stock very cheap but this does not create a valuable business.

freshdoughnuts

Savvy_Sue wrote: »

And possibly, you and your parents need separate professional advice - what's in YOUR best interests may not be in theirs ...

Thank you. That's the plan if things progress that far.

freshdoughnuts

Mistral001 wrote: »

Perhaps the reason the OP comes here for advice is that he/she cannot get it from the professionals presently advising the owners as he/she is not an owner and presumeably not authorised to contact these advisers on behalf of the owners. It would be difficult for him/her to go to his/her own professional advisers for advice as they could end up having to comment on advice given by another professional ie. the accountant and lawyer/s presently advising the parents.

The first move has to come from the OP, as far as I can see. He/she perhaps has to express an interest in putting his/her own money into the business/businesses. When he/she does that he/she might become a bit more involved in the financial workings of the businesses.

Thank you. I have had complete control in running the business for the last 3 years and have been involved with all of the businesses in different aspects for 14 years.
I have full access to all the accounts and have overseen all of the sales and the expenditure.
Although I haven't put any money into the business directly, I have kept my salary low and have invested lots of time over the years.

freshdoughnuts

somethingcorporate wrote: »

IMO turnover is not a great valuation of a company - the value of a company is in its profit.

Which would you rather, a £200k TO company generating £150k net profit or a £1m TO business making a £150k Net Loss? The first is probably worth more.

You can generate turnover by selling stock very cheap but this does not create a valuable business.

Agreed.

The property business generates approx 10% profit after the costs of mortgage and maintenance etc.
Business no.2 generates between 30-35% profit.