Exisiting business opportunity

snowball2

I currently run my own children's entertainment business and have been offered the opportunity to buy a share of an existing business, a children's soft play centre its been allowed to run down slightly and the owner has lost his mojo but we can see that there is lots of scope for improvement and have lots of ideas and enthusiasm, and it could make a lot more money.

To buy the first share now but need to raise 25k, we have no savings to invest but we do have equity of around 100k in our home, what would be the best way to borrow?

Also what type of financial help should I look to get/need? Plus anything else need to check/consider.

Im really excited about the possible new venture and feeling a bit out of my depth with what steps I need to take, and safeguards. The current owner will remain a director with their share of the business but we will be complete control and they are venturing out into a new separate business, our share will finance paying off some debts currently owed by the business plus start up costs for their new business. We will be able to buy more shares over time buying the whole business over time if we wish.

Thank you in advance

Savvy_Sue

Do you have an accountant? You want them to take a long hard look at this other business's accounts.

Suarez

What makes you think the current owner would be so willing to sell their share after you've ploughed your hard earned money into the place, improved it and increased profitability...

chalkie99

This sounds like a seriously bad idea.

You have found someone with a failing business and no money who wants you to not only pay off the debts but also to finance another venture for him.

That, in itself, would make me run for the hills.

Worse still, it is you who think you have the skills to make the money but the failing current owner would benefit from your success, if you achieved it.

You say you would be buying a "first share". Unless you have more than 50% from the outset you won't have control and the other party can dictate what happens.

If you have the skills you believe then why has your current business not produced a surplus? (You say you have no savings).

Sorry if this all seems harsh but if you intend borrowing against your home you will need to speak to your accountant and a solicitor and have a proper business plan in place which will include a professional business valuation and inspection of the accounts.

paddyrg

It may not be a disastrous scenario, but you do need to take it seriously as the difference between making a profit for yourself and becoming an unpaid mug to grow someone else's business is in the detail.

The most obvious point is that if you're successful, why would he want to sell you any more shares at the same price? The next is exactly what would you get for your money? £25k could easily buy a secondhand soft play area needing a bit of love, although you'd need somewhere to house it. His isn't drawing the crowds so his brand, customer list and location aren't worth a heap, and they'll come to your place if it's better anyway.

Maybe there's a compromise where (check all the prices out before any of this) you buy the fabric of the play area for the £25k and he provides the rent and building, so if it isn't working still after a couple of years you can at least recover some of your investment in selling it again.

Atidi

snowball2 wrote: »

I currently run my own children's entertainment business and have been offered the opportunity to buy a share of an existing business, a children's soft play centre its been allowed to run down slightly and the owner has lost his mojo but we can see that there is lots of scope for improvement and have lots of ideas and enthusiasm, and it could make a lot more money.

To buy the first share now but need to raise 25k, we have no savings to invest but we do have equity of around 100k in our home, what would be the best way to borrow?

Also what type of financial help should I look to get/need? Plus anything else need to check/consider.

Im really excited about the possible new venture and feeling a bit out of my depth with what steps I need to take, and safeguards. The current owner will remain a director with their share of the business but we will be complete control and they are venturing out into a new separate business, our share will finance paying off some debts currently owed by the business plus start up costs for their new business. We will be able to buy more shares over time buying the whole business over time if we wish.

Thank you in advance

I can tell how excited you are about this business venture.

Sounds like you've got it all sorted if you can raise the £25k from remortgaging your home.

I'd go for it if I were you.

Good luck!

Suarez

Atidi wrote: »

I can tell how excited you are about this business venture.

Sounds like you've got it all sorted if you can raise the £25k from remortgaging your home.

I'd go for it if I were you.

Good luck!

Looks like we've found the current owner

snowball2

Ive run my own business for the last 18m and reinvested most of the profits back in to expanding the product range and buying new equipment.
A a sole trader with a small business I have done everything myself so far, so don't currently have an accountant.

I've been told that the business has recently been valued at £150k but I think that seems a bit high, its based in a rented industrial unit, the business has been established for about 10 years, the current owner has been running it for the last 2.

It has been suggested that I have a 50% share and take a salary, then pay over time towards buying him out. I would get a solicitor to write up a contract to cover what we agree.

We are having a meeting on Friday to talk about the finer details and give me access to the books, I will contact an accountant to take a look.

Thanks lots to think about and focus on looking at

Savvy_Sue

snowball2 wrote: »

I've been told that the business has recently been valued at £150k but I think that seems a bit high, its based in a rented industrial unit, the business has been established for about 10 years, the current owner has been running it for the last 2.

So you need to establish what's included in that valuation: not the premises, because they are rented. I know next to nothing about these things, but I agree that £150k sounds a lot for - what exactly?

Incidentally, as the premises are rented, you need to check the lease agreement very very carefully. How much longer does it run for? Will it definitely be renewed? They are not like domestic tenancy agreements, you have very few rights, and you can end up responsible for paying even after you close or transfer the business. There can also be clauses about leaving the property in very good condition at the end - better than it was when you started.

snowball2 wrote: »

It has been suggested that I have a 50% share and take a salary, then pay over time towards buying him out. I would get a solicitor to write up a contract to cover what we agree.

We are having a meeting on Friday to talk about the finer details and give me access to the books, I will contact an accountant to take a look.

You're being sensible, but please be ready to walk away.

paddyrg

Just to provoke a little refection, have a think about coming at this from the other side - with that £25k to buy a second hand kit plus your first years rental of a warehouse with car park, what would the current set up have that you wouldn't? What would it cost to replicate the business completely? £30k? £40k? Let's say you did that, and ran some good promotions, you could win the local trade and leave them with a shed lease to dump and a load of secondhand kit to shift (which you can then buy cheap!)

£150k sounds a high valuation, and for that valuation it would be making say £50k/year profit for the owner, so why would he want out of that? Put in a manager at £20kpa and have a free £30kpa to put into his new business/go skiing with.

Businesses are routinely overvalued, especially by people trying to win the business' custom to sell it, and flattered owners. They justify high valuations with the always nebulous 'goodwill', but I'll bet you find customer loyalty quite elastic if a better facility opens across the road at 50p/session cheaper.

The devil will be in the detail, what's your salary working there? Will you effectively be getting the business for free earning £25kpa? Or are you buying your own job in a doomed enterprise without having enough control to be able to turn it around? Is he really just getting a free manager for 2 years at £12.5kpa and then selling you the rest of the business at its new valuation based on the hard work and improvements you make. Just really do make sure you check every facet of the offer (and cost out setting up in competition and starving him out), it will only then become apparent what the true upside and downsides are.