Purchasing a small business

Sandtree

lincroft1710 said:

CKhalvashi said:

The last investment I made of this nature was £75 for 75% of a company last year (plus a loan into the company at 0.5%/quarter), there'll likely be a small operating surplus this year and a net profit from next year.

Did you really mean £75?

£75 is expensive compared to some sales, especially for just 75%... a former client was a collection of niche insurance brokers/MGAs and twice it sold one of its businesses for "whatever change you have in your pocket".

First was a growing business which the MD was asking Group for a large investment in marketing which it wasn't prepared to make and the Chairman took a £1 coin from the monies the MD produced and wished them luck.

Second was a highly unprofitable new business, there had been an internal fraud investigation into them, and a consultant that was working with us said it wasn't an inherently bad business but had made bad mistakes so suggested he bought the assets/IP, left the liabilities and agreed a 3 year deal for the Group to provide its insurance products... this time the Chairman took all the monies produced, about 71p from memory.


As to valuing a business there is no one single right way of doing it and you really need to consider the type of business. Some are worth little more than their assets less liabilities, others their profitability may be a better measure but then you must consider if current performance is a good indication of future results... business' fortunes can change dramatically with changes to regulations or breakthroughs etc.

Given you believe they are just too rich to care (which seems unlikely to me, most of the wealthy people I know care very much even if they may appear flamboyant with their spend) then it'd be useful to see what their opening gambit is before you come in way above their expectation. 

Marcon

RedHitman said:

No one seems to have run me through the process or how it would be valued though? I assume I suggest the offer of a sale/purchase and they come back with how much they want? Or are they going to say “make us an offer”….? And if so, how do I know the value and is the way my grandfather sold his business (purchasing the company via profits) still something viable these days?

It's nothing like as simple as you seem to believe. There is plenty of information online, but without knowing a great deal more, it's hard to point you in the right direction to read up on it.

Given the issues you've had with your employer/colleagues https://forums.moneysavingexpert.com/discussion/6190649/being-forced-to-work-hours-that-others-refuse-is-this-discrimination#latest and the fact that you are clearly not 'management', be aware that a management buy out (which is effectively what you seem to be proposing) is difficult if you don't have the relevant business skills, knowledge and experience. It also sounds as if the employees are not the happiest crew, so may not take kindly to a fellow worker lording it over them - which is how they are likely to see it. The fact you might have saved their jobs won't help that much!

If you are remotely serious about this and have ready access to capital, spend some of it on proper professional advice - now.

TBagpuss

In answer to your question about buying the business gradually - the short answer is that you can come to whateveragreement you want with the sellers. It can also be quite common, particularly with larger businesses, for there to be an istial payment and then a further payment linked to profitability at a later stage.

HOWEVER, I think that things have changed a huge amount  since your grandfather's day - not least that commercial borrowing options are much more widespread and much easier to access, so in most cases, unless perhaps you were buying from a family member, the obvious answer would be that you get a mortage or other loan and buy the business.