Buyers Guide for Purchasing a Business in Phuket
Often buying an existing business represents less of a risk than starting a new business. While the opportunity may be less risky in some aspects, you must perform due diligence to ensure that you are fully aware of the terms of the purchase. We at Phuket Business Broker have more than 20 years of experience helping buyers with these questions.
If you have decided to buy an existing business, you will want to be sure you are making the right choice in your new venture. Only you can determine the right business for your needs; however, the following topics can help guide you make the best decision.
Initial steps for starting
There are many different types of businesses to buy. Take these steps to narrow down the list of potential businesses you may want to purchase.
- Identify Your Interests If you have absolutely no idea what business you want to invest in, first eliminate businesses that are of no interest to you.
- Consider Your Talents Being honest about your skills and experience can help you eliminate unrealistic business ventures.
- List Conditions for Your Business Consider if a business has a condition that is unfavorable to you, such as location and time commitment.
- Quantify Your Investment Finding profitable businesses for sale at reasonable prices can be difficult. Ask yourself why this business is for sale in the first place. Phuket Business Broker can help answer this important question.
- Identify your available resources. Most businesses in Thailand are purchased for cash. Some owners may also be able to offer financing for a portion of the purchase price.
Advantages to Choosing an Existing Business
There are many favorable aspects to buying an existing business such as drastic reduction in startup costs. You may be able to jump start your cash flow immediately because of existing inventory and receivables.
Disadvantages to Choosing an Existing Business
There are also some downsides to buying an existing business. Purchasing cost may be much higher than the cost of starting a new business because of the initial business concept, customer base, brand and other fundamental work that has already been done. Also, be aware of hidden problems associated with the business like debts the business is owed that you may not be able to collect.
Doing Due Diligence
As you become a business owner, there are items that need to be addressed before entering into any business agreements or transactions.
Obtain all Licenses and Permits Most businesses need licenses and permits to operate. The type of license or permit you need depends on your industry and the state in which the business is located. Phuket Business Broker can help with identifying those licenses and direct to a lawyer who will help you set up your company and get all required licenses to operate.
Determining the Value of a Business
There are a number of different methods to determine a fair and equitable price for the sale of the business. Here are a few:
Capitalized Earning Approach: This method refers to the return on the investment that is expected by an investor. This is the most common way to evaluate. How much money does the business make? How long will it take to recoup my investment? How much growth potential is there?
Excess Earning Method: Similar to the capitalized earning method, except that it separates return on assets from other earnings.
Cash Flow Method: This method is typically used when attempting to determine how much of a loan the cash flow of the business will support. The adjusted cash flow is used as a benchmark to measure the firm’s ability to service debt.
Tangible Assets (Balance Sheet) Method: This method values the business by the tangible assets. Basically you ask. How much could I get if I sold all the equipment, supplies, and stock.
Value of Specific Intangible Assets Method: This method compares buying a wanted intangible asset versus creating it.
Doing Research for Purchasing a Business
Once you have found a business that you would like to buy, it is important to conduct a thorough, objective investigation. The following list includes important information you want to include when researching the business, you want to buy.
Letter of Intent: The letter of intent should spell out the proposed price, the terms of the purchase and the conditions for the sale of the business. We at Phuket Business Broker will draft the letter of Intent and make sure all the important items are addressed.
Confidentiality Agreement: A confidentiality agreement indicates that you will not use the information about the seller’s business for any purpose other than making the decision to buy it. This is often required before you may view the business or view the financials of a business.
Contracts and Leases: If the business has a current lease for the location, be aware that you may have to work with the landlord to assume any existing lease on the business premises or negotiate a new lease. We at Phuket Business Broker will help to negotiate and transfer the new lease for you.
Financial Statements: Examine the financial statements from the business for at least the past three years.
Tax Returns: Review the business’s tax returns from the past three to five years. This will help you determine the profitability of the business as well as any outstanding tax liability.
Important Documents: Numerous documents should be checked during your investigation. Examples include property documents, customer lists, sales records, advertising materials, employee and manager information and contracts.
Professional Help: A qualified attorney should be enlisted to help review the legal and organizational documents of the business you are planning to purchase. Also, an accountant can help with a thorough evaluation of the financial condition of the business.
Sales Agreement for Buying a Business
The sales agreement is the key document to finalize the purchase of the business. This agreement defines everything that you intend to purchase including business assets, customer lists, intellectual property and goodwill. If you do not have a lawyer to help you draft the terms of the sale, you should at least have one review the agreement before you sign it.
Checklist for Closing On a Business
The closing is the final step in the process of buying a business. Keep in mind that you should have legal counsel available to review all documentation necessary for the transfer of the business.
The following items should be addressed at closing:
- Final Purchase Price This will include prorated items such as rent, utilities, and inventory up to the time of closing.
- Lease: If you agree to take over the lease, make sure that you have the landlord’s concurrence. If you are negotiating a new lease with the landlord instead of assuming the existing lease, make sure both parties are in agreement of the terms of the new lease.
- Vehicles: If the purchase of the business includes vehicles, you may have to complete transfer documents for the vehicles. Check with your local Department of Motor Vehicles to determine the correct procedure and necessary forms.
- Bill of Sale: The bill of sale proves the sale of the business. It also explicitly transfers ownership of tangible business assets not specifically transferred on their own.
We at Phuket Business Broker are here to help you every step of the way. Contact us today so we can help you.