Information on buying a business:

Elite Business Group "Intermediaries" can assist you in plotting a successful course through the process of buying a Thai Business by showing you;

• How to select and/or find the right business
• How to value the business you are looking at, with comparisons available of other similar businesses previously sold
• How to minimize the risks in buying a business

Can't find what you are looking for or do you want to buy, confidentially, a specific business that may not be on the market? Consider using EBG as your Buying Agent
Different people buy businesses for many reasons.  Some examples include;

• Fulfill a dream to own a business and be your own boss
• To assist in the ease of relocation
• Lack of suitable employment opportunities
• Be in charge of your own income
• A going concern can be a much more secure investment than starting up a new venture
• Expansion of an existing operation
• Vertical or Horizontal Integration
• Synergistic benefits to current business
• Build a secure environment for self and family
• To supply a market need
• Tax benefits
• Lifestyle benefits

How to buy a business
Buying a business is a big decision, possibly one of the biggest you will make in your life.  For this reason, you should consult a professional who has your best interests in mind.

One of the safest, most cost-effective, and successful ways to approach the actual acquisition of a business is to see it as a process of elimination, involving different steps along the way, with each step getting closer to the desired goal of owning your own business.

As this is one of the biggest decisions you make in life, you should allow sufficient time to conduct the necessary actions in order to ensure a high probability in selecting the right business.

1. Do I really want to buy/own a business?

This question may seem simple, but it is very important.  In order to ensure a high probability of success in selecting and running your business correctly, you should consider these questions and use the answers to help in your search and decision making process.  

• Why do I want to buy a business?
• What do I expect from the business?
• How much of my time, energy, and other resources can I contribute to the business?
• How much capital is available to me?
• What are my obvious business strengths, weaknesses and experience?
• What location is most suitable/desirable to me?
• Using these answers, what type(s) of businesses am I most suitable to own?

2. Where can I find the right business for me?

While we can't assist you with answering the above questions, when you are satisfied with the answers you gave, we can show you another most crucial question: Where to begin looking for a business?  There a few possibilities, some more efficient than others:

• Private sale. Sometimes you can find businesses for sale by owner in the newspaper, other publications, or advertised on the web.  You may also be lucky enough to have contact with a willing seller, either personally or through a connection.  Obviously the most dangerous thing here is that you are dealing directly with the seller, which can create major problems in the process and leaving you exposed to many possible negative outcomes.  Don’t be surprised if things don’t turn out as represented or even hoped.  For this reason, especially as a buyer from a different culture or background, we highly recommend using a trusted source that is well versed in business transfers.
• Many Real Estate agents may have limited business listings, usually involving real property as part of the selling price.  Although the costs are generally paid by the seller, the Real Estate agent generally does not have experience in the complexities of a dynamic business transfer/acquisition. 
• Through a Business Broker/Intermediary advertising a business for sale. In this case, you are dealing with a specialist, and would expect someone with a deeper knowledge of the business he is offering on behalf of his client.  The Broker/Intermediary should have well organized and extensive information of all aspects of the business being offered and understand the complexities of this type of transaction including the valuation method, financial considerations, leasehold details, business climate for region/industry, availability of comparable offerings, and any other dynamic elements related to the transfer.  For this reason, it is highly recommended that you consult a respected business intermediary when thinking of buying a business.
• Through an Accountant or Attorney.  While this is not the core business of an attorney or accountant, many times a client will inform their advisor of the sale of a valuable asset. 

No matter which option you choose during your business search, you realize that there are risks and advantages for using certain methods.  One thing is for sure, whichever path you choose, be sure to remember that due diligence and the final decision is the buyer’s responsibility and any of the above advisors can only offer guidelines as to how to reach the final step, whether it is to turn your search to another business or go forward with a business transfer and become the owner of the business of your dreams

 

3. Choosing the right business

A good set of financials is no assurance that you, as the new owner, will be successful in the business.  Conversely, financials that are less than gleaming are no indication that you will not be more successful than the previous owner. The point is, each person will have a different style of running a business and therefore a different bottom line.  While the financial history and performance are important, most business owners and buyers agree that there are other factors that contribute to overall satisfaction of owning a business.

 
Here are a few tips for selecting and evaluating businesses for sale:

• As most business sectors are generally highly competitive, you should choose a business that highlights a competitive advantage that you possess, usually through training, experience, or specific qualifications.  If you are more of a “jack of all trades” type of person, don’t worry, just know your global strengths and abilities and how they can be applied to business ownership.
• Many small and medium sized businesses require long hours, motivation in dealing with customers, employees, and suppliers, and sometimes less than glamorous tasks to be done by the owner, you should choose a business/industry that highlights what you enjoy.  If you enjoy your work, you have an exponentially higher probability of success and fulfillment.
• Why is the seller selling? Many sellers have real and viable reasons for selling their good businesses.  Some examples are retirement, partnership disputes, marriage, divorce, other business interests, burn out, or some other personal reason.  The best thing for you to do is understand the reason for sale and make sure you are not buying someone else’s headache.  This is where an experience intermediary like EBG can help as we strive to list businesses that are attractive and have the best prospects for our buyers. Remember, there is no such thing as a “perfect business.”  We can help you find solutions to most problems to raise your probability of success after acquiring you new business.
• Remember that having sufficient working capital is an important part of almost any business.  Because of this you should understand the capital requirements of the business you are reviewing.  Although having income from day one after buying a business is a huge advantage to purchasing an existing business, you will want to evaluate the total funds required to purchase a business and effectively run it with stock, overheads, and any debt service that may be involved.
• Be sure you have the necessary funds to acquire and operate the business you are evaluating.  You may also want to consider the expansion potential/needs of the business and what funds are needed to execute such plans.  If your cash available is limited or you feel that more cash reserves are advisable, sometime an owner can be a potential source of financing.  This is not always available, but can be a very advantageous offering if a seller is willing to take back a note for part of the purchase price.
• Remember that each individual is different and unique.  For this reason, you should look at the strengths and weakness of the seller.  How involved in the operation of the business is he?  Do you have the same abilities, or better, so that you can slide in where he leaves off?
• Maintaining confidentiality is very important to both you and the business seller.  As a business buyer, you will want to take over the business in the best possible condition.  If you break the confidentiality by speaking to employees, the manager, suppliers, or competitors, you may not only be putting the seller’s business at risk, but damaging your prospects as well if you are keen to take over this business.  As the trained employees and management are some of the most key “assets” you are acquiring, you are better off to respect the confidentiality and pose all questions and inquiries to him, either directly or through your intermediary.  Remember, your intermediary can assist you in delicate matters that you may feel uncomfortable discussing directly with the seller.  Remember that a sales purchase agreement or “offer to purchase” will normally be conditional and you can insert safeguards for you in this document.
• Ensuring a smooth transaction is very important in a successful business transfer.  This means that, unless you are very sure of what you are doing, you may not want to make drastic changes to the operation of the business until after you have finished the handover period, usually 2-4 weeks.  After you have learned the basics of the business, now you can begin to try your new methods and techniques.
• As goodwill is usually a substantial part of the business sales price, it makes sense that you will continue to utilize the seller tried and true methods for running the business.  Again, unless you are very sure of what you are doing, you may want to change the business slowly, testing new methods rather than jumping in with both feet and changing the face of the business completely.

4. Evaluating profitability

You may, or may not, be surprised to learn that many business owners go to considerable lengths to minimize tax liability, by both legitimate and questionable means.  Some businesses pay every single Baht in Tax and others avoid paying ANY tax at all costs/

Your main goal should be to determine the “True Owner’s Benefit” of the business you are considering.  Sometimes, a business records every sale and pays every single Baht in Tax.  This makes it very easy to determine the benefit, and return the business provides.  In Thailand, this is very rare and you will need to rely on other methods of arriving at, and proving, the real benefit and return of a business.  Many time, in order to determine the true return to an owner of a business, we need to "recast" certain allowable deductions in respect of financing costs and ownership/management issues not directly related to the operation of the business, to determine EBGT (Earnings Before Interest and Tax). Some of these recasted items could include:

• Debt/Financing service. These matters are borne out of the financial situation of the current owner of the business. You may be in a totally different situation and therefore choose to handle the financing costs, if any, in a completely different way.  In order to consider the financial viability of the business, you will want to calculate your projected debt service for any business you are considering.
• Discretionary Spending.  Expenditures related to private expenses, such as the personal use of “company” cars, charitable contributions, holidays, and other "perks" not related to the running of the business.
• Any salary, bonus, or other remuneration paid to directors, whether actively involved or completely silent.
• Owner's income or Salary.  Especially in the case of a owner operated business, the salary is a direct benefit from the income of the business.  Many times this figure is manipulated to maximize tax benefit and can easily be recast back to show true owner benefit.
• Expenses. The expensing of “capital” goods is a common practice of small and medium businesses.  As this should technically be depreciated over time, often a small or medium business will use the purchase as an expense, lowering profit and tax liability.
• Other one-time expenditures, such R&D costs, personal travel, and other creative ways of adding expense to reduce tax liability more for the benefit of the owner than the business.

All of these are ways to evaluate the profitability and can be used in conjunction with each other.  Now that you have this information, it is time to move on to the next step, remembering that these items will need to be verified during the later stages of your business transfer, or the due diligence process.

5. Determining the purchase price

To most buyers, this is the most important part of the process after all information has been gathered.  For this reason, many buyers feel this step should come earlier in the process.  The reason EBG has this step positioned here, is that, until now, most of the questions will be answered through your own research, initial due diligence, or by sheer gut feeling.  Determining the value of a business is an involved process normally requires the experience and expertise of a professional.  Depending on who you are consulting, this can begin resulting in real costs.  So, unless you are satisfied with your findings to this point, you will likely not want to make it to this stage on this business and will likely start your search again from the beginning.

There are so many ways to value a business these days, from theoretical methods in textbooks to very simple multiples of revenues or earnings.  Most buyers and sellers of small and medium businesses tend to prefer the latter for simplicity and transparency.  At EBG we understand that sale of a business is very much a market related activity and different businesses have different values to different buyers. 

As a buyer, one of your main concerns is the return on your investment.  Basically, the purchase price should be a reflection of the amount that can allow you to repay your investment in a reasonable time, while knowing the risks and effort involved. For each business, as well as each buyer, this figure can vary, usually starting around one times annual owner benefit for a business that is highly reliant on the owner to 4-5 times owner benefit for a business for a business that is highly systemized, automated, or has significant advantages in manpower, lack of competition in market, or other reasons that would warrant a premium.  Also, many times a business may have a large value in hard assets or real property that is reflected in the price.

Depending on what type of business you are considering acquiring, there are a number of different factors that you will need to take into consideration when building the correct offering price for the business you are considering.  Generally speaking, it seems wiser to pay a little more for a good business in the beginning, than a little less for a "bargain" that may well see you lose most of your investment. The total cost of acquiring a business should be taken into account, and can be divided into a number of components, covering both tangible and intangible assets:
Tangible assets

• Freehold property (if applicable). You should be able to compare the value of this property to similar properties on the market or recently sold.  This may also require the assistance of a professional.
• Furniture, Fixtures, and Equipment. The book value may vary from the actual value, which may vary again from its current market value.
• Stock/Inventory. You will want to make sure that you are purchasing salable stock/inventory in levels that are in line with the actual/historical stock/Inventory turn over of the business. You likely only want to acquire overstock or “old” stock if the terms are favorable for you.

Intangible assets

• Intellectual property. This is the intrinsic value of licenses, leases, agreements, processes, patents, and know-how, which are imperative to the successful operation of the business. These items no doubt cost time and energy to accumulate and would naturally require time and energy to duplicate. 
• Goodwill. Some say that the difference between the value of the business on a "return-on-investment" basis, and the net value of the tangible and intellectual property assets is called goodwill.  Others consider the multiple attached to the actual owner’s benefit as goodwill.  It will depend on the type of business and other tangible/intangible assets that are being considered as to how much you will or should pay for goodwill.
• Working capital. The amount of capital needed to run and grow the business with reasonable confidence and success. This is an important factor in determining your financial ability to purchase the business within your specified budget.

6. Negotiating the purchase

The best way to secure the business you would like to acquire is by using an offer to purchase which enables you to secure the business, at the agreed price, with a nominal refundable deposit subject to a number of criteria, which you can set according to your circumstances (EBG HIGHLY recommends NEVER giving a deposit directly to the seller of a business).  These can include:

• Due diligence, whereby the seller allows you/your accountant to access the necessary financial documentation to prove the claims made by the seller or that were represented on behalf of the seller by the intermediary.
• A trial period, whereby you can attend the premised for an agreed time to verify the revenue/profit of the business (mainly applicable to cash businesses).
• Finance clause. The Purchase can be subject to your being able to obtain Bank Finance sufficient to purchase the business.
• Special conditions. These can include the granting or assignment of licenses, permits, contracts, agencies, patents, or any other concession necessary to the success of the business
• Lease conditions. The agreement can be subject to the leased premises being granted/assigned on conditions suitable to you.
• Handover Period.  The agreement should specify the handover period, where the seller will stay on to ensure a smooth transfer of the business and related knowledge and even a further period where the owner will be available as a consultant or on-call basis. 
• Staff retention. In the event that key staff are involved in the business, the agreement can specify that the seller will not recruit or solicit the employment of staff for a certain period of time.
• Non-competition. The agreement will normally specify a period during which the seller may not operate a business in direct, or indirect, competition of the business being sold.

Normally, upon acceptance of the offer and deposit, the due diligence period begins and continues, normally, for 15-45 days.  This is the time when all conditions need to be cleared.  At the end of the specified period, the business will either be transferred to you as the new owner or the transaction cancelled because of an inability to clear one or more of the condition in the offer to purchase.  In this step, it is crucial that information is passed freely and in a timely manner between buyer and seller.  This is where an experienced intermediary such as EBG is essential.

7. Remember to run the business

Congratulations!  You are now the owner of your new business.  Now is the time to familiarize yourself with the operations of the business, as well as the customers and suppliers.  Also, remember the figures the seller showed you during your due diligence?  These are a record of his past performance in the business.  They are an indicator of what has happened before, but have no physical life of their own.  This means that you must continue to operate the business if you would like to see the same type of figures yourself.

Think of your new business like driving a car or truck.  Even though it is still moving in the right direction, hopefully forward, when you took over, you still need to control the gas, brakes, and steer it in the right direction.

Remember also that in your offer to purchase you specified a handover period, and likely a longer period where the owner would be available to answer any questions or assist in whatever possible.  Be sure to use this to your advantage and get the most out of it you can.  What better resource to show you the Do’s and Don’ts of a business than the previous owner?