Buying a business...

[AndyC_123]

Hi

Looking for a bit of advice please.

I've run a business that has been doing OK for the past 4 years but always looking for new opportunities.

I have been in talks with someone who is looking to sell an old farm that is currently being used as livery yard & bit of storage. He wants to sell as worried about increased tax in the upcoming budget (he'd want to retire in a few years anyway). The sellers son is keen to continue running the business on some sort of profit share agreement.

I will have to put in £500k as a deposit, and the mortgage will cost me about £4.5k per month over 15 years. We were talking about a profit share of 50:50. Currently, the business brings in £6k profit/month so a 50% split won't cover the mortgage for me. My current business can cover the mortgage comfortably.

There is also scope to increase the scale of this new business as only 50% of the land is currently being utilised, and potential for the site to be developed in years to come.

I'm very inexperienced in this kind of scenario, so appreciate any input.

Thanks

[hotchy]

Why would you put half a million in as a deposit and a 4k a month mortgage for half. Then his son doesn't turn up for months. Nothing you can do, except pay his half. No chance. All or nothing.

[Doofus]

You're intending to pay, what, £800k for half the business? What are you actually buying? Somebody else is going to run it? Are you confident everything will go through the books?

[AndyC_123]

I will buy and own all the assets of the farm - house, buildings, land, equipment etc.

A new business would then be formed (potentially me and son directors) to run the business. The new business would pay my current business rent for the site.

I know the guys son and he's a hard worker and very straight.

That's my current thoughts anyway?


Edit: The figure I could buy it for has already been offered by another party. The other party has no interest in continuing to run the business which I guess the seller would like. So potentially the business is being chucked in for free?

Edited by AndyC_123 on Friday 15th January 09:34

[StevieBee]

To me, that's way too big a risk. The only opportunity you have is to realise the potential of the land but potential is different to reality. How easy would it be to gain approvals to develop it? what would developing it cost?

[akirk]

If your up front costs are primarily for the assets and make sense commercially for that - i.e. you are paying deposit and mortgage to buy the property - then less of an issue... you then need to decide whether the 'profit share' you will receive is a suitable rent payment

so split out:

- purchase of assets
- running the business
- rental for the asset

the business should be renting the asset at a commercial rate which comes out of the monthly figures pre-profit...

if you are paying more for the assets than their market value - i.e. you are 'buying the business' by paying a premium - what are you actually paying for? Fundamentally, if you buy the asset - the farm yard and buildings etc. then that is all there is to a business like this - livery yards and storage are hugely in demand, so if you were to buy the assets and nothing else it would take very little effort to get the same level of occupancy back - esp. as anyone already there will want to stay!

So:
- value the physical property - if necessary get several commercial / property agents in and agree with the chap that you will take a mid point of their valuations
- buy the property for its market value

separately - discuss with the son how the business will go forward
- if he is going to run it, then he can rent the whole property at a commercial rate (same agents can advise on that!) - you get the rent, he makes whatever profit he can
- you can employ him to run it - in which case you pay him a salary, the business pays you a rent, if there is any profit left you keep it
- you can negotiate a balance of salary and profit share - but the rent is still paid commercially

the reality with this type of business is that there is no business without the underlying asset - space, so when you own the space effectively you own the business... it is then a simple negotiation on how he is recompensed for his work

but whatever you do - separate asset and business... as the business has virtually no value outside the asset, so the figures must stack up for the asset you are buying - the property

[Phooey]

Horse livery? Nothing much to add but I'd like to do something like this. We currently pay £250/mth for daughters pony - the livery yard is full to capacity. Private lessons are £30 for 30mins and booked weeks in advance. From what I can work out it's a numbers game - you need lots of paying guests. Great lifestyle business and wish you all the luck

[Doofus]

AndyC_123 said:

I will buy and own all the assets of the farm - house, buildings, land, equipment etc.

A new business would then be formed (potentially me and son directors) to run the business. The new business would pay my current business rent for the site.

I know the guys son and he's a hard worker and very straight.

That's my current thoughts anyway?


Edit: The figure I could buy it for has already been offered by another party. The other party has no interest in continuing to run the business which I guess the seller would like. So potentially the business is being chucked in for free?

Edited by AndyC_123 on Friday 15th January 09:34

So the son gets 50% sweat equity? I'd want a different split, personally, given that my ability to repay the mortgage would be largely based on him running the business successfully and responsibly.

[AndyC_123]

Hi

Thanks for the comments.

Developing the land - I would guess a developer would approach depending on the councils home building strategy.

@Akirk that's good thank you. The assets are worth around the figure that I'm paying, I may be paying slightly top end up there has already been a figure offered at this price. He is going to speak to his accountant & solicitor about future profit share/employment.

The stables are currently full which is nice and suggest room for expansion. Concerned about getting into the realms of business rates though.

My current business will cover the mortgage & bank is loaning as such. Am I right in thinking that I don't want one business to have to subsidise another though, even if it's for an appreciating asset such as land?

Cheers

[RedAndy]

Developable land... not likely or it will already have been done! Send a PM to eqquuus on ere and ask his thoughts (he may charge a fee of course) but you'll have an idea of whether it has development potential. Or ask your local council. Get a hold of the "Local Plan" on their website and have a goosey.

[GT03ROB]

Imagine pitching the idea on Dragons Den. What do you think they would say?

[Doofus]

AndyC_123 said:

Hi


My current business will cover the mortgage & bank is loaning as such. Am I right in thinking that I don't want one business to have to subsidise another though, even if it's for an appreciating asset such as land?

If a business can't support itself, it's not a viable business. If you want to invest in the land with a potential exit, then fair enough, but don't blur the two things.

It sounds to me like you're being asked to spend £800k so that this chap can keep his job.