Start Up Costs / Buying a Business

[theguvernor15]

Morning All,

I'm looking for a bit of advise.
Currently a friend & i are looking to purchase a local small business (bar).

We've got almost all the costs ironed out through research/experience.
The only couple of figures we're struggling with are accountancy/legal fees.

We would do our own basic book keeping, but would also need a way to pay a manager & a couple of bar staff PAYE etc.
(We have no idea about costs for this sort of stuff).

There would also be legal fees when purchasing the business, we again have no idea how much these would be.

Can anyone shed any light on a round figure to expect?

[IATM]

Coming on here won't help much. I don't mean that in a bad way.
Best way to find out costs?

Call up a few law firms and a few accountancy firms. You will get an approx figure there and then for your area and for your business rather than wild fluctations here.

From my experience though, your account fees will be approx 1-2k.

Legal: a wild guess about the same.

[Thankyou4calling]

Have you seen audited accounts for the business?

[Rich135]

We pay £350 a month to deal with all PAYE/NI as well as year end accounts and tax return for 14 staff, so you should be a max of £2k per year for any bookeeping etc. Find a smaller local practice or individual, as it's not rocket science.

Legal fees to draft a share subscription agreement (or similar) could be anything from £2k upwards, but it all depends on how much time you spend debating any points in the agreement with the current owner, and getting any lawyer involved in that. You could probably find a draft online and do a lot of it yourself.

[theguvernor15]

Thanks guys, yeah we've seen the books, however it appears as if they've done the books themselves, without sounding like an arse, i don't think they're worth the paper they're written on!
We know, from frequenting the place, numbers that they have in there & insider info, that their takings are probably wildly different to published.

Hence why we have put our own costings together based on proper figures, the only 2 figures we had left were the accountancy/legal fee side of things, i'd budgeted £1500 for each one, So we're not a million miles away cost wise. We have a few thousand in for misc costs so i guess the difference could be swallowed up within that, we're going in with belt & braces approach too it on worst case scenarios, so if we're only a couple grand out on our yearly costings it's not the end of the world.

[The Moose]

What will you call it?

Puzzles?

[theguvernor15]

The Moose said:

What will you call it?

Puzzles?

The Moose Head

[Sharted]

theguvernor15 said:

Thanks guys, yeah we've seen the books, however it appears as if they've done the books themselves, without sounding like an arse, i don't think they're worth the paper they're written on!
We know, from frequenting the place, numbers that they have in there & insider info, that their takings are probably wildly different to published.

Hence why we have put our own costings together based on proper figures, the only 2 figures we had left were the accountancy/legal fee side of things, i'd budgeted £1500 for each one, So we're not a million miles away cost wise. We have a few thousand in for misc costs so i guess the difference could be swallowed up within that, we're going in with belt & braces approach too it on worst case scenarios, so if we're only a couple grand out on our yearly costings it's not the end of the world.

I'd be careful about which figures you do use.

Their figures are, presumably, prepared and signed off by a certified accountant and the other are ones that you have cobbled together based on anecdotal evidence.

I don't disagree that some firms make their accounts up to minimise income for tax purposes but the alternative sounds woolly at best.

[theguvernor15]

Sharted said:

I'd be careful about which figures you do use.

Their figures are, presumably, prepared and signed off by a certified accountant and the other are ones that you have cobbled together based on anecdotal evidence.

I don't disagree that some firms make their accounts up to minimise income for tax purposes but the alternative sounds woolly at best.

Completely agree, however, i've no idea how an accountant has signed the figures off, they're that wide of the mark!
We've used their figures to base our offer on, subsequently they laughed at us.

[Sharted]

theguvernor15 said:

Completely agree, however, i've no idea how an accountant has signed the figures off, they're that wide of the mark!
We've used their figures to base our offer on, subsequently they laughed at us.

Then their chickens have come home to roost!

It pisses me off that business owners cook the books and don't expect to live with the consequences, it's corrupt.

Tell the to stick the business up their arses and get on the phone to HMRC.

Or, alternatively, ask them how they will ever sell the place with those books, anyone who needs to borrow to buy it will be stuffed.

[theguvernor15]

Sharted said:

Then their chickens have come home to roost!

It pisses me off that business owners cook the books and don't expect to live with the consequences, it's corrupt.

Tell the to stick the business up their arses and get on the phone to HMRC.

Or, alternatively, ask them how they will ever sell the place with those books, anyone who needs to borrow to buy it will be stuffed.

That's why it's not sold, they're asking too much for it based on what the books say they return, they've had a few sniffs of it but nobody will buy on their figures unless they know how the place operates, we have a very very good idea of what it makes, but without the figures to back it up, unless someone has the capital in the bank and is willing to take the risk on their figures (which is suicide) they'll never sell it!

[jammy_basturd]

If it's making what they say it is making (rather than what is on the books), why do they want to sell?

[Sharted]

theguvernor15 said:

That's why it's not sold, they're asking too much for it based on what the books say they return, they've had a few sniffs of it but nobody will buy on their figures unless they know how the place operates, we have a very very good idea of what it makes, but without the figures to back it up, unless someone has the capital in the bank and is willing to take the risk on their figures (which is suicide) they'll never sell it!

For that reason I'd be bidding them right in the bks.

I have no reason to think that you haven't of course.

[BoRED S2upid]

Freehold or leasehold?
Tied or not?
Wet sales only or food?

Been there done that don't rush into anything.

[Thankyou4calling]

BoRED S2upid said:

Freehold or leasehold?
Tied or not?
Wet sales only or food?

Been there done that don't rush into anything.

Indeed.

What are you actually buying?

Customers have very little loyalty and if they are placing a value on goodwill I'd treat it with a pinch f salt.

What would it fist to set up a competitor nearby with all tha entails?

When buying a business you'll rarely get yo hear the truth then you get in there and things really start to happen.

[theguvernor15]

jammy_basturd said:

If it's making what they say it is making (rather than what is on the books), why do they want to sell?

They've opened somewhere else for day trade in another part of town, they have a young family, they also have seriously ill family members who they're looking after and looking after their business as well as trying to juggle the new place with the one they hold.
(They're people i know so i know all of the above to be true).

They don't physically have the time to run a night venue as well & are currently advertising for someone to run it.
A family member of mine owns the building this business is run from.

We did bid them yesterday, a third of what they want for it, but they laughed at us, which we fully expected, they say they know full well what its worth and won't compromise, which is fine, as they think its worth X & know it makes Y, which would justify X, however without the figures to back it up they're only going to get Z for it.

I've got an accountant viewing their figures today to value it accordingly, i know full well it won't make them budge & to be honest, if we cannot complete by the start of December we've told them we'd walk away, the hope, is that with a slightly improved offer, the hassle of them having all of the issues they have with running 2 places as well as looking after family etc is if we say here you go, heres a few days otherwise you can keep it, they might fold, we aren't desperate to buy, so it's now a game of poker really.

[trickywoo]

theguvernor15 said:

A family member of mine owns the building this business is run from.

I assume they are looking for a fairly large goodwill payment from what you say and I'm sure it goes without saying but for this type of business and the bit I've quoted you won't be doing yourself any favours paying more than the worth of the assets they are selling i.e. fixtures and fittings (assuming you like them) and stock.

To add something useful unless there is a very good reason for it you would be best not to buy it as a going concern i.e. take on all the liabilities of the business. Just buy the fixed assets and lease (if appropriate) and start your own company to run it.

Payroll providers a cheap - £100 a year should easily cover two employees. My accountant charges £100 per VAT return and annual accounts are about £1k.

Edited by trickywoo on Wednesday 11th November 15:57

[Jockman]

trickywoo said:

To add something useful unless there is a very good reason for it you would be best not to buy it as a going concern i.e. take on all the liabilities of the business. Just buy the fixed assets and lease (if appropriate) and start your own company to run it.

It's a good point - are you buying the shares or the assets? If the shares, you are taking on all future liabilities (smoking related compensation claims 30 years from now etc) just to give them a 10% tax rate. Otherwise its a 28%-45% hit depending on how you structure it for them but the liabilities are not your problem.

Share purchase is not a problem but you need very good legal and financial warranties in place. This will cost more than your current budget I would guess. It is far riskier for you but affords them a more benign tax hit - this should be emphasised to them and reflected in the price.

If structured correctly you will also be able to offer them up to £30k each completely tax free due to their loss of employment. This is a specialist area that requires proper legals.

.....or you could just get the owner of the building to serve notice...

[theguvernor15]

Well we bid them last week, which as i said was turned down, the accountant took a look at the figures & said basically offer them a small goodwill gesture as on paper it's worth diddly, which we already knew.
There's no real assets, to speak of, maybe a couple grand at best re-sale value.

Company is debt free, with only paying rates to the council, utilities, rent & 1 supplier, all up-to-date.

'Ironically' since we made our initial offer, they've suddenly got another cash buyer interested, someone that's offering more than us, isn't from round her, keen to conclude for more money etc.
I fully believe they don't have anyone, as given the figures they've posted, nobody in their right mind would buy it, i believe they just use it as a cash cow.
They've also got to run any new business buyer through the landlord (my family member), as there is something in the tenancy agreement about the LL having to approve anyone they want to sell their business too (credit checks) etc.

I'll keep you all updated, but it's gone stale for the minute.