Buying a sole trader business
Discussion
I work as a sub contractor for a number of businesses. I trade as a sole trader, with a van full of tools and consumables, working on customer premises. My largest customer has recently decided to retire. He also trades as a sole trader, but from rented premises. We've reached agreement on a price for the business, I've discussed taking over the premises with the landlord, and all is agreeable. I don't foresee a drop in demand for the services I provide, and I would love to specialise in the niche market in which he operates.
What are the potential pitfalls?
What are the potential pitfalls?
Difficult without much information, however a couple would be-
1. The owner decides retirement is boring / needs more money and decides to set up again, contacting all his old customers. Ensure you build in a clause to prevent him operating in this area / contacting any of his customers.
2. The current customers don’t stay with you. They were loyal because of the relationship with the previous owner. Try and get a good introduction before he leaves.
Are you competent / enjoy the work in the field you are buying into? Some things look rosy from the outside, but in reality it is hard work or boring and repetitive. Make sure it’s what you really want to do. Making money isn’t the ‘be all and end all’ of everything.
1. The owner decides retirement is boring / needs more money and decides to set up again, contacting all his old customers. Ensure you build in a clause to prevent him operating in this area / contacting any of his customers.
2. The current customers don’t stay with you. They were loyal because of the relationship with the previous owner. Try and get a good introduction before he leaves.
Are you competent / enjoy the work in the field you are buying into? Some things look rosy from the outside, but in reality it is hard work or boring and repetitive. Make sure it’s what you really want to do. Making money isn’t the ‘be all and end all’ of everything.
Thanks very much. I appreciate I haven't given much to go on, but I don't want him to find this! In answer to your points, he's moving away from the area, so local competition isn't a major concern.
He is well known in what is a niche business and has been for several years. I suspect there may be an initial loss of customers, but I'd hope to replace them fairly quickly. It's been clear to a lot of people - customers and peers - that his heart hasn't been in the business for several months now, and that I've been spending more time here than previously.
I enjoy the work and most of the customers. I'm not chasing money, fortunately. In fact, my main concern is that I'll need to work more than I want in order to cover the increase in overheads.
He is well known in what is a niche business and has been for several years. I suspect there may be an initial loss of customers, but I'd hope to replace them fairly quickly. It's been clear to a lot of people - customers and peers - that his heart hasn't been in the business for several months now, and that I've been spending more time here than previously.
I enjoy the work and most of the customers. I'm not chasing money, fortunately. In fact, my main concern is that I'll need to work more than I want in order to cover the increase in overheads.
It's a bit difficult to understand what you are buying given that he's a ST & so are you so there's no business entity as such to transfer over. As a ST he is the business so what are you taking over? Premises? Stock? Trading name? Goodwill? I'd be wary of overpaying for the latter if his clients are used to dealing with him on a personal basis & may not be so keen on dealing with you.
Are there likely to be any outstanding warranty or liability type issues? You need to be clear about what happens if a previous client contact you with an issue that needs sorting out - if it's that sort of business.
Are there likely to be any outstanding warranty or liability type issues? You need to be clear about what happens if a previous client contact you with an issue that needs sorting out - if it's that sort of business.
There's an element of goodwill, some stock and some machinery. The goodwill element is minimal, for the reasons you've identified.
Liability is a potential issue, and we've discussed it. Fortunately, he's had very few problems, certainly in the 5 years that I've known him. What we've discussed is that anything less than a couple of hours labour, I'll take on the chin. Anything over that, as long as it's a legitimate claim, I'll invoice him. The nature of the business is such that any liability caused by work we do tends to be evident within hours or days rather than months or years.
Liability is a potential issue, and we've discussed it. Fortunately, he's had very few problems, certainly in the 5 years that I've known him. What we've discussed is that anything less than a couple of hours labour, I'll take on the chin. Anything over that, as long as it's a legitimate claim, I'll invoice him. The nature of the business is such that any liability caused by work we do tends to be evident within hours or days rather than months or years.
RonaldMcDonaldAteMyCat said:
Forgive me if I'm being dumb, however if he's a sole trader, he can't sell the 'business', only the assets/goodwill. Also, the OP won't then inherit any liabilities in respect of past client work, as their contract was with the seller personally and not the assets he's buying.
You're right. That said, given that I'm taking the premises and the name on, I can see historic/past clients having difficulty recognising that.RonaldMcDonaldAteMyCat said:
Forgive me if I'm being dumb, however if he's a sole trader, he can't sell the 'business', only the assets/goodwill. Also, the OP won't then inherit any liabilities in respect of past client work, as their contract was with the seller personally and not the assets he's buying.
You're right. That said, given that I'm taking the premises and the name on, I can see historic/past clients having difficulty recognising that.s2sol said:
You're right. That said, given that I'm taking the premises and the name on, I can see historic/past clients having difficulty recognising that.
What do you mean the name? As a ST you operate as "s2sol Trading As Widget Systems" so are you going to change your trading name to the one he was trading under?Warranty could still be an issue as even if it's not your fault unless you suport a customer with a problem you won't get any further work out of them & you run the risk of getting a reputation that the business has gone down the pan since you took over. Of course it helps if you don't tend to get long term issues & they usually happen soon after the work is done.
Mr Pointy said:
What do you mean the name? As a ST you operate as "s2sol Trading As Widget Systems" so are you going to change your trading name to the one he was trading under?
Surely a sole trade can have multiple trading names? So the old "Widget Systems" remains "s2sol t/a..." while "otherguy t/a Niche Widgets" effectively becomes "s2sol t/a Niche Widgets".You'd probably want to switch to a single name, though. Particularly if you're advertising,
Mr Pointy said:
What do you mean the name? As a ST you operate as "s2sol Trading As Widget Systems" so are you going to change your trading name to the one he was trading under?
Warranty could still be an issue as even if it's not your fault unless you suport a customer with a problem you won't get any further work out of them & you run the risk of getting a reputation that the business has gone down the pan since you took over. Of course it helps if you don't tend to get long term issues & they usually happen soon after the work is done.
Yes, I'll be changing my trading name to the name he traded under. At the moment, I trade under my real name. I don't do any direct consumer work, I subcontract to others, who deal with consumers. The biggest potential issue is that I'm a miserable fWarranty could still be an issue as even if it's not your fault unless you suport a customer with a problem you won't get any further work out of them & you run the risk of getting a reputation that the business has gone down the pan since you took over. Of course it helps if you don't tend to get long term issues & they usually happen soon after the work is done.
ker, if I'm honest, and the separation between me and the consumer is probably a good thing. For example, I've a list of consumers that I relish the opportunity to tell to FRO as soon as he's gone. That might change when the increased overheads kick in, but there are a couple that I'll definitely be telling to find another technician.This is getting awfully complicated. Either he's retiring or he's not.
Any liabilities or warranties will be down to the person who gave them, because a sole trader is a person, no more. If he lets you use his old trading name to keep the punters happy, fine, but it's a person thing.
You may be overthinking this. Just pile in and do a good job.
Any liabilities or warranties will be down to the person who gave them, because a sole trader is a person, no more. If he lets you use his old trading name to keep the punters happy, fine, but it's a person thing.
You may be overthinking this. Just pile in and do a good job.
If it’s a niche business, think about how people contact him today and will therefore try to make contact in the future.
Earlier this week I had a client I’ve not spoken to in a decade ago phone me out of the blue as he didn’t know who else could help. If I’d sold the business the only way the new owner would get that work would be if they also acquired my phone number, email address etc or I bothered to pass the inquiry on to them.
The issue could well be that he won’t want you to take his phone number because he’s had It for years and “everyone” has it (both business and private). But that’s precisely why you want/need it!
Earlier this week I had a client I’ve not spoken to in a decade ago phone me out of the blue as he didn’t know who else could help. If I’d sold the business the only way the new owner would get that work would be if they also acquired my phone number, email address etc or I bothered to pass the inquiry on to them.
The issue could well be that he won’t want you to take his phone number because he’s had It for years and “everyone” has it (both business and private). But that’s precisely why you want/need it!
LooneyTunes said:
If it’s a niche business, think about how people contact him today and will therefore try to make contact in the future.
Earlier this week I had a client I’ve not spoken to in a decade ago phone me out of the blue as he didn’t know who else could help. If I’d sold the business the only way the new owner would get that work would be if they also acquired my phone number, email address etc or I bothered to pass the inquiry on to them.
The issue could well be that he won’t want you to take his phone number because he’s had It for years and “everyone” has it (both business and private). But that’s precisely why you want/need it!
This happens a lot.Earlier this week I had a client I’ve not spoken to in a decade ago phone me out of the blue as he didn’t know who else could help. If I’d sold the business the only way the new owner would get that work would be if they also acquired my phone number, email address etc or I bothered to pass the inquiry on to them.
The issue could well be that he won’t want you to take his phone number because he’s had It for years and “everyone” has it (both business and private). But that’s precisely why you want/need it!
I purchased my fathers B2B online business 3 years ago. We both contacted all the customers, and supplied them with the new phone / email numbers.
Roll on 3 years and he still gets orders to his mobile! Doesn’t matter how many times we gently remind them, they just don’t update their contact details. Fortunately it is my Dad, so the orders are just past on.
I would define look at trying to retain all the telephone numbers used within the business if possible.
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