Buying inlaws business to help downsize property?

[Tobeman]

Hi all

My in-laws run a successful cattery business from home from their back garden. It is a 7-day a week job, but they have a reliable small team of other staff, volunteers and young weekend staff that help fill in gaps.

However, they are both in their 70s now and looking to wind down. My FIL doesn't have much in the way of pension income, but his wife has good pension from previous career. They have no mortgage. They're fairly modest but my FIL has a habit of burning cash on projects to keep him busy in retirement.

They wish to downsize, have fairly strict requirements about what they want from their next (and presumably final) property. They'll have to sell the property and business together (more on why below), and have a personal wish to try and keep a cattery going if they can (they also do work for charity) under covenants etc. as there is a real shortage of them locally and they treat/consider a lot of customers as friends.

Putting the philanthropic/letting your mates down points aside, I think it is a great business, and I think it could be a great passive-income generator if I could get someone in to manage it. However, licensing requirements changed for catteries a few years ago, I understand. They now require someone to be onsite with responsibility of dealing with emergencies etc. So there is basically a requirement for the occupant of the house to have the responsibility of managing the cattery, at least 'out of hours'. Other similar houses have sold along the street for around the £1m mark (that are in better condition than theirs but no business included)

In an ideal world, we'd buy the business and house from my in-laws (my wife is already a licensee), develop some living quarters on site for a "night porter" or equivalent, retain existing staff to do the day-to-day and give the in-laws the capital they need to go buy their next home. Meanwhile rent the property out and maintain access over the plot to continue to run the business on site.

I don't even know where to start with working out how best to approach the financing of this. We definitely wouldn't get a second mortgage with our own being so big and we wouldn't consider living in theirs as we are settling into our long-term home now.

Any suggestions of any professionals that I could speak to on this re: financing and the viability of my aspirations to become a "powerfully built company director" of my own power would be appreciated.

Cheers

[rfisher]

I'm surprised that there are no replies to this, as it's an interesting question.

I don't have any answers for the OP, but did wonder if moving the business from a (presumably) Ltd Company to an LLP and then making him a partner may be helpful.

[OutInTheShed]

I'd suggest a long cold look at the business, how profitable is it run with all properly paid staff?

I would think a few dozen cats in the back yard and customers coming and going etc would diminish the rental value of the house significantly, unless you can properly split the property.

Is it possible to relocate the business? Sell it for relocation? Does selling the whole thing add or detract from just selling the property?
Talking with estate agents and 'business transfer agents' might be informative.
Have a look at cattery businesses for sale to understand the market?

[AyBee]

As OutInTheShed says, how viable is the business. Does it only stack up if you can rent the house separately or does the business cover the costs of the house also, i.e. you could provide accommodation to the manager in return for a reduced salary and still make a return on the money? Provided it does stack up, then I'd assume it's business finance you'd need and that may be easier to get if there's a valuable asset that the business owns (the house).

[Freshprince]

Probably a good starting point is understanding the value. Once you know numbers for below, you can start looking at how funding options, where money can be borrowed from and lent against, what you may or may not need to put into the make the deal/financing work etc.

- the property value regardless of the business
- the business value/goodwill/assets
- also alternative use value of the property i.e could it be redeveloped subject to planning. This value could be more than existing use value.

[ozzuk]

Sorry just re-read and you need a mortgage. May be a challenge as commercial mortgages tend to be lower LTV (i.e. you need big deposit), sometimes require business case, and often higher rates and fees which then impacts your cashflow.

Also, if you're dropping the charity side is the business still viable without the volunteers (who may not be happy volunteering for a profit driven business).

Edited by ozzuk on Thursday 12th May 12:07

[Simpo Two]

ozzuk said:

Also, if you're dropping the charity side is the business still viable without the volunteers (who may not be happy volunteering for a profit driven business)

OP said 'they also do work for charity'. Working for charity (ie for free) isn't the same as working FOR a charity.

Cat rescue centres (as opposed to catteries) are often charities but this one seems to be a normal business.

My only advice is 'Do the math'