But it needs to be independently verified. Do you think a lender will act without it? What if the partner has been committing a fraud?
Buying / Selling a business
- Thread starter Stinky
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But it needs to be independently verified. Do you think a lender will act without it? What if the partner has been committing a fraud?
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Hi Stinky,
I’ll buy the full business from you both for 700 million.
that won’t work, that would mean they both then own a half still lol
I’ll buy the full business from you both for 700 million.
Sell him your half for half a million quid
Use your half million quid to buy him out of his half
???
Profit
All meant in good humour
that won’t work, that would mean they both then own a half still lol
Soldato
If it's a limited company, you should get into debt. Get the loan put onto the company. Leveraged buyout. I used to create the pitchbook presentations for the Barclays leveraged finance team.
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Take your half a million, take all of the company documents and then set a new company up.
Audits aren't designed to find fraud so would provide little real comfort with that. They are also heavily caveated as to who can place a duty of care on the audit report.
Maybe you actually mean Due Dilligence. Maybe a lender would want that. Then again for a small business they may not. For example, if the business owns its commercial property and it is of sufficient value a lender may just be happy with security over the company's assets.
Equally, given the buyers and sellers are already involved in the business they may just be happy with an independent valuation of the business. Maybe if it's the current company's bank they are already fully aware of the company's cash flows and wouldn't have any problems lending that level.
All of the above are different processes. Each costs different amounts. You will notice there are a lot of maybes I have given, which means I personally wouldn't go and spend any money on any of them until you know the lender would actually want that comfort in the first place. I particularly wouldn't advise getting an audit done. I would normally recommend getting some form of independent valuation done (unless the OP had recently received third party bids to provide guidance) to ensure the valuation given by the other shareholder is reasonable.
For the avoidance of doubt I am not giving any professional advice or recommendations to anyone in this thread or reading this thread. If you want professional advice please find and engage an appropriate professional. If you place any reliance on what I have written you do so at your own risk.
Whether any finance is available for this type of (comparatively) small buy-out will largely depend on if you or the company has any assets to put up for collateral. The easiest will be using company assets, so if you have stock/plant/equipment you can look at releasing some of the funds from that for the company to buy the shares off the other director. The next easiest way will be increasing your mortgage, or, adding a second charge to your home if you have sufficient equity to do this. The second charge option will need a specialist lender, and may come with high interest charges (1% a month, plus a set up fee) so you'll want to look at paying this off as soon as possible. Thirdly, the other option is for the company to issue a debenture, essentially a promise to pay your co-director some funds over a period of time. This is probably a good option in the sense that you can include terms within the debenture (e.g. non compete, not to poach employees), and you can pay that over a period of time. In an ideal world you'd go to the bank and they'd give you £500k, but realistically for this type of buy out you're going to need to scrounge together the money from various sources and put it all together to get the sum, so if you could get £150k from asset finance, £250k from your mortgage and then £100k as a debenture paid over 3 years then you're there. You can also look at a personal loan (max £25k) to fund a shortfall. With any of these options though, you will need to be able to pay it back and so it is critical that the business can support the borrowing, otherwise you're going to really struggle to grow with this much debt around the company's neck.
The cheapest option will always be mortgage borrowing - it's low interest and over a long period - so getting as much as possible from that might be the way forward. The other option might also be to not buy him out completely, i.e. leave him with a 5-10% shareholding and then he stands to share profit in the future.
The cheapest option will always be mortgage borrowing - it's low interest and over a long period - so getting as much as possible from that might be the way forward. The other option might also be to not buy him out completely, i.e. leave him with a 5-10% shareholding and then he stands to share profit in the future.
Soldato
It's dark times when you have to provide this kind of statement at the end of any post for fear of being sued!
I remember doing my exams and being told that even advice down the pub with a mate could come back and bite you in the ass!
The worst part is the original paragraph was shorter, then 10 seconds later I felt the need to go back, edit it and make it more comprehensive
I've been bought out of a minority stake before - 20%. I was essentially doing everything for the business, was responsible for 100% of revenue at that point, but had opted for a higher salary and commission versus a low salary, no commission and a 40% stake. It's quite a different situation to yours, as I was the primary business driver, had fallen out with the other owners and simply wanted out as soon as possible. I took their offer of ~20% of net cash and walked. Following that I was liable to submit to a load of non-compete clauses and restrictive covenants.
I'm now in a situation where my current business is being courted by larger competitors, but as I'm still the main revenue driver there's no point in selling. I'm largely quite conservative when it comes to growth and debt, but I've assessed whether I'm confident of the business continuing to produce sufficient revenue to expand at a steady pace. Therefore I don't mind my mortgage hanging over me, but like you could equally sell up and go mortgage free at any point.
Pudney's offering good advice. If it were me, I'd primarily be assessing revenues, revenue growth, profits, etc. whilst also gauging what the business opportunities will likely be for your business next year and beyond. If I bought him out I'd want him to sign a watertight non-solicit agreement relating to everything - clients, products, staff, etc. And vice versa, if I sold I'd be doing everything to avoid such clauses - or demand a premium from him to agree to them (an extra 50% for example).
Think about what you need to do business - does your existing business have a database, infrastructure, reputation, client orders, etc. that values the business at £1m. If not, I'd take the money and start all over again. If so, then buy it knowing that your debt would be serviceable.
A friend of mine has just found out his co-partner and protege has been undertaking nefarious activities within the firm, resulting in what he thought of as a reputable and dynamic firm being worth close to zero. Be careful.
That, again is a bit worrying. Like if he just wanted out because he was retiring, no longer interested, moving to Australia etc.. then that's one thing and is perfectly understandable - but if he either wants out or wants to buy the whole thing and carry on then... WTF? Whats going on there?
Whenever we buy a business we always try and work to an earn out model for the seller. It provides some joint ownership of the risk of the valuation you place on it and helps cash flow a lot. So initial payment that you can get from leveraging some debt if the business is good and then link stage payments to a proportion of future profits. They have to trust you won’t screw it up but that’s the price they have to pay for getting a good lump sum out. You can even come to a slightly higher valuation than maybe you’re comfortable with so there’s upside for them but since you tie it to future profits you’ll not be out of pocket.
money is cheap right now so if you’re confident of growth then go for it.
money is cheap right now so if you’re confident of growth then go for it.
Doesn't that depend on how much? XD
I think today I’ve come to terms with the idea of what I need to do, I’m in a very lucky position that I don’t need to take a penny from the company as wages, so the deal would be paid from the company profits over x amount of months with me being able to just cover things without taking a wage (to speed up the process)
we both live far appart and have the company yard based in the middle, we both have a separate company with other commitments, he would run the company different if it was only him and I would change a few things if it was only me.
so for him, selling is fine and buying Is fine! It’s an odd situation for all
Appreciate you taking the time to respond to the post!
We have had a valuation which has bought us to this position. Its just up to me now to decide if I can afford the payments from the company, or if I take the the money now and leave that bit to my business partner to worry about.
I work full time as well as running this business so its stressful time doing both but I have to make a decision
Do a deal where you buy the 50% over a few years. How much profit every year? Perhaps 60% of the profit each year till its paid.
I've brought three engineering companies and each time the price has been a multiplier (say 4x) of the profit the business makes each year plus the assets and each time its been a lump sum of half and then the balance over a year or three based on turnover maintaining with a kick ether way if it goes up or down.
I've brought three engineering companies and each time the price has been a multiplier (say 4x) of the profit the business makes each year plus the assets and each time its been a lump sum of half and then the balance over a year or three based on turnover maintaining with a kick ether way if it goes up or down.
Exactly what I’m working towards!
seems to make perfect sense, so there’s no risk no loans