Starting from scratch isn’t the only way to own a business. In fact, creating a business from the ground up entails some distinct disadvantages ranging from building a customer base to investing into R&D. Buying an existing business can be quicker, easier and far less risky – you take over an operation that is already generating a decent cash flow and has a certain reputation. However, it is important to bear in mind that it still requires a lot of diligence and it will likely affect your lifestyle.
Below we have outlined a couple of steps and tips you may find useful when buying your own business.
Understanding Thailand Business Structures
When doing business in Thailand, you have the choice over which type of business to establish. Make certain you are fully aware of what kind of business activity your company will be engaging in. There are three types of businesses that can be registered:
- Thai Limited Company
A limited company is the most popular form of business structures in Thailand, especially by foreigners. Private limited companies are owned by at least three shareholders and managed by a board of directors.
- Thai Partnership
An ordinary partnership is a business that is owned and managed by a minimum of two persons. The two persons are joint partners who will share unlimited liability for the partnership’s obligations.
- Thai Representative Office
The office of an overseas company established in Thailand in order to engage in international trade. Certain conditions apply to Thai representative offices which require a foreign business license.
Five Things to Look For Before Buying a Business in Thailand
Age of the business
How long the business has been in business indicates how successful it is. Older businesses are generally well-established, boast popularity in the local area and have good reasons to be still operating.
A successful business owner will likely own the business for a long time. The duration of their ownership can be considered a trademark of quality. The longer they have been in business, the better it will be.
Reasons for Sale
Another indication of the business’s quality is related to the reason for its sale. Should the circumstances be enigmatic – the new young owner would like to retire after just a few months – it is in order to be suspicious. Whatever the reason might be, try to find out.
While financial records are only history and do not reflect future, they are a good measuring instrument of the past performance. Tax records altogether with business expenses provide a good idea about non-cash items, such as depreciation and business use of home and vehicles. All of these can be precisely pointed out by a business broker.
Not reporting income is unlawful. Despite this fact, there might be some businesses that deliberately do not report all their income for tax or other purposes. Best practice is, therefore, to consider only the reported amount and not base a decision on speculative figures.
Five Practical Steps to Buying a Business
Getting the Basic Facts
The first step of the buying process is to gather preliminary information on price, terms, income, cash flow, and general location, all of which are important in determining whether the business meets the buyer’s financial needs. Particularly crucial at this stage is the down payment – the amount of cash that is required to buy the business. Even though the rest of most business purchases is subsequently financed by sellers, they may only finance about 50% of the cost or less. Having enough cash at hand is, therefore, essential. It is also important to remember that almost all purchase prices and down payments are negotiable.
Visiting the Business
A good way of assessing the tangible aspects of any business is to visit it at the location. Does the business look appealing both from the inside and outside? Is it at a good location? There is no need, however, to talk to the owner yet. Pretending to be a customer or scheduling a visit with the seller is sufficient at this point.
Getting Questions Answered
After acquiring basic facts and visiting the business, it is now time to meet the owner and ask them some questions, such as:
“What is the rent? How long is the lease? What have the sales been for the past few years?”
This stage is primarily about getting some basic questions answered by the owner and get a feel of what it may be like running the business. A detailed investigation comes last in the form of due diligence.
Making an Offer
Should you still be interested and eager to proceed with the purchase, you may now make an offer subject to verification of all the information. It is important to first agree on the terms with the seller before conducting any due diligence.
Purchasing concludes with a detailed analysis of financial records and removing contingencies, referred to as due diligence.
The Right Fit
Obviously, one needs to carefully consider which business they should buy. Running a business requires a lot of time and being able to enjoy it is crucial. Business brokers such as Interactive can act as intermediaries and are able to steer you in the right direction.
The best place for buyers to begin the process is to start searching in the industry of their interest and the one they understand. Besides interest and skills, consider the size of the business you are looking for. Other facts to keep in mind are the number of employees, number of locations, sales and others.
Since Thailand is a large country, pinpointing a geographical area can be very useful. By using the two – location and the desired industry – you can narrow down your search and look further into specific businesses that apply to you in that area.
Businesses require a lot of care from their owners and a professional help is required at one point or another. The acquisition team comprising accountants, attorneys and bankers handles assessment and due diligence and is greatly helpful at giving you an accurate valuation of the business.
However, the need for professionals does not end at the acquisition stage. From business registration to yearly audit requirements, there are numerous stages that can easily turn into pitfalls for business owners during the course of running the business. It is crucial to familiarise yourself with the Thai corporate law and find professionals to ensure that you comply with all of the legal requirements.
Interactive has both legal and accounting professionals who are knowledgeable and have experience in navigating these areas.
Having your finances in order to be able to produce a personal financial statement during this process is essential. Sellers will be interested to see that you have the ability to take on a new business venture. You will need to be able to show your assets, liabilities and net worth.
Consider Hiring a Broker
The process of finding the right business for you and going through the motions of buying it can be overwhelming. Hiring a business broker such as Interactive can help you achieve peace of mind and gain reassurance that your affairs are handled correctly and professionally. Interactive can offer assistance in several ways:
Going through a broker like Interactive can help you avoid bad risk businesses.
A good broker will help you discover your skills and interests to assist you in finding the perfect business.
Interactive can help both parties in the negotiating process stay focused on the ultimate goal and smooth over problems that can arise.
Especially because you are considering buying a business in Thailand, it’s important to work with people who know the latest laws and regulations. Interactive can help cut months off the purchasing process and reduce the risk for any fines or fees in the future.