Expanding by buying an existing business/competitor

[K17LBS]

Good evening all,

Thank you for taking the time to read this.

I am in need of some clarification or communication from existing business owners or professionals who have completed what I would like to do.

The situation is I am a sole trader who runs a small business. This is my first ever business and we have had a good year but unfortunately our bottle neck for growth is the size of our premise.

An opportunity has arose to purchase an existing business on the same street as mine. The business doesn’t have the best reputation but is still making yearly profit.

The owner has given me his price to sell all assets as they are a “sole trader” but have contracted staff.

My view was to buy the business to be able to expand our existing one into the premises which is 4x larger than I currently have.

The premis is leased so will need that transferring.

My questions is…

Can I or is it possible to buy the business and then collapse it to remove the staff (the main issue) and then rebrand, redecorate and go again?

Or do I have to run it for a certain time period?

Has anyone been in a similar situation? If so how did it play out?

Please ask questions as I can provide additional clarity.

Thanks in advance

Sam

 

[WaveJumper]

Suggest you read up on Transfer of Undertakings the staff have rights:

TUPE transfers | Acas

When a business or service provider changes. Transfer of Undertakings (Protection of Employment).

www.acas.org.uk

 

[K17LBS]

Suggest you read up on Transfer of Undertakings the staff have rights:

Thanks for your reply.

I have read through TUPE and am familiar although there are still some grey ish areas.

Also I could not see anything there regarding how long after acquisition they are protected for or what defines “change in position” for example if they are contracted 10 hours a week, could I move them from customer facing to back of house etc. What’s a reasonable change.

Also I would like to highlight that my original post was not just specifically on the staff. They are the reason for the “bad rep” but I wanted some feedback/advice on rebranding the business or changing the name once purchased from a sole trader.

Thanks again

 

[IanSuth]

@Newchodge may be able to answer some of those TUPE questions but I think the main answer is going to be

You need to take professional advise on the exact circumstances as getting it wrong could be expensive - we moved in with another company and the old cleaner managed to make a claim (even though we were going through a phoenix and moving into a serviced office) 16 years service redundancy payments for her 10 hours a week was a reasonable amount when not expected.

A lot will depend on exactly what is written in those employees current contracts - if it says they can be redeployed to any duty that is different from if they have some staff defined as front of house and some as warehouse.

On your other question when we phoenixed we went into the offices of another agency who were known for mass temp warehouse staff whilst we did specialist perm IT & Engineering. There were some synergies that allowed us to push business to each other BUT there was also hassle for us in unskilled people just wandering up to our floor as they had once packed a PC in a box so thought they could be a network support engineer etc - when we had people come in for interviews we just explained the ground floor was a sister company and they should come straight up.

So i guess a lot will depend how you sell it to the customers and the reason for the bad rep of the old store (as in if it is surly staff then having those staff under your banner may not be a great idea)

 

[Newchodge]

TUPE may apply.

If it does all staff transfer to you with their terms and conditions intact. You cannot make substantial changes to their roles without their agreement, so customer facing to back office is not on. TUPE protections last forever - no changes can ever be made as a result of the transfer without employee agreement.

You need to get professional advice on whether it applies.

You can rebrand, redecorate, refurbish whatever you like.

 

[K17LBS]

@Newchodge may be able to answer some of those TUPE questions but I think the main answer is going to be

You need to take professional advise on the exact circumstances as getting it wrong could be expensive - we moved in with another company and the old cleaner managed to make a claim (even though we were going through a phoenix and moving into a serviced office) 16 years service redundancy payments for her 10 hours a week was a reasonable amount when not expected.

A lot will depend on exactly what is written in those employees current contracts - if it says they can be redeployed to any duty that is different from if they have some staff defined as front of house and some as warehouse.

On your other question when we phoenixed we went into the offices of another agency who were known for mass temp warehouse staff whilst we did specialist perm IT & Engineering. There were some synergies that allowed us to push business to each other BUT there was also hassle for us in unskilled people just wandering up to our floor as they had once packed a PC in a box so thought they could be a network support engineer etc - when we had people come in for interviews we just explained the ground floor was a sister company and they should come straight up.

So i guess a lot will depend how you sell it to the customers and the reason for the bad rep of the old store (as in if it is surly staff then having those staff under your banner may not be a great idea)

Thank you for your detailed response.

As a sole trader and myself as being the only employee it’s daunting to think that all of a sudden I could take on 4 extra members of staff.

I mainly want it for the location and premis however it is currently making a profit. So maybe the bold and brash style may not be the best approach.

One of the members of staff has a wealthy father who is looking to take over the business for the money asked to add to his “portfolio”

The current owner wants to make a decision by the end of the week with a view to handing over the business in January. He mentioned that he would use a solicitor for the leasehold transfer but then would just require a bank transfer for the assets of the business.

Is this usual practice for buying just assets from a pre existing sole trader?

 

[Newchodge]

Thank you for your detailed response.

As a sole trader and myself as being the only employee it’s daunting to think that all of a sudden I could take on 4 extra members of staff.

I mainly want it for the location and premis however it is currently making a profit. So maybe the bold and brash style may not be the best approach.

One of the members of staff has a wealthy father who is looking to take over the business for the money asked to add to his “portfolio”

The current owner wants to make a decision by the end of the week with a view to handing over the business in January. He mentioned that he would use a solicitor for the leasehold transfer but then would just require a bank transfer for the assets of the business.

Is this usual practice for buying just assets from a pre existing sole trader?

Are you buying just assets? In your first post you said you wre buying a business.

 

[K17LBS]

TUPE may apply.

If it does all staff transfer to you with their terms and conditions intact. You cannot make substantial changes to their roles without their agreement, so customer facing to back office is not on. TUPE protections last forever - no changes can ever be made as a result of the transfer without employee agreement.

You need to get professional advice on whether it applies.

You can rebrand, redecorate, refurbish whatever you like.

Thank you for clarification.

So before any funds transfer am I within my right to ask to see the contracts?

Or is that another breach of personal information?

One of the members of staff is also an apprentice.

This is my first look into buying a business and it seems like there is a fair amount of “trust/guessing” when it comes to the finer details.

Thanks agin

 

[Newchodge]

Thank you for clarification.

So before any funds transfer am I within my right to ask to see the contracts?

Or is that another breach of personal information?

One of the members of staff is also an apprentice.

This is my first look into buying a business and it seems like there is a fair amount of “trust/guessing” when it comes to the finer details.

Thanks agin

The existing employer must give you all employee liability information. Have a look here. https://ico.org.uk/media/for-organi...losure-of-employee-information-under-tupe.pdf

You would be very ill-advised to do anything about this without proper professional advice about TUPE and the lease, at the very least.

 

[K17LBS]

Are you buying just assets? In your first post you said you wre buying a business.

This is where I might be getting wires crossed.

They want to sell their complete business but are trading as a sole trader. Therefore it’s an asset purchase right?

However they want to sell everything as a working business, goodwill, contacts, existing machine rentals, van and staff etc etc.

The price asked seems fair for the amount of equipment hence why I am considering it for migrating my own over.

 

[Newchodge]

They want to sell their complete business but are trading as a sole trader. Therefore it’s an asset purchase right?

No. TUPE will almost certainle apply.

 

[bodgitt&scarperLTD]

This is where I might be getting wires crossed.

They want to sell their complete business but are trading as a sole trader. Therefore it’s an asset purchase right?

However they want to sell everything as a working business, goodwill, contacts, existing machine rentals, van and staff etc etc.

The price asked seems fair for the amount of equipment hence why I am considering it for migrating my own over.

In the sad absence of both The Byre and Clinton, I'll chime in here.

You are buying a lease and machinery on long term hire? Have I got that right?

That isn't worth a w*nk. We're on the cusp of a major recession, commerical property will become available to rent left right and centre soon. Why would you pay to take on someone elses lease or machinery hire agreement? They should be paying you to take over the liability.

What actual, physical assets are you buying? You keep saying asset purchase, but I'm not seeing any assets, or anything resembling one. Apart from maybe a secondhand van.

Apologies if I've misunderstood and you are actually buying a hire comanany with machines rented out that they own.

 

[Mark T Jones]

This is my first look into buying a business and it seems like there is a fair amount of “trust/guessing” when it comes to the finer details.

That's the fast way to f**k up.

Professionals will do due diligence which involves a free-flow of detailed information

 

[Newchodge]

One of the members of staff has a wealthy father who is looking to take over the business for the money asked to add to his “portfolio”

That sounds like an attempt to pressure you into an unconsidered decision. Resist it.

 

[K17LBS]

In the sad absence of both The Byre and Clinton, I'll chime in here.

You are buying a lease and machinery on long term hire? Have I got that right?

That isn't worth a w*nk. We're on the cusp of a major recession, commerical property will become available to rent left right and centre soon. Why would you pay to take on someone elses lease or machinery hire agreement? They should be paying you to take over the liability.

What actual, physical assets are you buying? You keep saying asset purchase, but I'm not seeing any assets, or anything resembling one. Apart from maybe a secondhand van.

Apologies if I've misunderstood and you are actually buying a hire comanany with machines rented out that they own.

No problem at all. Happy to provide clarification.

Effectively it’s a Cafe. The only leased equipment is the coffee machine that they pay monthly for.

Everything else they own out right. Full commercial kitchen with appliances.
All stock, tables and chairs etc.

So as a whole the current owner wants to sell everything within the 4 walls of the cafe.

The property is leased from a landlord that they pay quarterly for and currently have a 4 year agreement on.

Hope this helps clarify.

 

[K17LBS]

That's the fast way to f**k up.

Professionals will do due diligence which involves a free-flow of detailed information

EXACTLY!

Hence why I’m stalling and not 100% confident. I feel like I’ve latched onto a “back hand deal”

To me it seems like the owner is in debt due to various loans including the COVID one and needs to get the cash to clear them as they are a sole trader.

I want to do the process of lawyers, confidentiality and exclusivity etc but it seems like they have a more urgent requirement.

 

[Newchodge]

EXACTLY!

Hence why I’m stalling and not 100% confident. I feel like I’ve latched onto a “back hand deal”

To me it seems like the owner is in debt due to various loans including the COVID one and needs to get the cash to clear them as they are a sole trader.

I want to do the process of lawyers, confidentiality and exclusivity etc but it seems like they have a more urgent requirement.

Then walk away.

 

[IanSuth]

ask to see there energy bills and their current contract - that is going to be big liability and may change whether the business is profitable or not.

The last full year (showing as profitable) may have had far far lower costs than those currently - also cafe's are something that gets hammered in a recession as it is discretionary spend

 

[fisicx]

The current owner wants to make a decision by the end of the week with a view to handing over the business in January. He mentioned that he would use a solicitor for the leasehold transfer but then would just require a bank transfer for the assets of the business.

Nope, nope and double nope. It will take far longer than that to even get the assets negotiations finalised. And many more months of discussion about the lease. Do not ever get pressurised to make a decision on something as complex as a business sale.

And as already said, the assets are worth virtually nothing. All you are buying is the lease.

 

[Newchodge]

All you are buying is the lease.

And the problems that come with the staff.

 

[Mark T Jones]

EXACTLY!

Hence why I’m stalling and not 100% confident. I feel like I’ve latched onto a “back hand deal”

To me it seems like the owner is in debt due to various loans including the COVID one and needs to get the cash to clear them as they are a sole trader.

I want to do the process of lawyers, confidentiality and exclusivity etc but it seems like they have a more urgent requirement.

Your gut feel is spot on. We have a saying which is true 99.9% of the time - 'If the information is good, they will want you to see it'. On the very rare occasion they have a good reason not to provide it, you should still walk away.

A starting point for you is to detail exactly what assets you are buying and to decide what they are worth to you today. The value of the business to you is that price minus the liabilities. (obviously if that figure is higher than the sale price then you go for the lower)

Liabilities - potential

- Outstanding bills
- TUPE / wages / PAYE
- Rental / finance agreements
- Property lease
- Others

Can't / won't give you info. Walk.

Others in the running. Cool. Let them do the legwork, then buy it cheaper when they either walk or fail.

 

[K17LBS]

Thank you all for your insight.

I will take some time to re-read all comments and digest later tonight.

Appreciate all of your attention so far.

 

[pentel]

Definitely investigate the maximum it could cost you.

Rent / rates / insurance for the rest of the lease term
Building dilapidations at the end of the lease
Redundancy payments for all of the staff
termination costs for all contracts.

Less
Value of second hand cafe equipment at auction prices.

This is what it would cost the current owner to walk away.

By paying him £1 for the business you are making him richer by the £1 PLUS all the costs he would incur if he closed it down.

 

[bovine]

If hes a sole trader tied into a lease, he is on the hook for a lot of debt. And he seems to want a quick transfer so all of the liabilities become yours, as has been mentioned above. He cant wiggle out of the debt/ongoing lease by closing a ltd company because everything is in their name. So, if he was to close tomorrow, it would cost him a sizeable chunk of cash for lease as well as the other costs above.

Ask him how much it would cost for him to close down tomorrow. See if you can get some justification for that figure and verify it. And then tell him you will take it off his hands for areasonable sum below this. Negotiate from the point that he should be paying you to take it off his hands.

Making the wrong decisions now will ruin this business and yours. So tread carefully is my advice. Dont get caught up in the excitement of the proposition.

 

[WaveJumper]

Ive not re read a lot of the posts here, but will just add and sorry to say your way out of your depth here, before you take one more step too even thinking about taking over this business / company you need proper professional advice.

 

[bodgitt&scarperLTD]

Excellent advice above. I fully agree with @Newchodge regarding pressure sales tactics.

If UBKF received a tenner for every time a post was made along the lines of 'how can I get out of the coffee machine rental agreement that the previous owner/my wife/thefamily cat signed', then there wouldn't need to be ads and Ozzy the owner would have his private island by now.

The short answer is you can't- B2B deals such as shop and coffee machine leases are made assuming that you have your big boy pants on. No right of cancellation except where explicitly stated and on their terms- third Sunday of the month on a blue supermoon moon, etc. Same with all the scams promising to advertise your business in hospitals, SEO optimization, the list goes on. You sign- you pay. So you'll keep on paying the rent for that coffee machine monthly, even if it doesn't do what you want, even if it breaks and they dawdle fixing it, even though you could buy one outright a lot cheaper with a personal loan if need be.

Pubs and cafes in particular change hands with monotonous regularitry, with silly sums paid for 'the business', which is actually a liability. The reason? Starry eyed young couples with no business or life experience, and people with redundancies looking for a business/job. Or in this case, looking to 'set their kids up'. Don't be one of them.

If you really want to do it, I'd be approaching the landlord behind the guys back, and getting current quotes for business energy. The look at the cost of secondhand kitchen equipemnt. 20-30% of new cost is about right, even less in a recession/fire sale scenario. Which with increased energy prices and less customers willing to spend is coming for many cafes- why do you think the guy wants out?? And then, with those figures to hand, running some hard, worst case scenario numbers.

You've been doing this for a year. You really need more experience before quadrupling your liabilities (and profit multiples NEVER follow turnover multiples in a straight correlation!)

 

[K17LBS]

If hes a sole trader tied into a lease, he is on the hook for a lot of debt. And he seems to want a quick transfer so all of the liabilities become yours, as has been mentioned above. He cant wiggle out of the debt/ongoing lease by closing a ltd company because everything is in their name. So, if he was to close tomorrow, it would cost him a sizeable chunk of cash for lease as well as the other costs above.

Ask him how much it would cost for him to close down tomorrow. See if you can get some justification for that figure and verify it. And then tell him you will take it off his hands for areasonable sum below this. Negotiate from the point that he should be paying you to take it off his hands.

Making the wrong decisions now will ruin this business and yours. So tread carefully is my advice. Dont get caught up in the excitement of the proposition.

Thank you so much for this reply. It’s exactly what I was after.

I’m definitely not going to be pressured or rush into anything.

He has now given me a figure which is to clear debt accumulated from business loans to buy out a previous joint owner.

It mainly consists of the Covid relief loans etc.

I’m going to sit back and see what happens and let the pressure cooker build for a bit more.

 

[K17LBS]

Ive not re read a lot of the posts here, but will just add and sorry to say your way out of your depth here, before you take one more step too even thinking about taking over this business / company you need proper professional advice.

Hence why I am here, not sure why you even commented this. Clearly the forum is for new people as well as experienced to share views and opinions. Everyone has to start somewhere and of course legal advice will be taken.

I would like to have a better understanding before I go out to law firms etc and people here may even offer their services.

 

[K17LBS]

Excellent advice above. I fully agree with @Newchodge regarding pressure sales tactics.

If UBKF received a tenner for every time a post was made along the lines of 'how can I get out of the coffee machine rental agreement that the previous owner/my wife/thefamily cat signed', then there wouldn't need to be ads and Ozzy the owner would have his private island by now.

The short answer is you can't- B2B deals such as shop and coffee machine leases are made assuming that you have your big boy pants on. No right of cancellation except where explicitly stated and on their terms- third Sunday of the month on a blue supermoon moon, etc. Same with all the scams promising to advertise your business in hospitals, SEO optimization, the list goes on. You sign- you pay. So you'll keep on paying the rent for that coffee machine monthly, even if it doesn't do what you want, even if it breaks and they dawdle fixing it, even though you could buy one outright a lot cheaper with a personal loan if need be.

Pubs and cafes in particular change hands with monotonous regularitry, with silly sums paid for 'the business', which is actually a liability. The reason? Starry eyed young couples with no business or life experience, and people with redundancies looking for a business/job. Or in this case, looking to 'set their kids up'. Don't be one of them.

If you really want to do it, I'd be approaching the landlord behind the guys back, and getting current quotes for business energy. The look at the cost of secondhand kitchen equipemnt. 20-30% of new cost is about right, even less in a recession/fire sale scenario. Which with increased energy prices and less customers willing to spend is coming for many cafes- why do you think the guy wants out?? And then, with those figures to hand, running some hard, worst case scenario numbers.

You've been doing this for a year. You really need more experience before quadrupling your liabilities (and profit multiples NEVER follow turnover multiples in a straight correlation!)

Thanks again for this.

Really appreciate your time and knowledge.

Your right that it’s more the thought of having a bigger unit in the same location that has me excited but putting all of your valid reasoning in front it seems silly to make him an offer “just because” let his pressure build then go from there.

One question…

If I go direct to the landlord but he is in a 4 year agreement paying quarterly, wouldn’t the landlord just ignore my request?

Thanks again.

 

[MikeJ]

What happens if you do nothing? Chances are the other place will just close, and you'll get more customers. Then there's an empty place just down the road that's looking for a new tenant....

 

[Newchodge]

Thanks again for this.

Really appreciate your time and knowledge.

Your right that it’s more the thought of having a bigger unit in the same location that has me excited but putting all of your valid reasoning in front it seems silly to make him an offer “just because” let his pressure build then go from there.

One question…

If I go direct to the landlord but he is in a 4 year agreement paying quarterly, wouldn’t the landlord just ignore my request?

Thanks again.

You won't know until you ask, but you will have to speak to the landlord before you agree the purchase as the business is dependent on the landlord agreeing to you taking a lease (whether that is a new lease or the existing one).

 

[pentel]

If I go direct to the landlord but he is in a 4 year agreement paying quarterly, wouldn’t the landlord just ignore my request?

At the moment probably yes... however once the property becomes vacant they will be very interested in talking to you.

 

[K17LBS]

So I’ve just found out some information. This may offend some people so sorry in advance but speaking openly.

The Cafe is VAT registered and in his name “Sole Trader”

The Van and the 1 staff member is under a limited company which he is director of…

He uses the cafe to make the mobile food then delivers under the catering company.

He is thinking of selling the van then paying the redundancy of the driver with the van sale.

Could he not sell the Cafe to the limited company then effectively collapse the limited company and then I buy the assets/lease at a greatly reduced rate?

Therefore mitigating liabilities?

As I mentioned I’m new to this and “way out my depth” so just looking to start conversations and seek legal advice if I decide to advance.

Thanks

 

[Newchodge]

So I’ve just found out some information. This may offend some people so sorry in advance but speaking openly.

The Cafe is VAT registered and in his name “Sole Trader”

The Van and the 1 staff member is under a limited company which he is director of…

He uses the cafe to make the mobile food then delivers under the catering company.

He is thinking of selling the van then paying the redundancy of the driver with the van sale.

Could he not sell the Cafe to the limited company then effectively collapse the limited company and then I buy the assets/lease at a greatly reduced rate?

Therefore mitigating liabilities?

As I mentioned I’m new to this and “way out my depth” so just looking to start conversations and seek legal advice if I decide to advance.

Thanks

I strongly suggest you leave him to get on with whatever he wants to get on with, and then see what's available after he has finished.

 

[K17LBS]

I strongly suggest you leave him to get on with whatever he wants to get on with, and then see what's available after he has finished.

Yep. Your bang on.

I will watch from the sidelines.

Thanks.

 

[pentel]

I strongly suggest you leave him to get on with whatever he wants to get on with, and then see what's available after he has finished.

Definitely this.

In addition make yourself known to the landlord under the pretext that you might be interested in renting the property should it ever become available.

 

[japancool]

It mainly consists of the Covid relief loans etc.

The Covid loans shouldn't be your issue - it's a sole tradership so the burden of repaying it falls on him. Certainly don't agree to take responsibility for them!

EDIT - agreed with the advice above to just wait and see if the property becomes free.

 

[fisicx]

@K17LBS - you don’t want the business, all you want is the building.

Let the current owner sell everything, pay the redundancies and clear out. You then start negotiations with the landlord.

 

[Newchodge]

@K17LBS - you don’t want the business, all you want is the building.

Let the current owner sell everything, pay the redundancies and clear out. You then start negotiations with the landlord.

While I agree with the principle, that may not end the TUPE responsibility if the OP eb=ventually starts up a cafe in the same premises.

 

[Sil_14]

What about your current lease? When does it expire?