Have been offered to buy into a business

[Ian14]

I'm looking for some initial advise on buying into a business. My employer is made up of two directors and one is retiring (as soon as he can be paid off). The other director has offered asked me if I would like to buy his share of the company. They're looking for £60k. The questions I have are: how I can raise that money and what is the best way i.e. remortgage (I've got plenty of equity), bank loan, business loan etc? How do in know that his share is worth £60k? Would there need to be a contract signed between me and the remaining director and what would it entail?

I've got lots more questions, but cant think of them at the moment. I'll probably post again when it comes to me. Thanks, in advance.

 

[The Byre]

How much equity in the company are they offering for £60k?

 

[finleydesign]

You need to look and dissect the companies accounts and as above what equity is being offered for £60k

If they don't let you look at the books or only some there's your red flag!

 

[Mark T Jones]

The second part of your question should really be addressed to the existing owners

It is important for you to know exactly what you are buying for £60K, and what respective expectations are

And yes, this should be encompassed in a shareholders' agreement

With regards to raising the money, it really depends how quickly you can repay, but mortgage will probably be the easiest options (and cheapest if you expect to be borrowing for more than 3 years)

 

[The Byre]

A look at the company accounts throws up a few red-flags already. The 2017 accounts suggest that £60k would be small-beer, but there has been a recent increase in turnover and liabilities, suggesting a possible cash-flow problem. Our OP could either get a bargain, or never see his £60k ever again. An accountant with experience in analysing current books would have to take do some serious hand-holding here!

 

[Mark T Jones]

A look at the company accounts throws up a few red-flags already. The 2017 accounts suggest that £60k would be small-beer, but there has been a recent increase in turnover and liabilities, suggesting a possible cash-flow problem. Our OP could either get a bargain, or never see his £60k ever again. An accountant with experience in analysing current books would have to take do some serious hand-holding here!

Fair points - though those figures are a year old - and cashflow issues should have reared their head or been resolved by now

It's certainly true that the OP needs to investigate these things

 

[Paul Norman]

Your second question is more important than the first.

Why is the share worth £60k? To establish the answer to that there is a lot of information that you (or a professional advisor) need to see, including detailed accounts. You need to understand exactly what you are buying, and you need to understand exactly what the risks are attached to that.

If the business share is really worth £60k, obtaining a loan may be hard, but it will be possible.

In addition, there would need to be a contract between you and the outgoing shareholder. And between you and the business - there would need to be a shareholders agreement in place.

 

[Ian14]

Excellent - thanks for all of the advice.

£60k is for 50% of the company. After reading through your comments, I will require an accountant to dissect the information in the company accounts. I will also require a solicitor to draft a shareholders agreement.
Thanks again.

 

[The Byre]

£60k is for 50% of the company.

If the company you have listed in your profile is the one we are talking about, £60k for 50% of a company that has had nearly £300k in its current account at this time last year and had a turnover of £2.6m in 2016, but whose liabilities shot up from £220k to £820k should all make you very careful indeed!

Their year ends 31st March, so the last year's books and final balance will probably make for some very interesting reading!

 

[Ian14]

The Byrne - thanks for this. I've got the more detailed accounts for 2017, however when it comes to the creditors section it only splits the £820k down into 5 sections.
Bank loans and overdrafts - 2017 = £260k & 2016 = £64K.
Trade creditors - 2017 = £470k & 2016 = £120k.
Corporation tax - 2017 = £53k & 2016 = £2k
Other taxes & social security costs = £20k & 2016 = £22k
Other creditors - 2017 = £16k & 2016 = £18k.
I've never had to get involved in company accounts, as it's not in my remit. Although, I think I'm going to have to start learning quick, before making any serious decisions!