Help and Advise Buying a Business!!

[devilmaycry]

Hi,

I am currently buying a business. It is a limited company and I am obviously buying all of the assets. In their accounts they say that they have £50k in the bank. Does this count as one of the assets that I am buying? If I am taking on some liabilities, surely I should have all the assets. Just because cash is an easily accessible asset, surely I have a point? Or is it something that should be negotiated?

Any help is appreciated.

 

[akirk]

cash is an irrelevant asset you will pay them £1 for every £1 of cash...
so make an offer based on not including the cash - i.e. the value of the rest of the assets... if you then want the £50K of cash it will cost you £50K more
you won't get a discounted valuation on the cash...

if your offer was accepted - did it include cash - if so, then you get it, otherwise you don't - if you have been caught out thinking that you will get it, but it was not included - your decision whether to continue with the process...

Alasdair

 

[jim_gold]

Yes, this is something that should come up early in the negotiations, as you are both going to waste your time if one thinks the cash is included and the other party thinks it isn't.

Because it will inevitably be brought to attention when you or your advisers get down to the drawing up of the sale contract.

Often it's in the interest of the vendor of a small business to include some cash in the sale price in order to extract as much money at the 10 per cent entrepreneur tax rate as possible, although if the taxman sees more than 20 percent of the assets represented as cash there is a risk of this tax benefit being forfeited.

 

[stevesolo]

Hi,

I am currently buying a business. It is a limited company and I am obviously buying all of the assets. In their accounts they say that they have £50k in the bank. Does this count as one of the assets that I am buying? If I am taking on some liabilities, surely I should have all the assets. Just because cash is an easily accessible asset, surely I have a point? Or is it something that should be negotiated?

Any help is appreciated.

If you're in the process of buying a business and you are unclear whether the bank balance is included as part of the assets you're buying, have you put this question to them? Do you have a professional advisor who has looked at the accounts?

 

[oldeagleeye]

How much you paying for the business - £25K - £30K perhaps. You should be so lucky

 

[Rhodes100]

What happens when you are buying a business is you agree the purchase price and then you agree what you have agreed about.

I assume that a business transfer agent is not involved as they would have normally clarified upfront what was included within the price.

Arguments about what is and what is not included is often the reason why private sale agreements collapse.

With a limited company, normally the business is advertised at say £30k plus or minus "net current assets".

So if this business had £50k in the bank and £20k creditors at the date of transfer you would pay £60k. On the other hand if the sellers wanted to remove £50k from the business the day before the sale you would be paying £10k to them.

If the sellers have not clarified what is and what is not included it is clear that they are amateurs trying to do a professionals job.

 

As per previous posts, you must itemise & detail exactly what you are buying for what sum of money.

Also, my advice would be not to buy the Ltd Co, set up a new co and buy the assets and liabilities. (make sure you agree what will happen to oldco as part of your contracct).

To quote Policcae Academy ' when you assume, you make an ass of u & me' whereas Lock Stock is more to the point 'Assumption is the mother of all f**k-ups!'

 

[devilmaycry]

Thanks for all the replies!!

The business is up for £175,000. And it is a Ltd company. There is a business transfer agent, who has given me all of the requested information. I met with the vendor yesterday for a guided tour of the premises and to ask a few more questions. I have also met with the vendors accountant.

All have said that the business includes ALL assets. I know that they probably haven't thought of the cash side of things, but my logic dictates that it should be included. It is an asset of the business. If the owner wanted it, surely they would have taken it as wages.?

Also, please can somebody tell me the benefit of not buying the Ltd and buying just the assets and liabilites??

And why does it benefit the vendor to leave some assets as cash? Tax, I am presuming.

Sorry if the above two questions are obvious.

Thanks again.

 

The reason for not buying the Ltd Co is, quite simply, bugs in the woodwork. Despite due diliigence, you wioll take on liability for any past dealings of the company.


You can acqure the name by simply swapping company names - with newco you get just that - a clean sheet.

 

[Rhodes100]

Also, please can somebody tell me the benefit of not buying the Ltd and buying just the assets and liabilites??

And why does it benefit the vendor to leave some assets as cash? Tax, I am presuming.

quote]

It seems that you are not as advanced in the process if you have just viewed the business and started negotiations. Perhaps the business transfer agent needs to work on the vendors by educating them about what should be included.

Buying the assets of the company will create a problem for the owners as they then will have to get the money out of the dormant company, and will have to pay tax at 50% to do so.

If you buy the shares of the company you will have the problem of getting money out of the company, but they will only pay 10% tax.

They will want to sell the shares of the limited company but it may not be advantageous for you to do so. If you take advice from your accountant before you put in any offer he may explain that the "cost" of the shares may infact be considerably higher for you compared to buying the assets of the company.

But if it is the shares that are on offer they may not even consider an asset sale.

In this case I would take advice from an accountant about the nuances of the structure of the deal as you may be paying more for the business than you thought.

 

[devilmaycry]

If I was to buy just the assets and liabilities, does that mean that the 'new' business would be VAT exempt up to £70k turnover??

 

[Rhodes100]

If you believe that your turnover in your "new" business will be above the vat threshold you have a responsibility to register asap. When someone sells a business and deregisters from vat the question is asked "Has the business been sold and to whom?". Customs would then ask serious questions of you if you do not re-register.

The other issue with vat is the purchase itself, if the business is currently vat registered it must charge you vat on the sale of the assets unless you can show that you are registered for vat yourself. A solicitor will need a vat number on transfer otherwise it will be purchase price plus 17.5% or 20%.