Advertisement
If you have a new account but are having problems posting or verifying your account, please email us on hello@boards.ie for help. Thanks :)
Hello all! Please ensure that you are posting a new thread or question in the appropriate forum. The Feedback forum is overwhelmed with questions that are having to be moved elsewhere. If you need help to verify your account contact hello@boards.ie

Business finance help.

Options
  • 05-06-2012 3:03pm
    #1
    123donalo
    Registered Users Posts: 82 ✭✭


    I am currently involved in the cleaning and restoration business and have been with over eight years. I see it as been recession proof even if we have slashed prices for our customers we are still running a solid business. However its hard to actually make money presently and I have the opportunity to now double my business with the running costs costing a fraction higher as thus increasing the profits. However I need about €75,000 to do this! Current business is turning about €100k and with new business it should turn €200k. Where do I look for this sort of finance? Will bank even entertain me? I originally set up original business for €40k and paid back bank within a couple of years but nowadays account seems to be just turning a few quid and wouldn't survive without overdraft. In saying that we are always owed more money than what we owe so thats not necessarliy a bad thing. Any help appreciated or consultation/advice welcome.

    Regards


Comments

  • Options
    #2
    antoinolachtnai
    Registered Users Posts: 9,798 ✭✭✭antoinolachtnai


    If you are owed money and the debtors are good, you might be able to factor the invoices, i.e., get finance on the strength of them.

    If you are buying out somebody else's business, then I would see if you could get them to finance it, by accepting payment in stages, and based on the actual performance of the business.

    Does your business have any other assets to use as collateral?


  • Options
    #3
    123donalo
    Registered Users Posts: 82 ✭✭123donalo


    antoinolachtnai wrote: »
    If you are owed money and the debtors are good, you might be able to factor the invoices, i.e., get finance on the strength of them.

    If you are buying out somebody else's business, then I would see if you could get them to finance it, by accepting payment in stages, and based on the actual performance of the business.

    Does your business have any other assets to use as collateral?

    Thank you for your reply.
    Firstly yes debtors are good but would only account for about 12k.
    Yes I am considering buying somebody elses business and I guess could ask them if they are willing to finance it. This would of course suit me especially if I can get them to agree a better rate than a lending institute. The only problem may be the term of payment but I guess thats open to discussion.
    Our business owns about 40k assets in the form of equipment and vehicles etc. New business comes with about the same also.
    I would have to employ 1 full time and 1 flexi/part-time employee also in case this info would help with funding.

    Any more advice appreciated.


  • Options
    #4
    antoinolachtnai
    Registered Users Posts: 9,798 ✭✭✭antoinolachtnai


    A reasonable thing to do would be to pay for the assets (the balance sheet value) in cash, and pay for the rest (the 'premium' in the jargon) through regular payments. A common way would be to do this as an 'earn-out', i.e., as profit is earned, it gets paid out. This is also a protection against 'surprises' in the new business.

    Does your firm really generate sufficient profits to pay off the principal and interest?

    You should have a reasonable amount of collateral, if the merged company has 80k in assets, and 12k in outstanding invoices.

    What is happening to the other company's outstanding invoices? Do you get to collect those or does he? If not, you are really paying 87k (assuming his outstanding invoices are the same as yours).

    The problem isn't going to be so much the rate, it's going to be whether you can get the lender to lend at all.

    You aren't really generating any extra jobs here! You are just moving them around, and maybe even reducing the number of jobs in total. You will not get any state aid to buy somebody else's business.

    You need to talk to your accountant and solicitor about this. The seller will also need to think about the tax implications.


  • Options
    #5
    TheCostumeShop.ie: Ronan
    Company Representative Posts: 1,740 ✭✭✭TheCostumeShop.ie: Ronan


    Its going to be hard raising money when your business as it currently stands is struggling to make money. While fixed costs do remain the cleaning business is very high on variable costs. Just be careful about increasing the workload on a business you haven't quite tweaked to turn solid profit, assuming you have this hurdle sorted I'd say go for it.

    Saying that if you can put a solid proposal together ie. 75k investment brings in 100k PA, which (for example) is 25% Net Profit and therefore has a pay back period of 3 years. Then the bank should entertain you.

    Your first choice should be vendor finance though, agree with the selling to pay a lump sum upfront to cover their capital gains, unless they are over 55 years old and spin the CGT on retirement relief. Then pay them a monthly fee over the next X years. Show them how you plan to turn their business around and hopefully they will buy into your idea - there's not many buyers in the market for that kind of business i suspect.


  • Options
    #6
    123donalo
    Registered Users Posts: 82 ✭✭123donalo


    TheCostumeShop.ie: Ronan wrote: »
    Its going to be hard raising money when your business as it currently stands is struggling to make money. While fixed costs do remain the cleaning business is very high on variable costs. Just be careful about increasing the workload on a business you haven't quite tweaked to turn solid profit, assuming you have this hurdle sorted I'd say go for it.

    The business is turning profit on paper but everything is going back into business if you know what I mean therefore bank account doesn't reflect this by having a large lump sum sitting in it. I agree with you that its high on variable costs.
    I'll pm you with more details.
    TheCostumeShop.ie: Ronan wrote: »
    Saying that if you can put a solid proposal together ie. 75k investment brings in 100k PA, which (for example) is 25% Net Profit and therefore has a pay back period of 3 years. Then the bank should entertain you.

    I cant see how I could pay back 25k per year though.
    TheCostumeShop.ie: Ronan wrote: »
    Your first choice should be vendor finance though, agree with the selling to pay a lump sum upfront to cover their capital gains, unless they are over 55 years old and spin the CGT on retirement relief. Then pay them a monthly fee over the next X years. Show them how you plan to turn their business around and hopefully they will buy into your idea - there's not many buyers in the market for that kind of business i suspect.

    Seller is under 55.


  • Advertisement
  • Options
    #7
    123donalo
    Registered Users Posts: 82 ✭✭123donalo


    antoinolachtnai wrote: »
    Does your firm really generate sufficient profits to pay off the principal and interest.

    This I am not sure of and have difficulty figuring out if it will pay.


    antoinolachtnai wrote: »
    What is happening to the other company's outstanding invoices? Do you get to collect those or does he? If not, you are really paying 87k (assuming his outstanding invoices are the same as yours)..

    The business will come as a clean sheet I presume ie any work he has done until sold date will be his earnings not mine.


    antoinolachtnai wrote: »
    You aren't really generating any extra jobs here! You are just moving them around, and maybe even reducing the number of jobs in total. You will not get any state aid to buy somebody else's business.

    Not sure I get this as I will have to take on people to work this side of business. I currently operate myself, 2 employees and 2 vans. 1 extra van will need 2 employees and Ill have to oversee the lot.


  • Options
    #8
    antoinolachtnai
    Registered Users Posts: 9,798 ✭✭✭antoinolachtnai


    But does he not have staff already? You will have to take those staff on (transfer of undertakings legislation) if they want to stay to you, or else you will have to replace them. Talk to the solicitor!

    If you are not buying over the customers/debtors ledger and the future expected business from these customers, what are you really buying? You need more clarity over this. Talk to the accountant.

    I have a feeling the price he is asking for is too high for what you are actually getting here.


  • Options
    #9
    scwazrh
    Registered Users Posts: 2,694 ✭✭✭scwazrh


    If the other companies assets are €40k and you are not buying the companies debtors, what are you paying €75k for? Also keep in mind that at the moment a companies book value of vehicle assets valued on cost less depreciation is much higher than an achievable sale price of said vehicle .
    To explain better in simple terms say I bought a van for €40k in 2010 and accounted it on 8 yr depreciation the van now would have a balance sheet asset value of €25k , a realistic sale value of 2010 van that cost €40k new if sold today is €14-18k,


Advertisement