Taking over an established business

dub biz

Hi Everyone,

I’m looking for some advice.

I’m in talks somebody about taking over their business.
I will be leasing the business from the current owner (paying him an annual fee) not buying the business outright.

I’m looking for advice on the staff he has employed at the moment.

He has 1 full time staff who earns €50k PA and is there 5 years. I don’t want to take on that employee if and when I take over.
I’m much younger than the owner and his staff and will be doing a lot of the work myself so I wouldn't need somebody working full time house on a large wage

What I’m looking to find out is can the current owner make that employee redundant before I take?

I know it’s best to sit down with a solicitor but I’m just trying to get an idea of how it will work out

Any advice welcome

smash

dub biz wrote: »

He has 1 full time staff who earns €50k PA and is there 5 years. I don’t want to take on that employee if and when I take over.
I’m much younger than the owner and his staff and will be doing a lot of the work myself so I wouldn't need somebody working full time house on a large wage

Are you sure you can do the job as good as the current employee? They're obviously being paid that wage for a reason and if the current owner doesn't want to let that staff member go then he shouldn't have to just because you want them to. Do the dirty work yourself!

And for what it's worth, I wouldn't call it a large wage at all if I'm being honest.

antoinolachtnai

I really don't know if it makes sense for you to lease a business. You can lease a premises for sure but that is different.

If you really want to do this and you are really 'leasing' the business then I can't see why you wouldn't require the owner to make all the staff redundant or redeploy them elsewhere.

It sounds like you could be taking on a very difficult situation.

The other problem is that when you have sorted out the business and made it much more profitable, the owner may decide he doesn't want to 'let' it to you anymore, or decides to increase the 'rent'. You would essentially be taking on all the risk of the business, but not really getting much of the upside if you built the business for the long term.

You need to get good commercial and legal advice.

Yeah this sounds like a very odd arrangement. What are the terms of the lease? how long is it for? Is it profit sharing? What if you turn it into a thriving business, can the lessor take back the business whenever they want?

If you take over a business the usual thing is that the buyer does the hiring and firing after takeover, unless it was a clause in the takeover contract that the seller had to do it first.

TheCostumeShop.ie: Ronan

First thing to do is read their employment contract.

Under Transfer of Undertakings legislation, the employees should be re-employed by the new owner, without break of service. Of course, if the new owners carry out a complete re-organisation, effectively changing the working conditions of the employees, then there can be a redundancy situation. Statutary redundancy is 2 weeks for every year or part there of worked on the basis that the role only requires one member of staff. So budget in 10-13K for the redundancy cost, plus some extra for legal.

Keep in mind that this person may have tacit knowledge and relationships with customers beyond your understanding, and in theory could open as a competitor if there is no non-compete in his contracts.

I certainly wouldnt fire him on day one as you'll need time to get to know the business. Lastly keep in mind the relationship that the owner has with his employees, Business is one thing but loyalty is more than adding up numbers.

modmuffin

Leasing sounds like a mess waiting to happen, however if you are acquiring the business on an earn-out basis (where you pay the owner the purchase price over a number years from the proceeds of the business) then good for you.

I would be careful not to underestimate the value of the employee. He likely knows a lot of valuable information about the business and its customers. It would be prudent to keep him on for a period of time while you learn the ropes, or alternatively get the owner to stay on for 1 day per week for the first 6 months.

TUPE will probably apply so legal advice required

qt3.14

You don't mention the industry so not sure if it's relevant, but a worry of mine would be said redundant staff member taking a few clients with them when he leaves.

pedronomix

Are there any premises involved? if you take on the employee, he becomes your problem along with his existing service liabilities, could be very expensive to get out of this, even if you abandoned the lease you could retain full liability for the employees entitlements. The concept appears to have been only very superficially evaluated and you will need comprehensive legal advice and drafting. Expensive, I would expect in terms of fees.

dub biz

Thanks for all the replays. A trip to the lawyers is needed!!!

Idbatterim

Are you sure you can do the job as good as the current employee? They're obviously being paid that wage for a reason and if the current owner doesn't want to let that staff member go then he shouldn't have to just because you want them to. Do the dirty work yourself!

And for what it's worth, I wouldn't call it a large wage at all if I'm being honest.

50k could be fair, underpaid or overpaid, impossible for us to say without knowing anything about the business! 50k though, I wouldnt call it large, but it cetainly isnt meagre, on its own in isolation, its a fairly decent salary IMO...

Have you even broached this subject with the owner OP? It might be a deal breaker for him...

antoinolachtnai

It might be fair, or it might not and the employee might be good, or he might not be. But it doesn't really matter. The issue is that the prospective new manager wants to restructure and run the business his way. He needs to understand whether he will be able to do this and the costs he might incur.

Then the OP needs to decide whether the whole thing makes sense and gives him the return the OP needs.

Idbatterim

Keep in mind that this person may have tacit knowledge and relationships with customers beyond your understanding, and in theory could open as a competitor if there is no non-compete in his contracts.

Even if there is, from a legal point of view, I believe you wouldnt get much more than a year out of them, regardless of what it says in the contract...

I would be careful not to underestimate the value of the employee. He likely knows a lot of valuable information about the business and its customers. It would be prudent to keep him on for a period of time while you learn the ropes, or alternatively get the owner to stay on for 1 day per week for the first 6 months.

they were my thoughts too...