Looks good on paper.....any advice?

Cushtie

OK, so this is a bit long winded....

An opportunity has arisen for myself and one of my colleagues to start a company of our own (in the business sector we are currently in). Basically we would be going from a company with multi million euro turnover and approx 70 employees to just the 2 of us and maybe 2 more employees initially. A business has come up for sale (Owner retiring) that suits in scale and location.

I have about 12 years experience in the business and he has 20+. We are both currently in senior management positions and would be on good salaries. Personally I can see myself progressing further in the current company to the point where I would become head of the department I currently work in. So theoretically I`m comfortable and no need to be doing this.

However I have always been on the look out for an opportunity to work for myself and my colleague has been of the same mind.

Looking at some figures initially it would seem to stack up. Alot of variables still to be investigated. Financing options etc. But this is still very early stages.

I would appreciate any thoughts any of you would have on this? Maybe someone who was in a similar position before and what made up their mind to go for it or stay put?

Have meeting this week with Vendor to discuss some aspects so any pearls of wisdom will be much appreciated.

Cheers

cannotlogin

I can't help you in terms of self employment etc but having an older sibling suffer hugely when a joint venture when wrong can I strongly reccommend the following:-

1. A robust partnership agreement which covers off everything from governance, salary decissions, what happens when some gets sick or if unable to do their share of the work, buy out options - when/how etc

2. Some advice on insurance for illness/sickness death and it might be fine dealing with business partner but insane dealing with son/daughter/wife if anything happens

3. Get a really good solicitor and tax advisor from the start

Tippex

cannotlogin wrote: »

I can't help you in terms of self employment etc but having an older sibling suffer hugely when a joint venture when wrong can I strongly reccommend the following:-

1. A robust partnership agreement which covers off everything from governance, salary decissions, what happens when some gets sick or if unable to do their share of the work, buy out options - when/how etc

2. Some advice on insurance for illness/sickness death and it might be fine dealing with business partner but insane dealing with son/daughter/wife if anything happens

3. Get a really good solicitor and tax advisor from the start

I cannot emphasise this enough when things go wrong they go wrong with a bang (been there). Get everything out in the open from day 1.

Cushtie

Thanks for the advice. Keep it coming. Would definately be looking to put all of the above in place.

Things have progressed a little. Have had meeting with vendor and have a better overview of the business and the sale.

Time to put some more work into the projections and business plan and see what shakes out of it.

Keep the advice and thoughts coming guys.

bludcrazetiger

Go for it, this opportunity may not arise again, and if all fails I'm sure you wont have trouble getting back to where you are now.
This time next year del boy...

Wildly Boaring

It's a basic one but the often overlooked one.

Mechanisms for payment and clients that pay.

Too many new businesses are not forceful or feel that they cannot force the issue of prompt payment.

They probably want to focus on the quality of their work or hitting deadlines. They might find chasing their money a bit unseemly.

I assume at the level you are at you are well aware of this but just in case.

Clients respect and pay quickest those who put their foot down and demand payment to agree terms.

Do the vendors current clients pay??

Cushtie

Wildly Boaring wrote: »

It's a basic one but the often overlooked one.

Mechanisms for payment and clients that pay.

Too many new businesses are not forceful or feel that they cannot force the issue of prompt payment.

They probably want to focus on the quality of their work or hitting deadlines. They might find chasing their money a bit unseemly.

I assume at the level you are at you are well aware of this but just in case.

Clients respect and pay quickest those who put their foot down and demand payment to agree terms.

Do the vendors current clients pay??

Was part of the discussion with Vendor. Achievable rates and payment of same. The type of business it is means once a strict no credit policy is enforced, then payment should not be an issue. The majority of the customer base would be the general public. There would of course be an element of corporate clients who would require credit but again would be very tightly controlled.

Deub

I have never been in this situation so it may not be useful:

- If the business is better than expected, you may need to delegate more to your initial employees. Therefore, I would ask myself when interviewing candidates: Can they go to the next level within 1 or 2 years? You may be tempted to hire a strong candidate who can't manage people or drive projects (I don't know your fields) so you will have to take on the extra work.

- create a roadmap of what you want to achieve and the timeline. Where do you want to see your business in 2 years, 5 years and 10 years. Once you are fully in it, you may lose the big picture in the day to day business so it is always good to check sometimes where you are. If the business is not where you wanted it to be, you will ask yourself: What do we need to do to get there. It would also align your expectations with your partner.

Avatar MIA

That it's a business you are familiar with is a massive plus.

One thing, any non compete clause in either of your current contracts?

Cushtie

Avatar MIA wrote: »

That it's a business you are familiar with is a massive plus.

One thing, any non compete clause in either of your current contracts?

No compete clause for either of us. However it would be fairly important to keep it totally under wraps until the day came.

Even simple things like setting up a company or being listed as a director could cause flags to be raised too early. Anyway that's a bit off yet. Lots and lots of other things to consider first.

Some good insights given so far from everyone. Please keep them coming.

modmuffin

Have the difficult and upfront conversation with your prospective partner early on. Be as detailed as possible about expectations. Sign a shareholders agreement. Vest your shares over 4 years with a one year cliff and a mutual break clause. This will give you one year to figure out if its going to work together

Agree a dispute resolution / exit provisions and include them in your shareholders agreement.
Plan to spend anything between €3-5k on a shareholders agreement, and you should each lawyer-up separately for this to protect your interests.

Essentially plan for the worst case scenario - hopefully it never happens, but if it does then you will have the framework to deal with it.

Oh and reference-check the business you are buying, do deep diligence on the past 3-5 years trading performance. Speak to customers.

Bring in an independent non-exec director to sit on your board.

Reserve 10% for an employee share option scheme. Give your employees 0.5%-1% (again vested over 4 years with a one year cliff). Regardless of their position, if they are with you full-time for 4 years they will have earned it.

Best of luck with it.

dubstepper

Do you think this business can scale beyond the two of you? It's currently a one man operation? If it cant scale it may not make sense to leave your jobs as you lose relative security for not much of an upside?

What are you buying from the vendor? Are the existing contracts based on the relationship with the owner. Is there a threat to the future sales from change of ownership.

Talk to your colleague about your goals for the business. Do they want a lifestyle business i.e. come in at the time they want and make a decent living, whereas you may want to really grow it. You need to be on the same page about what you want to achieve.

Do you have a mortgage or are you thinking of moving soon? Self employed business owners is not the preferred category for banks.