How To Determine The Cost Of A Business?

[BobAnderson]

What should I expect to pay for a business that produced a net B500,000 per year -after taxes - with a manager in place? What about if that net did and/or didn't include paying myself and I was working for the business full time.

What about B1,000,000 or B2M per year?

What I really want to know is - what are the common multiples paid for cash flows when buying small businesses here?

Can such a business provide me with a work permit? Is there a certain size or investment level required?

All wisdom greatfully appreciated

[BobAnderson]

What should I expect to pay for a business that produced a net B500,000 per year -after taxes - with a manager in place?  What about if that net did and/or didn't include paying myself and I was working for the business full time.

What about B1,000,000  or B2M per year?

What I really want to know is - what are the common multiples paid for cash flows when buying small businesses here?

Can such a business provide me with a work permit?  Is there a certain size or investment level required?

All wisdom greatfully appreciated

<{POST_SNAPBACK}>

Surely, some people here must have some experience "buying" their job - through the purchase of a business - or similarly buying a cash flow?

Thanks for any ideas.

Just looking for quidelines - wouldn't dare do it without a high quality broker of course, but just want to get the thinking process going.

[PvtDick]

What should I expect to pay for a business that produced a net B500,000 per year -after taxes - with a manager in place?  What about if that net did and/or didn't include paying myself and I was working for the business full time.

What about B1,000,000  or B2M per year?

What I really want to know is - what are the common multiples paid for cash flows when buying small businesses here?

Can such a business provide me with a work permit?  Is there a certain size or investment level required?

All wisdom greatfully appreciated

<{POST_SNAPBACK}>

Surely, some people here must have some experience "buying" their job - through the purchase of a business - or similarly buying a cash flow?

Thanks for any ideas.

Just looking for quidelines - wouldn't dare do it without a high quality broker of course, but just want to get the thinking process going.

<{POST_SNAPBACK}>

I think it probably depends largely on the type of business, location, assets, and degree of intangible "good will" that comes along with it. Try taking a look at Sunbelt's listings -- that should give you some idea.

[BobAnderson]

What should I expect to pay for a business that produced a net B500,000 per year -after taxes - with a manager in place?  What about if that net did and/or didn't include paying myself and I was working for the business full time.

What about B1,000,000  or B2M per year?

What I really want to know is - what are the common multiples paid for cash flows when buying small businesses here?

Can such a business provide me with a work permit?  Is there a certain size or investment level required?

All wisdom greatfully appreciated

<{POST_SNAPBACK}>

Surely, some people here must have some experience "buying" their job - through the purchase of a business - or similarly buying a cash flow?

Thanks for any ideas.

Just looking for quidelines - wouldn't dare do it without a high quality broker of course, but just want to get the thinking process going.

<{POST_SNAPBACK}>

I think it probably depends largely on the type of business, location, assets, and degree of intangible "good will" that comes along with it. Try taking a look at Sunbelt's listings -- that should give you some idea.

<{POST_SNAPBACK}>

Only my opinion, but goodwill have a value of zero. If it is of any value - it will show up in the bottom line. Call me old-fashioned.

[RamdomChances]

What should I expect to pay for a business that produced a net B500,000 per year -after taxes - with a manager in place?  What about if that net did and/or didn't include paying myself and I was working for the business full time.

What about B1,000,000  or B2M per year?

What I really want to know is - what are the common multiples paid for cash flows when buying small businesses here?

Can such a business provide me with a work permit?  Is there a certain size or investment level required?

All wisdom greatfully appreciated

<{POST_SNAPBACK}>

Surely, some people here must have some experience "buying" their job - through the purchase of a business - or similarly buying a cash flow?

Thanks for any ideas.

Just looking for quidelines - wouldn't dare do it without a high quality broker of course, but just want to get the thinking process going.

<{POST_SNAPBACK}>

I think it probably depends largely on the type of business, location, assets, and degree of intangible "good will" that comes along with it. Try taking a look at Sunbelt's listings -- that should give you some idea.

<{POST_SNAPBACK}>

Only my opinion, but goodwill have a value of zero. If it is of any value - it will show up in the bottom line. Call me old-fashioned.

<{POST_SNAPBACK}>

Nice one, complain that no one is helping, then dissagree with the first reply

Probably the only people who could answer you would be indosiam or sunbelt.

[BobAnderson]

My apologies - my intent was to encourage discussion rather than to prompt dissension. And I did say "Only my opinion"

I agree that the two commercial companies that sell businesses probably have the best answers. However, I also suspect that many people here have life experiences and knowledge that could benefit all of us.

Perhaps I should have said"If it is of any value - it will show up in the bottom line?"

So, again, no disrespect intended.

[lukamar]

I have bought and sold a few businesses in Canada and i have been told a couple of times by accountants as a rule of thumb to use 2 to 2.5 times the profit margin plus the asset value. I think this is a bit on the low side but It's always worked for me and takes into account goodwill.

Ie: profit margin does not necessarily equate to net.

[snoophound]

I have been looking at businesses for some time

The hardest thing in Thailand esp at the lower end (sub 10m baht) is to get a fix on what the business really makes.

Few businesses have paperwork that stacks up ,speaking from my experience looking at small hotels and guest houses.

Most of the vendors agents are very vague,prob not thru any fault of theor own ,its just that record keeping seems almost non existent here.

What should I expect to pay for a business that produced a net B500,000 per year -after taxes - with a manager in place?  What about if that net did and/or didn't include paying myself and I was working for the business full time.

What about B1,000,000  or B2M per year?

What I really want to know is - what are the common multiples paid for cash flows when buying small businesses here?

Can such a business provide me with a work permit?  Is there a certain size or investment level required?

All wisdom greatfully appreciated

<{POST_SNAPBACK}>

Surely, some people here must have some experience "buying" their job - through the purchase of a business - or similarly buying a cash flow?

Thanks for any ideas.

Just looking for quidelines - wouldn't dare do it without a high quality broker of course, but just want to get the thinking process going.

<{POST_SNAPBACK}>

I think it probably depends largely on the type of business, location, assets, and degree of intangible "good will" that comes along with it. Try taking a look at Sunbelt's listings -- that should give you some idea.

<{POST_SNAPBACK}>

Only my opinion, but goodwill have a value of zero. If it is of any value - it will show up in the bottom line. Call me old-fashioned.

<{POST_SNAPBACK}>

[xbusman]

I used to work with investors who bought and sold businesses on a regular basis, on all levels. As a general rule, they were very fixated on asset buyouts only, and were completely adverse to buying goodwill.

Using a internet shop as an example, the thinking goes that I can go next door, buy the same amount of computers and make more money because I can run it better and more efficiently than the current owner. I will be more competative because I do not have the extra unproductive cost built into my investment called goodwill. Goodwill (or blue sky as investors like to call it) is very hard to judge and has very little reality.

These investors were all very successful and spent every waking moment looking for companies they could buy like this or avoiding taxes.

For those of us just making a living I usually look at many differant valuations before purchasing. The first is asset buy out, what would it cost me to open the same thing next door, and then what is the cash outlay the current owner wants to save me that trouble (blue sky). I am willing to pay some but not much. Second, my money needs to earn at least 50% ROI (return on investment). So if this business costs 6M baht, can I reasonably expect to net 3M baht yearly. Then I look at the cash and time requirements for each business, there is a personal cost as well.

The ultimate key to making it work though is due diligence. You cant do enough homework to protect yourself. Check everything five time and then, dont trust what you found out. Snoophound is spot on, you will find the paperwork here to be obscure at best.

Regards work permit I think you need to invest a minimum of 2M baht and have four Thai employees for every one farang work permit. I recommend that you contact Greg at Sunbelt Asia for complete details. They are a business broker and can clear up all your questions with good accurate information.

[simple1]

I lived for more than one year in Thailand, trying to obtain a minimum understanding of Thailand. During the last 2/3 months looked at SME business opportunities in Thailand and met with Sunbelt Asia et al. All of them were expecting at least 2.4 times nett annual profit as the business sales price. The business brokers commission from the seller is approx 10% of the sell price and all their contracts specifically exclude any liability whatsoever for the seller/buyer process. The nett profits usually didn't include owners salary; or rarely around 10,000 baht a month. Also P/L documents, balance sheets etc never existed in a professional manner. Also the big thing is that Thailand is mostly a cash society, no receipts etc. makes it difficult to qualify what the business is actually generating.

I decided to return to Australia. I have now bought a Thai restaurant at one times annual nett profit, which is the standard SME investment ratio throughout Australia.

[snoophound]

Well in the last few days I have contacted a couple of brokers including the forum sponsor here.

Signed NDA s,pretty much unheard of in AU got a very basic listing which was little more than what you see on the website ,sent requests for various pieces of important info back and heard absolutely nothing,and I am a cash buyer.

I lived for more than one year in Thailand, trying to obtain a minimum understanding of Thailand. During the last 2/3 months looked at SME business opportunities in Thailand and met with Sunbelt Asia et al. All of them were expecting at least 2.4 times nett annual profit as the business sales price. The business brokers commission from the seller is approx 10% of the sell price and all their contracts specifically exclude any liability whatsoever for the seller/buyer process. The nett profits usually didn't include owners salary; or rarely around 10,000 baht a month. Also P/L documents, balance sheets etc never existed in a professional manner. Also the big thing is that Thailand is mostly a cash society, no receipts etc. makes it difficult to qualify what the business is actually generating.

I decided to return to Australia. I have now bought a Thai restaurant at one times annual nett profit, which is the standard SME investment ratio throughout Australia.

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[ZOVOX]

I've had exactly the same experience as you. I've been looking for a small business for some time, and the quality of the businesses were very poor. It is very difficult to believe the profits quoted by some of them, and the businesses are way over-priced !! If you find a good businesses, it is much better to just open a new business next door with the same idea, and close the other place down.

business with

Well in the last few days I have contacted a couple of brokers including the forum sponsor here.

Signed NDA s,pretty much unheard of in AU got a very basic listing which was little more than what you see on the website ,sent requests for various pieces of important info back and heard absolutely nothing,and I am a cash  buyer.

I lived for more than one year in Thailand, trying to obtain a minimum understanding of Thailand. During the last 2/3 months looked at SME business opportunities in Thailand and met with Sunbelt Asia et al. All of them were expecting at least 2.4 times nett annual profit as the business sales price. The business brokers commission from the seller is approx 10% of the sell price and all their contracts specifically exclude any liability whatsoever for the seller/buyer process. The nett profits usually didn't include owners salary; or rarely around 10,000 baht a month. Also P/L documents, balance sheets etc never existed in a professional manner. Also the big thing is that Thailand is mostly a cash society, no receipts etc. makes it difficult to qualify what the business is actually generating.

I decided to return to Australia. I have now bought a Thai restaurant at one times annual nett profit, which is the standard SME investment ratio throughout Australia.

<{POST_SNAPBACK}>

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[PvtDick]

I've had exactly the same experience as you. I've been looking for a small business for some time, and the quality of the businesses were very poor. It is very difficult to believe the profits quoted by some of them, and the businesses are way over-priced !! If you find a good businesses, it is much better to just open a new business next door with the same idea, and close the other place down.

business with

Well in the last few days I have contacted a couple of brokers including the forum sponsor here.

Signed NDA s,pretty much unheard of in AU got a very basic listing which was little more than what you see on the website ,sent requests for various pieces of important info back and heard absolutely nothing,and I am a cash  buyer.

I lived for more than one year in Thailand, trying to obtain a minimum understanding of Thailand. During the last 2/3 months looked at SME business opportunities in Thailand and met with Sunbelt Asia et al. All of them were expecting at least 2.4 times nett annual profit as the business sales price. The business brokers commission from the seller is approx 10% of the sell price and all their contracts specifically exclude any liability whatsoever for the seller/buyer process. The nett profits usually didn't include owners salary; or rarely around 10,000 baht a month. Also P/L documents, balance sheets etc never existed in a professional manner. Also the big thing is that Thailand is mostly a cash society, no receipts etc. makes it difficult to qualify what the business is actually generating.

I decided to return to Australia. I have now bought a Thai restaurant at one times annual nett profit, which is the standard SME investment ratio throughout Australia.

<{POST_SNAPBACK}>

<{POST_SNAPBACK}>

<{POST_SNAPBACK}>

I agree. Some of those Sunbelt business listings are real side-splitters! They've always got such a good reason why the owner of a fantastically successful business wants to sell it quickly.

[snoophound]

Suppose what gets me is the Sunbelt marketing looks slick and professional,but they use thai secretarial staff,with not a lot of checking what goes in the ads.

Spelling mistakes,and a mix between baht takings and usd pricing.

I think standardising on baht makes sense.

Still waiting for replies to my two emails!

"I want to buy something"

I've had exactly the same experience as you. I've been looking for a small business for some time, and the quality of the businesses were very poor. It is very difficult to believe the profits quoted by some of them, and the businesses are way over-priced !! If you find a good businesses, it is much better to just open a new business next door with the same idea, and close the other place down.

business with

Well in the last few days I have contacted a couple of brokers including the forum sponsor here.

Signed NDA s,pretty much unheard of in AU got a very basic listing which was little more than what you see on the website ,sent requests for various pieces of important info back and heard absolutely nothing,and I am a cash  buyer.

I lived for more than one year in Thailand, trying to obtain a minimum understanding of Thailand. During the last 2/3 months looked at SME business opportunities in Thailand and met with Sunbelt Asia et al. All of them were expecting at least 2.4 times nett annual profit as the business sales price. The business brokers commission from the seller is approx 10% of the sell price and all their contracts specifically exclude any liability whatsoever for the seller/buyer process. The nett profits usually didn't include owners salary; or rarely around 10,000 baht a month. Also P/L documents, balance sheets etc never existed in a professional manner. Also the big thing is that Thailand is mostly a cash society, no receipts etc. makes it difficult to qualify what the business is actually generating.

I decided to return to Australia. I have now bought a Thai restaurant at one times annual nett profit, which is the standard SME investment ratio throughout Australia.

<{POST_SNAPBACK}>

<{POST_SNAPBACK}>

<{POST_SNAPBACK}>

I agree. Some of those Sunbelt business listings are real side-splitters! They've always got such a good reason why the owner of a fantastically successful business wants to sell it quickly.

<{POST_SNAPBACK}>

[Khun Jean]

Most small businesses i know just want to recoup their investment.

If a farang puts it up for sale, the price goes up with "good will" or "location".

He just thinks, when converted in Euros or dollars the price sounds low, but for thailand sometimes absurdly high. I know 2 bars side by side. Both nicely decorated, one a farang owner the other Thai. Farangs askes 1.8 Million baht "take over", the thai askes 400.000. Same rental contract, same keymoney.

The farang waits for a naive gullible farang, the thai just wants to sell.

I live in Samui, and around my shop their are at least 15 bars,2 barbers and some other kind of shops for sale.

No signs, no advertisements. Except the farang owned of course.

Most of the shops are bought by "farang" boyfriends. Now the women sit in their shops bored to death. And a few months of boredom is a lot for a thai person, especially when not making a profit. They don't even have the patience to wait for high season???

So it goes up for sale, but they don't know how to do it. So sometimes they ask my wife or me.

The price is often the "key money" and rent already paid + money for improvements. Some of these improvements can be usefull, such as doors/windows airconditioning and some of them are not worthwile.

With these shops it is "up to you" what you do with it. And even more "up to you" if you can make a profit.

[Sunbelt Asia]

Some of those Sunbelt business listings are real side-splitters! They've always got such a good reason why the owner of a fantastically successful business wants to sell it quickly.

We are paid by the seller to advertise their business but still the reason for sale come from the sellers. Some sellers are simply liars and some are honest that’s where due diligence comes in. A long drawn out process before money changes hands with many steps. The first question the brokers ask is why the owner is selling. If we feel it is not a good reason or in a good location, we pass on taking the listing. Still some garbage slips in, end result a buyer will find many more good businesses than bad ones.

Suppose what gets me is the Sunbelt marketing looks slick and professional,but they use thai secretarial staff,with not a lot of checking what goes in the ads.

Spelling mistakes,and a mix between baht takings and usd pricing.

I think standardising on baht makes sense.

Still waiting for replies to my two emails!

"I want to buy something"

Sorry. We get well over 300 requests for different businesses a day so that is why we have three fulltime customer care staff that just answers e-mails along with brokers and myself. I sent you a separate PM to look into this to make sure your e-mails have already been answered.

After you sign the NDA, the next step is for you to visit the property as a mystery shopper and see if you could see yourself owning it. If you could, then a meeting is set up with the owner where you ask them all the questions you like. If the seller is Thai, a translator is provided. If that meeting goes well then you submit an offer to purchase with many conditions.

Conditions such as ... review of the financials, the lease will be in your name, no liens in equipment, no competition, no solicitation of employees, etc etc. If that offer with conditions is accepted then the due diligence begins. The Seller must prove the numbers he stated are correct. If in your opinion he has not, the transfer is off and you simply look at another opportunity. On average 50% of offer to purchase clear due diligence and all conditions.

On the Baht/ Dollar.. Sorry but our software is from our corporate office in the States and hence when we send a business profile, it’s in dollars. The rule of thumb is to multiply the dollar amount by 40 to get the Baht value.

Also P/L documents, balance sheets etc never existed in a professional manner. Also the big thing is that Thailand is mostly a cash society, no receipts etc. makes it difficult to qualify what the business is actually generating.

Recent business transfers we are involved with on pending and actual business transfers

Spa.. has audited books. Confirmed by observation period by the buyer. Investment was 2 times cash flow. It included the rent deposits, equipment, trade name.

Coffee shop… asset sale. No books required for due diligence as it was not a profitable business

Guesthouse… financials were confirmed by credit card receipts and observation period. Investment was 2.4 times cash flow. It included the rent deposits, equipment, trade name.

Hostess Club… had real books in the buyers eyes but not audited. Confirmed by an observation period, the reputation of the business and receipts from the suppliers buying the bear and liquor. Investment was 2.5 times cash flow. It included the rent deposits, equipment, trade name.

Real estate firm… numbers were confirmed by the buyer contacting the tenants and landlords of places rented out. Investment was 2.5 times cash flow. It included the rent deposits, equipment, trade name.

Pharmaceutical company… audited books with excellent paper trail for the last 15 years. Investment was 2.1 times cash flow. It included 1.1 million dollars cash in the bank!, equipment, inventory trade name.

Restaurant/ bar… numbers confirmed by a law firm. Their primary due diligence was to examined the credit card receipts which were around 50% of the reported total gross sales. They also examined and verified the receipts from suppliers. Investment was 2.8 times cash flow. It included the rent deposits, equipment, trade name, inventory.

English School… audited books. Confirmed by observation and head counts of students. Independent due diligence by a outside auditor who examined the books. Investment was 1.9 times cash flow. It included the rent deposits, equipment, trade name.

DVD rental… asset sale. No books required for due diligence as it was not stated it was a profitable business

Spa… Daily report from staff given as financials. Buyer confirmed with observation period. Acquisition was less than the leasehold improvement, equipment and the rental deposits. Investment was 2.0 times cash flow. It included the rent deposits, equipment, trade name, inventory.

Investing in a business is NOT an event; it is a process that will take great amounts of time, energy, and resources on the part of a buyer, our seller and that of our team.. However, the hard work is worth it, as the odds of success when acquiring a good business are higher than starting a business on your own.

We welcome the opportunity at the four Sunbelt offices in Thailand to help you. As well as Singapore, Shanghai, Jakarta, London and over 350 offices in the USA.

www.sunbeltasia.com