Starting A (successful) Business - How Did You Do?

[anilorak]

Hi,

I've been reading the posts on this forum for a month or so and I've learned a lot of things!!

I have realised how complicated and difficult it is to start/buy a business in Thailand and succeed.

It seems that a lot of people have being ripped off or failed and lost their savings. I have learned a lot about what not to do...but it has also made me question my own chances, which is of course good.

But, I'd really like to hear about those of you that have succeeded - that today (or before) run a business and are doing ok? What made you successful? I really try to be realistic and I'd like to get advice whether I am or not... And you who didn't do well, what was the main reason?

I plan to buy a small business in a touristic area of Thailand. My goal is to be able to run this small business and live a decent life in Thailand. By small business I mean coffee shop, sandwish shop, small guesthouse etc, by decent life I mean having approx 50 000 baht to spend per month and not working more than 45 hours a week. The 50 000 baht figure I know will be ok for me!

I have approx 6 million bahts and will invest maximum 4 million in the business. I will use Sunbelt Asia or another firm for setting up the business / buying the business ( I know there are a lot of rules about this, different kind of companies..)

I will stay minimum 6 months as a tourist before I do anything, just to really get to know the place, the people etc. I'm learning thai now. I have not run my own business before but have some experience I can use. I don't speak thai, but I'm learning..

Please tell me about your experience and your opinion on my chances.. Thanks a lot.

/Lina

[BKK90210]

I owned a successful structural engineering firm for so far 14 yrs already and never had a single lawsuit. My advices to you are below in order to run a successful business

What made you successful?

You have to have…

Determination – focus…tunnel vision …determine to succeed…concentrating on the goal

Knowledge – if you don’t have knowledge in what you’re doing…then you would be a hyper-idiot

Perseverance – if things are not working well, you can’t give up

Determination is to start the thing you want to do and to be able to focus on your goal…..and you have to have Knowledge to accomplish the goal…Knowledge is like a tool….. Perseverance is for just incase you failed on 1st and 2nd try…then you have to pick yourself up again and never give up.

In addition

Never compromised the qualities with lower prices

Never give out too many free services

Pay attention on your balance sheet….income and expense

If you could afford it - buy a liability insurance

Lastly

If you’re expecting to be the boss…..be prepare to work long hours. I’ve never heard of any bosses who work less than 50-60 hrs per week and still having a successful business.

Remember

If you’re the boss….be prepare to get paid last….after your employees! It's a good business practice

Best of luck

BKK

[kasi]

Consider what you are good at. If you aren't particularly business savvy consider some sort of franchise that has a proven track record and structure.

Consider what sort of things Thailand is known for and has plenty of and play on that theme.

Ask yourself why do people come to Thailand?

Contact the sunbelt asia guys as they have many listings of available businesses and franchises.

May the force be with you!

[Sunbelt Asia]

Hi,

I've been reading the posts on this forum for a month or so and I've learned a lot of things!!

I have realised how complicated and difficult it is to start/buy a business in Thailand and succeed.

It seems that a lot of people have being ripped off or failed and lost their savings. I have learned a lot about what not to do...but it has also made me question my own chances, which is of course good.

But, I'd really like to hear about those of you that have succeeded - that today (or before) run a business and are doing ok? What made you successful? I really try to be realistic and I'd like to get advice whether I am or not... And you who didn't do well, what was the main reason?

I plan to buy a small business in a touristic area of Thailand. My goal is to be able to run this small business and live a decent life in Thailand. By small business I mean coffee shop, sandwish shop, small guesthouse etc, by decent life I mean having approx 50 000 baht to spend per month and not working more than 45 hours a week. The 50 000 baht figure I know will be ok for me!

I have approx 6 million bahts and will invest maximum 4 million in the business. I will use Sunbelt Asia or another firm for setting up the business / buying the business ( I know there are a lot of rules about this, different kind of companies..)

I will stay minimum 6 months as a tourist before I do anything, just to really get to know the place, the people etc. I'm learning thai now. I have not run my own business before but have some experience I can use. I don't speak thai, but I'm learning..

Please tell me about your experience and your opinion on my chances.. Thanks a lot.

/Lina

One of the first people that I met in Thailand was a businessman who had been established here for over 30 years. He stated" Business people that were successful back in their home country will do well here. Those that fail in their home country, will most likely fail as well in Thailand"

Going on 5 years in Bangkok and I feel this is mostly true. Many people however that arrive in Thailand, have never own a business before. Certainly they should look to own a business by acquiring one or franchise than starting one up. The odds of success go up dramatically. Nothing beats having a proven business system and having the good sense to not make any drastic changes. Don't fix a clock that is working!

When you stated

It seems that a lot of people have being ripped off or failed and lost their savings. I have learned a lot about what not to do...but it has also made me question my own chances, which is of course good.

I meet many foreigners and don't feel I live in a vacuum. I simply don't see "many"

It is certainly easier to say" yes lots of bad people out there and you should use our services" but to be frank when you say "many" I don't see "many" being ripped off or have failed. I feel "many" are doing ok with a steady business with a salary and some are doing very well here. This will bring out the nay- sayer with no open mind and others that say my views are biased. However the facts remain, our firm does the books for hundreds of clients, have looked at thousands of companies that are looking to sell and "most" are doing ok or very well.

What makes business people successful. Here are my favorite ten. Of course you can find more...

1. They enjoy the business they are in. They have the passion.

2. They see the business with their client eyes and what their client needs are

3. They stay out of the bars on a regular basis. If they own one, they don't become an alcoholic.

4. They understand location is important in a retail business. Take the time to find it, patience is a virtue.

5. They value the good employees and understand they are the key to their business success.

6. They made sure they had good legal advice on their retail lease. As well on setting up the company to make sure their rights were protected and if they were acquiring a business, clauses were in place on non-competing from the seller, no solicitation of employees, funds were in escrow, etc., etc.

7. They realize that Thailand streets are not paved with gold and they just bend down to pick up the gold coins They have to work hard to reach their financial goals.

8. They know when they have a good concept. Others will emulate them. Nothing to fear, just be prepare for it.

9. They are careful that if they have partners, they are on the same page on dividends or expansion before they start the business.

10. They are not afraid of paying taxes. They know if they cheat the government, their employees will have ways they can cheat them as well.

www.sunbeltasia.com

www.lawyer.th.com

[anilorak]

Thanks for your advice. I agree completely and believe I would be able to follow these "rules". It corresponds quite well to how I act today in my job (not in Thailand though).

I will do my research so I can make the right decision about what business to buy, where and when... Still have to work 1 year or 2 to have enough savings.

What about prices of businesses. According to what I've seen on different sites, 4 million baht would buy me a small well working business in the area of Hua Hin (one of the places where I'm looking).

Any comments? Is Phuket area (not Patong!!) much more expensive than Hua Hin?

[bolognamare]

6. They made sure they had good legal advice on their retail lease. As well on setting up the company to make sure their rights were protected and if they were acquiring a business, clauses were in place on non-competing from the seller, no solicitation of employees, funds were in escrow, etc., etc.

www.sunbeltasia.com

www.lawyer.th.com

I think it's a well drawn paintings, and the point n°6 is basic to make the castle not fall at the first wind. Never try a business abroad first to have experienced it in your living country.

Leave always to yourself a backdoor.

Can i pm to the this sunbelt poster for a free info about an online-business managed from Los?

[N&M]

Watch out for way way over priced businesses. There are plenty around and the seller or agent is not usually that inclined to care to much, they both get what they want $$$$

You would be surprised how much a seller would take sometimes behind the scenes of the agent. Things are never black and white here.

The best thing you said was to sit here and have a look for 6 months or so. I would suggest longer IF you are financially able to.

[solo siam]

I agree that Franchises are a good idea, as long as they are proven and preferably international (think 7-Eleven, Subway etc..) They often provide a lot of invaluable 'hand-holding' and can provide business clout/know-how when needed.

Personally if you aren't going to be buying a franchise I would suggest starting your own company once you've been here for 6-12 months. Its so easy to get ripped off when you dont understand too much of the business environment. I know many people that have paid very inflated key-moneys for leasing, unrealistic amounts for an ongoing concern etc...

I would personally suggest that you start a business in something that you enjoy, are skilled at and know there is some demand for.

The most important thing is probably not to go into any small business thinking that its going to make you rich, try to earn a living from it first - If further success comes later then its a bonus.

[Sunbelt Asia]

4 million baht would buy me a small well working business in the area of Hua Hin (one of the places where I'm looking).

Any comments? Is Phuket area (not Patong!!) much more expensive than Hua Hin?

Using standard cash flow multiples as a guideline, 4 million Baht investment should get you owner’s discretionary cash of 1.6 million Baht per year. This is no matter where the business is located.

However be aware that the high and low season is dramatic in Hua Hin. If you acquire a tourist business now, the high season is almost over. You better have a higher amount of operating capital than a business in Bangkok. Kho Samui and Bangkok has a much higher stable than other parts of Thailand.

Watch out for way way over priced businesses. There are plenty around and the seller or agent is not usually that inclined to care to much, they both get what they want $$$$

I feel in our case, this is not true. We have to bring all offers to the Seller no matter how low the bid is. Anybody that has work with us, know we do our best to make both parties happy with the transfer price. Both sides have to feel it is fair. We do the dirty work without having the buyer insult the seller with a lowball offer. I know from many years, you never simply never know. Even though the offer is low, you still hear sometimes” write it up. I need to move/divorce/break up with my partner" We always tell our clients to present a offer to purchase with the price that they are happy with. Even if its 50% lower than the asking price the seller is very motivated. They may just take it. The key is having the seller not get emotional if its a low bid, that is our job to take the heat.

I agree that Franchises are a good idea, as long as they are proven and preferably international (think 7-Eleven, Subway etc..) They often provide a lot of invaluable 'hand-holding' and can provide business clout/know-how when needed.

Franchising is good for some people. On a personal note, I own 4 different types of franchising systems. Sunbelt, Subway, Coffee World and Chester Grill. If you don't take direction well, it is a terrible investment. You certainly will not be happy and will want to get out. In a franchise you should be buying the “name, management and the product. A number of American franchisees have fail here such as Popeye’s Chicken , Wendy’s, TGIF. The franchisee thought they were buying a name, but it was not that well known outside the States Get a brand that is known in Europe, Australia and Asia as well.

www.sunbeltasia.com

[solo siam]

Yeah apart from TGI Fridays I've never eaten at the other US franchises you mentioned in any country. TGI Fridays in KL is almost always empty even though its great food and dirt cheap, perhaps it just doesn't translate well into Asia.

[idlemeister]

"Using standard cash flow multiples as a guideline, 4 million Baht investment should get you owner’s discretionary cash of 1.6 million Baht per year. This is no matter where the business is located."

What on earth does that mean, Standard multiplies of what ?

[Sunbelt Asia]

Yeah apart from TGI Fridays I've never eaten at the other US franchises you mentioned in any country. TGI Fridays in KL is almost always empty even though its great food and dirt cheap, perhaps it just doesn't translate well into Asia.

I knew the Thailand Franchisee of the TGIF. His story was “business was very good the first four years. The last year he was being visited by the corporate guy from Texas all the time. In the contract it had that he the master franchisee had to pay for every evaluation trip. The guy reportedly that oversaw his area had fallen in love with a bargirl from Patong as his main branch was on Silom. This guy from Texas had gone to a Go Go Bar one night and then after it was like a nightmare with every month first class tickets being paid by TGIF Thailand, The Texan doing the evaluations would find anything wrong just to get to see his girl. When the time came to renew the franchise License. The Thai Franchisee decided to change the name( I forget the name of the beer he named it after) to get out of these evaluation trips.

However the average sales ticket dropped in half even though it was the same food. People trusted the TGIF name and loved the appetizers. Shortly there after it became Wall Street Institute and the All seasons Place became a Subway.

This was the owners story so don’t know if it was true or an excuse for failing but I always considered it good advice. I make sure evaluations are limited to a certain number per year on the Master Franchisees tab.

www.lawyer.th.com

www.sunbeltasia.com

"Using standard cash flow multiples as a guideline, 4 million Baht investment should get you owner’s discretionary cash of 1.6 million Baht per year. This is no matter where the business is located."

What on earth does that mean, Standard multiplies of what ?

Most small businesses are purchased based on a multiple of Discretionary Cash Flow (Best thought of as the pre-tax total economic benefit to the owner). This rarely shows as Net Profit because of the owner's desire to minimize taxes. It is typically calculated by taking the Net Profit (or loss) and adding back (thus the term add-backs) the following:

-Officer's Salary

-Interest

-Depreciation/Amortization

-Non-recurring Expenses

-Expenses not required for the operation of the business

Please note: There are two primary assumptions made in the above analysis.

1. First, it is assumed that there is only 1 active owner. If more then one owner is involved in the business, then "market based" salary is added to the expense items of the business.

2. Secondly, if the business involves real estate, the real estate is separated from the business and an adjustment is made to ensure "market based" rent is paid to the landlord. The business and the property can be sold together, but each is considered separately for valuation purposes.

Usually, the owner's Discretionary Cash flow ranges between 10% and 20% of the total sales of the business. Please keep in mind this is a rule of thumb and there are exceptions. Service businesses, for example, can easily have a discretionary cash flow equal to 20% to 50% of the annual sales.

Experience has shown that the majority of Main Street businesses sell for 1.0 to 3.0 times the owner's Discretionary Cash Flow, with the Worldwide average for all types of Main Street Businesses being about 2.5. Again there are exceptions to this in either direction. A very desirable business could easily sell for more, while a lower asset, easy to duplicate business that has not established a brand name or loyal clientele may sell for as low as 1.0 to 1.5 times Discretionary Cash Flow.

www.sunbeltasia.com

[idlemeister]

I am sorry for being a little slow here, perhaps you could give an example ?

[solo siam]

In Laymans terms its simply the 'benefit' in money terms that the owner sees from the business including his salary and other benefits (for example HP on a car).

A small business doesnt want to show big profits as this will be taxed fairly heavily, so owners take their cash out in other ways which mean that standard value appraisals (i.e X company is worth Y times profits) dont work.

[Sunbelt Asia]

I am sorry for being a little slow here, perhaps you could give an example ?

This is the most common method used to value businesses worth up to about 50 million Baht. It should more correctly be called the Owners Discretionary Cash (O.D.C.) as it is based on a return to an owner before he draws a wage. It reflects the percentage returns to an owner on his capital investment in the business. The net profit used in the calculation is not the same as shown on the Profit & Loss Statement. A number of adjustments and “add-backs” are made to the P&L Statement to reflect the return to an owner and to add back non-business expenses and one-off expenses.

O.D.C.’s for specific industries are based on sales evidence from previous business sales.

Given the O.D.C. for a specific industry (and making adjustment for special features of a particular business), the valuation is arrived at by transposing the above formula.

O.D.C. Example

Auto Care Co., Ltd nets 7,200,000 Baht (after adjustments) and after assessing the business, the O.D.C. is assessed at 36% or a multiple of 2.78. Hence the value is calculated as follows

Purchase Price(20,016,000 Baht) = 7,200,000 Baht (O.D.C) x 2.78

This figure is the total price of the business, including plant, stock and goodwill. The goodwill is derived by subtracting the value of plant and stock from the calculated purchase price.

For businesses in this price range the net profit or operating profit is defined as the return to an owner-operator before interest, tax, depreciation and owners’ salary. Hence a number of add-backs are made to the net profit as shown on the tax return. If the business continued on this pace, the new owner would get his investment back in 2 years and 9 months.

www.sunbeltasia.com

[rishi]

This is the most common method used to value businesses worth up to about 50 million Baht. It should more correctly be called the Owners Discretionary Cash (O.D.C.) as it is based on a return to an owner before he draws a wage. It reflects the percentage returns to an owner on his capital investment in the business. The net profit used in the calculation is not the same as shown on the Profit & Loss Statement. A number of adjustments and “add-backs” are made to the P&L Statement to reflect the return to an owner and to add back non-business expenses and one-off expenses.

I have a question on how these things specifically apply to the not so uncommon situation, where a minimalistic company has been setup to run/own a smallscale servicebusiness - of the kind mentioned by OP - primarly to enable a foreigner to work legally in "his" business.

For the sake of example, lets look at a coffee shop located on the ground floor of a 2-3 story shophouse with owner's acomodations upstairs. The company formally owns the business and rental, utilities, phone, newspapers, etc. are all billed to the company - and thus will be booked as company expenses (at least, initially).

Obviously,this setup yields quite a few non-cash benefits to the owner. Now my question is: how does these fringes enter the equations?

[Sunbelt Asia]

The company formally owns the business and rental, utilities, phone, newspapers, etc. are all billed to the company - and thus will be booked as company expenses (at least, initially).

Let’s say the rent was 40,000 Baht. Most small business owners in Thailand would write the whole amount off as a rental expense.

As for recasting the financials, we would recommend to the seller to not recast this line item expense unless a separate entrance was leading upstairs so if the buyer has his own apartment, he can rent it out. If it was with a separate entrance, then the rental of the accommodation would be recast back.

If the newspaper was used by customers, this would not be recast back unless it was the exclusive use of the seller.

Most recasting is items like this...

The Seller takes a trip to Singapore. It was a personal trip but a business expo that week took place during the trip. He wrote it off as an expense. This was the Owners discretion on how he spent the funds for that trip. The new owner may take a trip to Singapore or just put it as his salary.

The Seller adds a patio to the Shop House and the coast is 300,000 Baht. This is a one time charge. Certainly the owner will not need to build a new patio every year to the Coffee House. Once it again Owners Discretionary Cash.

The Seller has a 12 year old daughter he truly loves. She is an actress in the school plays so he advertises in the school program. The advertisement in the play is 40,000 Baht. The new owner has no children and will not be supporting the school play as it added no new clients because of advertising. Owners Discretionary Cash.

The Seller has a cousin who goes to school. He does not work in the Coffee house except 4 hours a weekend but gets paid a fulltime salary. The 8,000 Baht salary -640 Baht( salary for a replacement employee) is 7,360 Baht. The 7,360 Baht per month is Owners Discretionary Cash.

The Seller buys his groceries from the suppliers for his household. Even though this is a benefit of the seller. It is a common occurrence of most owners in the food business and is not recast back as it’s complicated to determine the true value of all the food taken home.

www.sunbeltasia.com

[rishi]

Thanks, Sunbelt.

I'm not quite familiar with English business language. Can you help me out on those of these, you are using?

"The Profit & Loss Statement" sounds to me as something, you submit to Revenue Department and which at the buttomline will show the business' official net-profit. Is this correctly understood?

Is "add-backs" identical to "recastings"?

Does add-backs (recastings) plus official net-profit (defined by Profit & Loss Statement) equal total owners benefits? - (by total owners benefit I mean owners salary plus the expenses he saves - thus yielding a practical measure of his "income").

Basically, I'm trying to figure out the advantages of investing in a typical small-scale business/company as compared to keeping the "nest egg" in the bank.

[Sunbelt Asia]

"The Profit & Loss Statement" sounds to me as something, you submit to Revenue Department and which at the buttomline will show the business' official net-profit. Is this correctly understood?

Correct. It's a financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time - usually a fiscal quarter or year. The statement of profit and loss follows a general format that begins with an entry for revenue and subtracts from revenue the costs of running the business, including cost of goods sold, operating expenses, tax expense and interest expense. The bottom line (literally and figuratively) is net income (profit).

Is "add-backs" identical to "recastings"?

yes

Does add-backs (recastings) plus official net-profit (defined by Profit & Loss Statement) equal total owners benefits? - (by total owners benefit I mean owners salary plus the expenses he saves - thus yielding a practical measure of his "income").

Yes

Basically, I'm trying to figure out the advantages of investing in a typical small-scale business/company as compared to keeping the "nest egg" in the bank.

Typically money in the bank will produce an income of 3-5% per year while a small business will produce income of 40%. The difference is of course the risk and reward and the fact that for most people they are working in the business, while in the bank only your money is working.

www.sunbeltasia.com