Buying a small business, questions to ask

[buybuybuykrab]

I'm planning to buy a few small businesses for my wife to manage.

I've come up with a basic list of questions that I would ask and checks I would do in a Western country - but this is Thailand so I guess some extra things should be done.
To the experienced members here that in fact have bought (small) Thai businesses before, What details/info do you absolutely require from the owner before even considering to buy the business? Should I add some contractual terms that are normal in a Western society but don't apply here?

[nanapong]

Unless you can personally take charge and run everything yourself ( which you probably can't ) , you'll probably lose all your investment.

[Suradit69]

It would obviously depend to a large extent on the type of business you were buying.

I think most people who want to start a small business would start it themselves from scratch rather than buying an existing business. If the business was thriving I doubt the owner would want to sell and if it was in trouble I doubt you'd want to acquire it. And I am fairly certain that your Thai wife will not be keen to be moving into a business once run/occupied by someone else.

Probably the first question you should ask is, "do I really want to do this?" Not being facetious. You may be getting yourself into a quagmire of problems and, depending on your visa/extension/work permit status, you will probably be unable to (be seen) doing anything related to the business or you will fall foul of the law.

Edited July 26, 2014 by Suradit69

[Lostpack3t]

Im not going to enter the debate about whether you should or shouldn't. You will get hammered with these types of responses here unfortunately.

One of the biggest issues here in Thailand with operating a profitable small business is the lease terms. The landlord has great control of your business and it is difficult to find landlords who are not just reasonable but also understand business themselves. They are often Thai/Chinese and dictate their terms without any real world considerations. Most contracts run for 3 years so after 3 years if you and the landlord have a falling out you may find your key money and/or rent increasing dramatically. Also confirm what your electrical rate will be too come ro think if it as I had a friend who was charged 4x times the rate as it was never discussed at the time of purchase (she paid the first month then threatened to abandon the shop unless the rate was brought back to par the following months- lets just say she no longer runs the shop).

You also need to discuss the business face to face with the landlord before any payment is made to the owner. Ensure you confirm it is the landlord you are talking too. Confirm all lease terms before settling with the business owner.

Be prepared to be frustrated by uncompromising landlords and if you do find a good one, develop the relationship even if you dont go through with the deal as a good landlord is half the battle won IMHO.

Dont invest money you're not prepared to loose (I know I said I wouldn't get into that debate but... yoy do need to know that)

Best of luck and enjoy the challenge and the journey. If you're not having fun doing it, walk away.

-Brett

[stvette2002]

After owning businesses for years in the States I concur with the statements from the previous posts. First find out why it is for sale, and then verify any claims by observing the business operation for at least a month. Count the receipts to be sure it is as claimed. Verify the fixed operating expenses and the lease you need a Thai Lawyer, for any contractual or lease issues.

If you have never been in business before you are in for a rude awakening, it is stressful and most of the time you do not make money. After observing many of the farang businesses in the area I live to me they are hobbies.

Good Luck

[HUAHIN62]

I would have the wife work in the business for a month or two before deciding to buy or not. During these months questions that needs to be answered will become clear and it will be more difficult to get scammed. There are a number of headwind in Thailand and the world at present with potential storms on the horizon, take care.

[SamuiRes]

Im not going to enter the debate about whether you should or shouldn't. You will get hammered with these types of responses here unfortunately.

One of the biggest issues here in Thailand with operating a profitable small business is the lease terms. The landlord has great control of your business and it is difficult to find landlords who are not just reasonable but also understand business themselves. They are often Thai/Chinese and dictate their terms without any real world considerations. Most contracts run for 3 years so after 3 years if you and the landlord have a falling out you may find your key money and/or rent increasing dramatically. Also confirm what your electrical rate will be too come ro think if it as I had a friend who was charged 4x times the rate as it was never discussed at the time of purchase (she paid the first month then threatened to abandon the shop unless the rate was brought back to par the following months- lets just say she no longer runs the shop).

You also need to discuss the business face to face with the landlord before any payment is made to the owner. Ensure you confirm it is the landlord you are talking too. Confirm all lease terms before settling with the business owner.

Be prepared to be frustrated by uncompromising landlords and if you do find a good one, develop the relationship even if you dont go through with the deal as a good landlord is half the battle won IMHO.

Dont invest money you're not prepared to loose (I know I said I wouldn't get into that debate but... yoy do need to know that)

Best of luck and enjoy the challenge and the journey. If you're not having fun doing it, walk away.

-Brett

I consider that pretty good advice.

All businesses have a learning curve.

Sometimes the cost of that learning curve is less that what you might consider paying for a business.

Comments above about leases are very true.

The reason most leases are only 3 years is that beyond that they have to be registered at the Land Office to be enforceable and that means the Revenue Dept have access to the part of the landlords Income.

Agree that you may deduct Withholding Tax from the rent. Honest landlords will not have a problem with that. It also helps you as a deductible expense.

If you are taking over an existing lease as part of the business, make sure you understand all the terms which at that point will be non-negotiable.

If you are setting up from scratch with new premises then you do have the possibility to negotiate terms.

Electricity - always try and pay direct to the PEA, but if not agree the unit rate before hand.

And the final piece of advice - be prepared to say NO and walk away.

Other opportunities will present themselves.

[kingstonkid]

Hire a good lawyer

[scorecard]

1. Don't make this decision from your heart, make it from your head.

Avoid like the plague any thinking like "I just want to own my own business."

2. Conduct a complete SWOT analysis of the current business, do it thoroughly and take your time to make sure it's complete:

S - Strengths (Most important: does the business currently have some form of competitive advantage over competitors. If yes, will that competitive

advantage disappear when the current owner walks out the door?)

W - Weaknesses

O - Opportunities

T - Threats (Most important: will the current customer base (your revenue stream) automatically stay with you?)

3. Operating costs:

a. Make your own assumed list of monthly operating costs and ensure you include every tiny item. Take your time to complete the list. At some point as you walk around the business premises etc., think: Is there a monthly cost attached to everything you observe. Ensure you include items like: electricity, cleaning, air-conditioning maintenance, etc., etc.

b. Now ask the current owner for a list of monthly operating costs but don't show your own list.

c. Compare the two lists to see what surprises you have missed from your own list and to see if the current owner has failed to list any cost items.

d. When you have completed a complete known list of monthly costs then double it to cover some unexpected items, which will occur every month. (Fridges break down (break down as opposed to regular maintenance costs), damage to shelving, unanticipated vehicle repairs, spoiled stock, etc., etc.)

4. 'Due Diligence'. Part of the activities for serious business buyouts etc., is a process called 'due diligence.'

Take a look at this site: http://www.meritusventures.com/template_assets/pdf/diligence.pdf

There is no totally perfect due diligence list and there are many similar websites to browse. This can alert you to items you may not think of if you have never been in business before:

One example: Maybe the current owner has never taken appropriate insurances (in some cases this could even include never taking insurances required by law). Obviously you need to make a decision whether to continue with no insurance or get quotations for the appropriate insurances. If it's quite costly maybe it really means the business is not viable!

5. Try to conduct an 80/20 test in regard to income, continued customer loyalty etc. This is based on a well proven formula which says:

- 80% of your income comes from just 20% of your customer list.

-You should try to identify the names of the customers who make up this 20% of total customers.

- Now think seriously whether any of these customers are likely to change their buying habits, if the current owner moves on.

Most important: insist on proof of income, etc

Good luck.

[scorecard]

<script type='text/javascript'>window.mod_pagespeed_start = Number(new Date());</script>

Im not going to enter the debate about whether you should or shouldn't. You will get hammered with these types of responses here unfortunately.

One of the biggest issues here in Thailand with operating a profitable small business is the lease terms. The landlord has great control of your business and it is difficult to find landlords who are not just reasonable but also understand business themselves. They are often Thai/Chinese and dictate their terms without any real world considerations. Most contracts run for 3 years so after 3 years if you and the landlord have a falling out you may find your key money and/or rent increasing dramatically. Also confirm what your electrical rate will be too come ro think if it as I had a friend who was charged 4x times the rate as it was never discussed at the time of purchase (she paid the first month then threatened to abandon the shop unless the rate was brought back to par the following months- lets just say she no longer runs the shop).

You also need to discuss the business face to face with the landlord before any payment is made to the owner. Ensure you confirm it is the landlord you are talking too. Confirm all lease terms before settling with the business owner.

Be prepared to be frustrated by uncompromising landlords and if you do find a good one, develop the relationship even if you dont go through with the deal as a good landlord is half the battle won IMHO.

Dont invest money you're not prepared to loose (I know I said I wouldn't get into that debate but... yoy do need to know that)

Best of luck and enjoy the challenge and the journey. If you're not having fun doing it, walk away.

-Brett

I consider that pretty good advice.

All businesses have a learning curve.

Sometimes the cost of that learning curve is less that what you might consider paying for a business.

Comments above about leases are very true.

The reason most leases are only 3 years is that beyond that they have to be registered at the Land Office to be enforceable and that means the Revenue Dept have access to the part of the landlords Income.

Agree that you may deduct Withholding Tax from the rent. Honest landlords will not have a problem with that. It also helps you as a deductible expense.

If you are taking over an existing lease as part of the business, make sure you understand all the terms which at that point will be non-negotiable.

If you are setting up from scratch with new premises then you do have the possibility to negotiate terms.

Electricity - always try and pay direct to the PEA, but if not agree the unit rate before hand.

And the final piece of advice - be prepared to say NO and walk away.

Other opportunities will present themselves.

Agree, and I repeat the last two lines:

"And the final piece of advice - be prepared to say NO and walk away.

Other opportunities will present themselves."

[baldman]

Obviously you wouldnt buy your wife a few cars unless she could drive.!!!!

So it is with small businesses to manage.

In my experience buying and running small businesses in Thailand, compared to my Western experience.

1. Thai people do not like to say they dont know, so they try and wing it!

In the west its more likeley they will say they dont know and try and learn.

2. Remember that Religion is a strong influence, especially with women employees.
I found one line item in my massage shop- Buddah. ie the daily costs of running "the shrine".

3. Remember that family is very strong and that some business decisions(by your wife) might seem strange until you take in to account the family influence.

Moreso than in the west.

4. I agree with the business lease/landlord. Just remember that the landlord will win!!! If you think of taking them to court over a contract, dont waste your money as it will take a long time (think years not weeks). So the best deal is with the best landlord.

5. Absolute rubbish about reasons for selling. ie one poster says that if they are selling its a dud otherwise they would keep it.

Like in the west there are many reasons to sell (yes, many because they are loosing money, but not all)

7. Until recently anyway, you need to understand the relationships with Police, Government officials "mafia". Another expense item to cater for.

Unfortunately there are no central depositorie sof information that you can easily access to check on outstanding bills etc etc.

So the day you take posession of the business could be the day before the repo boys turn up to take their Aircon, furniture whatever.

My only other advice would be to slowly slowly cachee monkee. Start with one business and run it for 6 months while you get indoctrinated in to the Thai way.

Good luck

[laobali]

OP: You mention "a few small businesses". Have you or your wife ever owned or run even a single business anywhere? If not, Thailand is not the place to start. You will be just throwing money away. If yes, you would already know the questions to ask.

[VocalNeal]

This is based on a well proven formula which says:

- 80% of your income comes from just 20% of your customer list.

I must have been off on the day this was taught.

Edited July 26, 2014 by VocalNeal

[scorecard]

<script type='text/javascript'>window.mod_pagespeed_start = Number(new Date());</script>

This is based on a well proven formula which says:

- 80% of your income comes from just 20% of your customer list.

I must have been off on the day this was taught. alt=coffee1.gif width=32 height=24>

Your loss. It's a well proven fact in most areas of business.

Serious dynamic marketing companies build much of their marketing strategy and sales channel activities around this item, and also us this formula to be well focused in terms of serious / value added CRM work.

[happynthailand]

owning your business (wife) isn't all bad

bought the wife a small shop,she's doing real well(3000 - 4000tb)per day

best to own the shop,no rent,landlords tend to raise the rent if shop is doing well

sell something thats new like, hot food ,is a good seller in our area,don't get cheap on the food,make the food like you would like to eat(tastes good)

you never said what kind of shop you want to open?

beer,soda's, whiskey,snacks,mama,water,phone cards,candy, most all shops sell them,you have to have that something extra,that makes your shop special

plus you need a good location ,our is right across the street from a grade school

Edited July 26, 2014 by happynthailand

[Noi657]

Some great replies above!

[KKr]

You could ask a bank to finance the business and get a wealth of local experience scrutinising the business plan for free !

[choochoo]

Tell us what qualifies your wife to run a food cart? or whatever.

[Carl64]

The best way to buy a small business in Thailand is............

Buy a big business , have a Thai run it unsupervised for 6 months and hey presto there is your small business!

[choochoo]

After owning businesses for years in the States I concur with the statements from the previous posts. First find out why it is for sale, and then verify any claims by observing the business operation for at least a month. Count the receipts to be sure it is as claimed. Verify the fixed operating expenses and the lease you need a Thai Lawyer, for any contractual or lease issues.

If you have never been in business before you are in for a rude awakening, it is stressful and most of the time you do not make money. After observing many of the farang businesses in the area I live to me they are hobbies.

Good Luck

This is pure genius. Dont know y i never thunk it...................lol.

Its a small business. Just go and watch the darn thing............................................................

I see business after business all over thailand with no customers. Common denominatoer-farrang husband financing the great wthite whale known as WIFEYs business.

Edited July 26, 2014 by choochoo

[Robert24]

It obviously depends on the industry sector you are trying to buy businesses. But in genereal my thoughts are:

1) consider open your own business rather than buying an existing business.

2) buy 1 business, make it successful and expand from there.

3) Target an RoI of at least 7-8%. Don't expand unless you reach that target.

4) Avoid expensive debt. Interest rates on debt in Thailand are very high, it will be a significant part of your cost base if you use debt to expand your business/invest.

obviously more details about type of business would help to get people to be more specific in their advice.

[Arkady]

All businesses are different but with most small businesses you are best considering it as a start up that is not profitable, which is usually the case anyway whatever the vendor says, and thinking what you can do to improve product, bring new customers and make it profitable.

Look carefully at the lease, if it has one, and talk to the landlord yourself to see if he will accept a new owner as tenant, regardless of what the lease says. There might also be issues of unpaid rent and utilities.

For most small and medium size businesses, you are better off buying only the assets, customer lists etc and not the company, if it has one. (Many large scale transacions are done like this too.) That way you avoid getting into issues of any liabilities, either disclosed or otherwise the business might have. An obvious one is unpaid bills from suppliers or even loans. Even if you don't buy the company the suppliers are likely to try to get the money from the new owner and will certainly refuse any more supplies until the bills are paid.

Consider a non-compete agreement from the vendor. I remember an offshore oilman who came starry eyed to Bangkok and bought a bar in Sukhumvit Soi 33 from an Ozzie without asking for a non-compete. A couple of months later the Ozzie opened a new bar opposite and all his customers moved there letting the original one go bust within 3 months. It was last seen to be a ladyboy place. Be careful about paying deposits. I remember another bar deal in Bkk where a Scotsman took a 30% deposit from another newbie, sold the bar to something else and disappeared.

[the happy camper]

The goal of any owner of a privately held company, which has no plans to go public,

should be to maximize free cash flow.

Profits are for egos and create tax obligations.

[choochoo]

The goal of any owner of a privately held company, which has no plans to go public,

should be to maximize free cash flow.

Profits are for egos and create tax obligations.

i think for many profit is NOT the reason for owning a small busines.

[luk AJ]

I think taking over an existing business gets you over the start-up hassle and probably your investment will be concidderably lower. I took over a small hair salon for my GF sister. As her sister is a real good hairdresser she became profitable very soon. We are not talking about fortunes but the salon generates a net profit of 15-20k per month. Whatever small business you start, clothing, coffee etc. success will depend on the person running it. Avoid to employ extra people. Keep it small and simple. She needs to be better than the rest

[belg]

does the wife has any experience in the field of the business you want to buy ?

if not ... no need to go any further as it will fail

[WonnabeBiker]

Ask to see the tax returns and the marketing plan.

At my condo village, most businesses fail. Seems few have a marketing plan and they give it their best and likely cannot even break even, let alone pay themselves a salary.

Then you got to reckon with a landlord's greed. Got a long-term lease locked in? You better, before you upgrade the place!

Check the materials and craftsmanship: no shut-off valves to the toilet? Substandard hoses? Wobbly faucet? Check the 'painting". Abysmal paint combined with no masking...

^^^

Not sure why some landlords bother. Long vacancy, no incentives offered. And if everything works, the return will be <5%. The same applies to businesses. Care to share which type it would be and what the numbers are? Rent, utilities, staff, turnover, overhead, net profit the last years?

[choochoo]

I think taking over an existing business gets you over the start-up hassle and probably your investment will be concidderably lower. I took over a small hair salon for my GF sister. As her sister is a real good hairdresser she became profitable very soon. We are not talking about fortunes but the salon generates a net profit of 15-20k per month. Whatever small business you start, clothing, coffee etc. success will depend on the person running it. Avoid to employ extra people. Keep it small and simple. She needs to be better than the rest

Can you give a quick summary of the income statement. Im thinking of buying one for a girl i met in a bar last night...................lol.

[arunsakda]

1) Do not get in a physical altercation with a Thai.

2) Do not purchase a Home to be registered in a woman's name.

3) Do not open a business.

I was gifted with these 3 pearls of wisdom early in my experience here. I follow them religiously and so far my time has been safe and worry free.

Edited July 29, 2014 by arunsakda

[buybuybuykrab]

I was planning to give some status reports once in a while to those who are interested but i didn't expect so many negative comments on a first post.
Perhaps it's better to find a business group in BKK to share ideas and experiences. After reading a few topics on the thaivia forum i can't help but notice it's full of negativism, so i'll keep it short because it's not really worth my time. I feel pitty for those posters who have clearly failed in life.

To the ones who have posted some valuable info, thank you. The tips about leasing a building and the problems that might occur with building owners were helpful.
As some have asked about our background, mine is in e-commerce, online marketing and conversion optimization. My wife has a background as assistant-manager. I bought this business more as a "learning" project for her so i can teach her the things that i know. She can then expand and improve this and future businesses on her own. I myself have no plans on starting a physical business in Thailand yet, although i see opportunities all around me.

So about the business, it's in the beauty niche. The first month has yielded a net profit of a little over 40k THB with minimal improvements to the business, investment was 340K THB.
Wife has collected info needed for business and conversion optimization like customer feedback, employee rating cards, conversion rates, market research on competitors etc. A new marketing plan and conversion strategy are being made and will be implemented next month.

Targetted profit after optimization will be around 70k monthly for the current location. Once that goal is reached and a solid business formula is in place she will expand to 10 other locations within 14 months.

FInding and keeping employees has been no problem at all. Treating them fair with a few strict rules , offering commission + bonuses and appreciating their efforts has worked so far.

Farewell and good luck to you all.