Important questions to consider when buying a business in Thailand.
By now you have finally decided you would like to be your own boss and come to the conclusion that buying an existing business, versus being an employee or starting from scratch, is the best way to move forward. Unless you have been involved in a successful business start-up before, this is a very wise move.
It is important that you now make the right moves, in the correct order, so that you can go through the process of buying a business in Thailand as smoothly and successfully as possible. The decision to purchase an existing business in Thailand can be big and life-changing for sure and you should make sure you begin from the best possible position in order to maximize your success in your new business.
What type of Thai Business are you looking for? Firstly, you should shortlist a couple, or at the most a handful, of different types of businesses you feel you would enjoy and have a good chance of success in. If you don't do this simple exercise, you will waste a lot of your time looking at too wide an array of businesses. Chances are even if you come across an excellent opportunity, since you are all over the map as to what you are considering, you will not be able to accurately assess the business and miss the opportunity. If you cannot focus on, at most, a few different types of business, it is likely that you are not quite ready to buy a business in Thailand.
It is also worth noting that if you are using business advisors, business brokers, attorneys, or other professionals normally work either on success based fees or on an hourly fee structure. Rightfully, if a professional working on a success based fee does not feel you are ready to buy they likely will not be spending much time with you and label you as a "tire-kicker" or someone who is just looking. Alternatively, if you aren't ready to buy and you are working with hourly fee based professionals, they can end up costing you quite a bit of your hard earned money even before you find a business buy. It's best to take some time to think about what your wants, strengths, and weakness are so that you can be prepared for the business buying process.
Will you be a sole business owner or will you have a partner? Normally, buyers of businesses in Thailand have a partner for one of two reasons. The first reason is one, or both, of the partners does not have sufficient capital in order to purchase a business and/or run the business over the next year due to debt/financing issues, cash-flow position, or other financial stumbling blocks. Another reason to partner with someone, probably a better situation, is that each of the partners brings something to the business. Simply put, one partner has a skill/interest that the other lacks, and vice-versa. This is an ideal situation, however, it must be said that partnerships can be tricky and often the partnership is the reason why some businesses are for sale.
If you will be a first time business owner, the thought of managing the operation on your own can seem like a very daunting task. If you have chosen to go it alone, remember that while you have strengths in many areas, you will likely also have weaknesses in others. Look for business with employees who can compliment your skill set or if that is not the case, make sure you know what skills you will be requiring and that you do not possess, so that you can either recruit employees who can fill the gaps, or outsource those activities to other experts. One of the best advantages to being the sole owner of a business (other than keeping all of the profits!) is that you will never have to worry about a partnership dispute and the potentially devastating consequences they can bring.
What is your business buying style? According to many business intermediaries and business brokers, there are many different styles of business buyers. The majority of these types of business buyers never complete the acquisition of a business. For this reason, we can focus on the three types of business buyers who actually do in fact acquire businesses and those are 1) business buyers who are looking to acquire strong businesses that, with the addition of their capital, experience, industry knowledge, or synergistic existing operations, they can grow larger and make more profitable; 2) those buyers looking almost exclusively for high cash-flow businesses to reach a desired return on investment strategy, and finally; 3) those business buyers who will look at anything that is a bargain as compared to their asset/market value. Typically these business buyers are looking for business that are for sale for a personal/human reason (divorce, health reasons, partnership disputes, etc) or struggling due to mismanagement of the current owner(s). These types of buyers are often called turnaround or distressed business buyers. While this can be a potentially lucrative strategy, turnaround buyers must be skilled at pinpointing the areas of distress and being able to correct the problems quickly.
Again, there are also the many non-buyers out there who, for whatever reason, are always "looking" for businesses to buy in Thailand, but never seem to acquire that perfect business they are looking for. These buyers are usually either uncommitted/unprepared or they are simply looking for information for one reason or another. We are striving to make you an informed and intuitive business buyer, so please keep reading.
How will you finance your business in Thailand? Bank financing in Thailand is quite different for foreigners than what you may be used to in your home country. Much of this has to do with the Asian economic crisis of 1997 and even though that was over 10 years ago, receiving any type of traditional financing for foreigners remains difficult to this day. So, just as in your home country, the fact that you are buying an existing business with positive cash flow does not necessarily mean the bank is going to hand you the cash to acquire it. This is not to say bank financing is impossible, but you must be prepared to pay the majority, if not all, of the purchase price of your Thai business in cash at closing.
Most businesses for sale in Thailand are sold on a "cash price." This means that many of the business sellers have priced their business at a price that they feel it is worth with a one-time payment at the time of business transfer. While this means that many times a business buyer will have to come up with a larger sum of cash to get into the business, the overall purchase price will often be less than it would in a western country where bank financing and owner financing are more common. Most buyers would like to see banks and business owners offer more financing options for the acquisition of existing Thailand businesses for sale as it would allow larger businesses to be bought and sold, creating more opportunities for wealth than ever before.
In case you are not familiar with the term "owner financing," it means that a business buyer is able to purchase the business outright, while putting down only a portion of the sales price at closing. Often, a business with high cash flow or large amounts of valuable assets, can be acquired with 20-50% cash down and the remainder of the payments over an agreed period of time. This allows the buyer to leverage his investment while also helping the seller achieve much closer to his desired sale price. Obviously, this can be very beneficial, but risky, for the seller and a qualified Thai lawyer should be consulted before entering into a financing agreement. Also, it is helpful to consult your business broker and ask them to assist you in finding businesses with owner financing if that is what you're after.
How much business can I afford? While there are many ways to value a business in Thailand, one of the easiest and most straightforward strategies that works the best is to base a valuation on a multiple of the cash flow or owner's benefit. Typically in Thailand, business sellers generally are looking to receive around 3 times their annual owner's benefit/cash-flow in order to transfer the business to a new buyer. Obviously this should be used as a rule of thumb as some businesses, depending on market position, number of years in business, location, market/revenue trends, and other factors, may be asking slightly more, or less, than that multiple.
What this means for you is that you can begin to start focusing on businesses in Thailand that fit your available cash situation. Let's say you have 12,000,000 Baht at your disposal to invest in an existing Thai business. Using a multiple of 3 times the annual owner's benefit/cash-flow, you can expect to be looking at business making around 4,000,000 Baht annually. Conversely, if you feel you want to find a business that will provide you with 2,000,000 baht in annual owner benefit/cash-flow, then you should be prepared to spend around 6,000,000 Baht to acquire a business in Thailand.
It is worth noting that the above figures are very general and some businesses, depending on their market position, number of years in business, location, market/revenue trends, asset/land value, and other factors may be slightly more or less than the multiple we have used. Also, normally if a Thai business for sale is being offered with owner financing, you can expect it to be priced accordingly and at the higher end of the market value. It is helpful to have your purchase and valuation strategy in mind when looking for businesses in order to save yourself wasted time and money looking at only businesses you can truly afford. Discussing these issues with a Thailand business broker is highly recommended and will help you be prepared to buy a business at a price you can feel comfortable with.
Be committed to Buying a Business in Thailand.The process of buying a business in Thailand can be a long and time-consuming process. If you are not committed to actually taking the necessary steps to prepare yourself for this process, you will not only be wasting the time of the seller and the broker, but your precious time as well. Brokers and seller work with many different people during the sale of a business and will spend as much time with you as needed if they feel you are as committed to buying a business and following the process. By demonstrating your commitment to the seller and broker, both will do whatever they can to assist you in getting the information you need and all your questions answered.
By now, you should be ready to begin the exciting adventure that is buying a business in Thailand. With the tools and steps set forth above, you should now be ready to act when the right Thailand business opportunity presents itself.
For more information or to view business opportunities and Thailand's best businesses for sale, please call us at 02-658-5588 or visit www.elitebusinessthailand.com.
Jon Molstad
Managing Director
Elite Business Group Co., Ltd
http://www.elitebusinessthailand.com
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