Business Questions

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kappar

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I am considering buying a business at the moment and I have a few questions that I wonder if anyone could help me with. I will be seeking professtional advice on them just would like some basic understanding of them first.

Also they are varied questions not all about banking and borrowing strictly but I thought it best to include them all in one post.

We are planning on funding the purchase through a bank loan so I am preparing a business plan and I am creating a projected Profit and Loss account. I have some questions about some of the charges on a p&l. I have a copy of the previous year's P&L and there are two charges that I don't fully understand.

First, Amortiseation of Goodwill-- I realise this really isn't a charge per se but, I have read up on it online and to be honest I don't really understand it well enough to know how to include it on my projections. What is it and how to I work out how much to charge.

Second, Depreceation--How do I calculate deprecation? Is there are formula or do I guess?

Someone has said to me that I should try to get the bank to buy the company assets for a nominal price and lease them to the company instead of getting a regular bank loan. Is this a good idea? Do banks go for this?

How do I charge the loan/leaseing payments to the account? I notice that on the last year's P&L there's just a charge for interest not the full loan payment. Why is that?

Next, How are accountant fees calculated? We are buying two companies and want to amalgamate them, I am trying to cost this accountant fees. The P&L accounts for the last year show 3000 per company what kind of discount can I expect if they were just one company?

Is Emplyer's PRSI just 8.5% of gross wage bill?

Help with any of these would be great.
 
Some General Business Questions

I am considering buying a business at the moment and I have a few questions that I wonder if anyone could help me with. I will be seeking professtional advice on them just would like some basic understanding of them first.

Also they are varied questions not all about banking and borrowing strictly but I thought it best to include them all in one post.

We are planning on funding the purchase through a bank loan so I am preparing a business plan and I am creating a projected Profit and Loss account. I have some questions about some of the charges on a p&l. I have a copy of the previous year's P&L and there are two charges that I don't fully understand.

First, Amortiseation of Goodwill-- I realise this really isn't a charge per se but, I have read up on it online and to be honest I don't really understand it well enough to know how to include it on my projections. What is it and how to I work out how much to charge.

Second, Depreceation--How do I calculate deprecation? Is there are formula or do I guess?

Someone has said to me that I should try to get the bank to buy the company assets for a nominal price and lease them to the company instead of getting a regular bank loan. Is this a good idea? Do banks go for this?

How do I charge the loan/leaseing payments to the account? I notice that on the last year's P&L there's just a charge for interest not the full loan payment. Why is that?

Next, How are accountant fees calculated? We are buying two companies and want to amalgamate them, I am trying to cost this accountant fees. The P&L accounts for the last year show 3000 per company what kind of discount can I expect if they were just one company?

Is Emplyer's PRSI just 8.5% of gross wage bill?

Help with any of these would be great.
 
Re: Some General Business Questions

First, Amortiseation of Goodwill-- I realise this really isn't a charge per se but, I have read up on it online and to be honest I don't really understand it well enough to know how to include it on my projections. What is it and how to I work out how much to charge.

Second, Depreceation--How do I calculate deprecation? Is there are formula or do I guess?
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These are quite technical accounting questions and are difficult to explain face to face, never mind, online. Neither affect cash flow, so it's unlikely that the bank would be that interested in them.

If a company buys a business with real assets of €1,000 for €11,000, they are paying €10,000 for the goodwill. In the balance sheet you will have €11,000 of assets and €11,000 of, say, a bank loan.

You will charge,say €2,000 each year as amortisation. So that at the end of year 1, the goodwill will now be only €8,000 in the balance sheet. After 5 years, it will be gone.

The alternative would be to write it off immediately and charge it to the P&L account in year one.

A further alternative would be do nothing with it and just leave it there. It doesn't really matter for a small private company as it does not affect cash flow and I don't think it affects tax either.

Depreciation is something similar. You buy an asset for €1,000. You write it off at, say, 20% a year, so that after 5 years it will have no value in the balance sheet.

Don't get hung up on these. The banks won't be interested. They will be more interested in a cash flow statement.
 
Re: Some General Business Questions

Employers PRSI is at 8.5% on lower salaries and 10.75% on higher salaries.

If a company borrows €100,000 @ 10% and makes no capital repayments, the charge to the P&L account each year will be €10,000.

If it makes total repayments of €15,000 , it will charge €10,000 to the P&L account and reduce the loan outstanding in the balance sheet by €5,000.

You should just try to get a straightforward loan. It's the most flexible and usually the cheapest as well.

If you buy equipment which the bank could take back if you were not repaying your loan, they might want to lease it to you instead.

The cheapest way to borrow money is to remortgage your home. You can charge the interest payments to the company and for tax purposes. A lot of people don't do this because they say it puts their home at risk. But if you borrow money anyway and fail to repay it, the bank can get a judgement against your home. So the much cheaper loan cost is well worth the notional extra risk.

Brendan
 
kappar said:
First, Amortiseation of Goodwill-- I realise this really isn't a charge per se but, I have read up on it online and to be honest I don't really understand it well enough to know how to include it on my projections. What is it and how to I work out how much to charge.
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This is a complex accounting process, I just remember a little bit about it from studying accounting.Could be wrong. Its to do with buying companies.
Goodwill is the premium you pay above the book value of the business.
Amortisation is spreading it overtime.
So when you buy the business the goodwill will go on your balance sheet, you then take a charge against your earning each year to remove the goodwill from the balance sheet.
Amorised over 20 years, charge 1/20 of goodwill against earning.
I wouldn't worry about this as it is an accounting technique and will not affect the day to day accounting.

kappar said:
Second, Depreceation--How do I calculate deprecation? Is there are formula or do I guess?
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Again depreciation is an accounting term to reduce the value of assets. It does not affect your day to day accounting and needs to be added back when calculating profit. You then use capital allowances

kappar said:
Someone has said to me that I should try to get the bank to buy the company assets for a nominal price and lease them to the company instead of getting a regular bank loan. Is this a good idea? Do banks go for this?
Click to expand...
It depends on the asets, doubt if a bank would do this.
Ask the person who said it was a good idea to explain it to you.

kappar said:
How do I charge the loan/leaseing payments to the account? I notice that on the last year's P&L there's just a charge for interest not the full loan payment. Why is that?
Click to expand...
Only interest paid on loan can be used in the P&L

kappar said:
Next, How are accountant fees calculated? We are buying two companies and want to amalgamate them, I am trying to cost this accountant fees. The P&L accounts for the last year show 3000 per company what kind of discount can I expect if they were just one company?
Click to expand...
You need to ask the accountant

kappar said:
Is Emplyer's PRSI just 8.5% of gross wage bill?
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[broken link removed]
 
Thanks Everyone for your help First, I should say sorry for breaking the rules.

I think I will ignore the Goodwill and Depreciation. It doesn't seem too important for my purposes.

Thanks again.
 
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