Small business to be taken over.

Hi, I have a small business in the construction industry & am trading as a sole trader for the past twelve years. It has been a had slog all of the way, plenty of work in the boom but I didn't make a healthy profit at any stage. Really it has been a struggle most of the time & especially for the last few years.
I am down to one employee who has been working on a three day week and a lot of the time in the past two years weeks with no work on & off.
For the past eighteen months I have stated doing sub-contract work for a company dealing in the same type of work that I do. I have been doing work for this company two & three days a week and for the past while full weeks in a row.
This works out well as my employee carrys out the work for my own business which obviously keeps him in consistent work.
This works very well for me even though I do a lot of travel & long hours for the company I sub-contract to. The hardest part is maintaining my own business & at the same time working for another guy. I'm not complaining as I'm beginning to have a bit of money now in my business account.
Now the company owner wants me to commit to doing work for him more on a full time basis.
We've had a few brief meetings lately about this as his company has got a lot busier this last while and has a lot of solid contracts on his books.
In our last brief meeting he purposed to take over my business, including my employee and my existing work.
We are going to have a meeting to discuss this in detail early in the week.
I hope I have explained this well enough.
I am absolutely delighted about this but I need to know my stuff before entering into this.
I know I will have my accountant & solicitor involved with this but I just thought I'd put this up go get opinions on it.
My current employee just lives next door & he will have to travel for about an hour to his new place of work, he won't like that. (He is also related through marriage!)
Will I have to give him redundancy.?
How will I value my business?
What else should I be thinking about.
Any help much appreciated

Dave_sgd said:

It has been a had slog all of the way, plenty of work in the boom but I didn't make a healthy profit at any stage. Really it has been a struggle most of the time & especially for the last few years.

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Very interesting post. From the above, it sounds to me as if you are excellent at your work, but not very good at running a business. If you had plenty of work in the boom and you didn't make a healthy profit, then you should not be running a business.

My current employee just lives next door & he will have to travel for about an hour to his new place of work, he won't like that. (He is also related through marriage!)
Will I have to give him redundancy.?

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How long has he been employed by you? Check first of all how much it would cost you to give him redundancy. Probably less than you think. Statutory redundancy is around 2 weeks pay for each year of service + 1 week, subject to a maximum of €600 per week. So if he worked for you for 10 years, you would pay him 21 weeks at €600 or €12,600. Unfortunately, the state no longer pays any part of this.

If you can afford the amount, then it's probably just as easy to offer it to him, rather than dispute it.

Businesses relocate all the time. You can offer/tell him to move him to the new location. I don't know if he is entitled to redundancy if he refuses to move.

How will I value my business?

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It does not sound very valuable if you have not been making a profit. A business is usually valued at a multiple of profits. Are you selling any equipment?

What else should I be thinking about.

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Always start by asking what happens if the new employment does not work out. Are you free to set up again in the same business? Do you have a right to get your clients back? If your new employer pays for your business, then you would expect to buy your business back.

The financial side of closing a business
Do you have any business commitments e.g. leases on a property or equipment you will no longer need?

How will you handle debtors and creditors? It's probably simplest for you to collect in the debtors yourself and pay off the creditors.



Taxation
I presume you do not have losses forward for tax purposes? Check with your accountant.


Your new job

Other than that, it seems like the same questions you would ask when you are offered a new job? What is the salary? What are the other terms and conditions?

Presumably you will be a straightforward employee of the new company? You will not be a shareholder or a director? If you are offered either, you would need professional advice on whether or not to accept such an offer.

Thanks for information in your reply. To answer a few of the questions you asked, I don't have any business commitments, leases etc to worry about.
I thankfully have all my creditors paid in full, so in that respect I am in a better financial position than I would have been a few years ago.
I do have a sole agency in my county for a product we install and we are not limited to installing it anywhere in ireland. Along with that we still have orders coming in every day. I would hope that this would give my business some value. We also do a callout/repair service to systems that would have been installed by other companies. We have a web presence and have advertised on golden pages for years and therefore will be passing this on to the new company. My business will still be carried on by the new owner.

Ok, while you say you didn't make much money - was this before or after outgoings, and did you have Celtic Tiger-style outgoings?

I have a concern re this guy - it should hopefully be obvious to you that as a businessman he is looking after himself first and foremost. So he is gauging that he can get his work done better and/cheaper and/or quicker - but there shouldn't be any problem with this too.

Re valuing your business; you need to talk to an accountant. At the basic level, your drawings - what you've been living off - are the profits for the business, and any price would be a multiple of these.

It may be that the licence is the most valuable asset you have. Have you considered a scenario where you've trained in someone in the new employment but you're legitimately made redundant soon thereafter, with the licence now in his possession? (I wouldn't hold my breath re your neighbour though)

There is a huge huge amount of thinking to be done here - and not all necessarily tax related (sometime people worry about the tax-side of things too much, to the detriment of other aspects) - get talking to an accountant. And read as widely as you can on this site and others; you should be flooding this site with the 100's of queries you will be having!