Wisan your experienced Chiang Mai Lanna House Real Estate Agent.
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Esther your experienced Chiang Mai Lanna House Real Estate Agent.
Esther 085-614-8205

Buying a Business in Chiang Mai

 

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A minimum investment of 1 million Baht is required to establish a Business.

 
 

Buying a Business is the first step toward Financial Security.  It is usually much safer to buy an Existing Business that to start a new one – and more Profitable too.  Over 60% of new Startup Companies fail in the first three years because of Poor Concept, Lack of Funding, and Poor Management.  Most Existing Businesses which change hands have a Minimal Failure Rate.  Buying a Franchise and you probably have a 90% success rate after 10 years.

Why Buy an Existing Business?

  • You can examine the Company’s Books and Records to gain a feeling for their Track Record.
  • You can determine the potential for Expansion.
  • You can measure Growth Potential by reviewing Actual Experience.
  • You start with an immediate Cash Flow reducing your need for Working Capital.
  • You get Experienced, Skilled Employees familiar with Business Operating Procedures and the Market.
  • You start with an Existing Customer Base.
  • You get Existing Licenses and Permits reducing the Time and Cost of initiating Operations.
  • You have Access to more Sources of Capital because Purchasing / Expanding an Existing Business is more Secure than a New Startup.

The Phases to Purchasing an Existing Business in Chiang Mai are:

Phase 1 – Get Professional Advice

Investing in a Business is probably the Biggest Decision of Your Life and should be taken Seriously.  Working with your Chiang Mai Lanna House Residential Business Transfer Agent can help you to Successfully Find and Purchase the Business you want.  Your Chiang Mai Lanna House Residential Business Transfer Agent can provide you with the Specialized Advice which will help you in finding your Business and help you with the different Phases you need to take to obtain it.

Phase 2 – Finding A Business To Buy

Chiang Mai Lanna House specializes is Residential Properties including:

  • Hotels
  • Guesthouse
  • Apartment Buildings
  • Resorts

Since we Specialize in only one Market, we are the Experts in this Field.

Phase 3 – Self Assessment

Be prepared to speak with your Chiang Mai Lanna House Residential Business Transfer Agent about your Background, Work Experience, and Financial Ability to invest in a Business.  This will help us to find a Residential Business that meets your needs.

You will have to present a Personal Resume and Financial Statement to Lenders and others who will be part of the Business Acquisition. Your Residential Business Transfer Agent will review these documents and ensure they fulfill the requirements of the Lenders.

You will need to Answer the Following Questions Truthfully and in Detail:

  • Why do you want to own a Business?
  • What are your special skills and educational background?
  • What is your work and / or Business Ownership experience?
  • What are your hobbies and areas of special interests?
  • What is the maximum amount of risk capital you can invest as a down payment?
  • If you have an Equity Partner / investor, how much do you expect them to invest of their personal funds?

Phase 4 – Define Your Acquisition Criteria

Your Chaingmai Lanna House Business Transfer Agent can help you but You Must Be Honest with him.

  • What type of Business Categories are you interested in?
    • Hotels
    • Apartment Buildings
    • Resorts
  • Is there a specific Business that you are interested in Buying?
  • If you are not sure of the Business you want, are there any Businesses you do not want?
  • Do you have a Preference for the Location of the Business?
  • What is your Maximum Price?
  • How far are you willing to Commute for a Business?

Phase 5 – Review Residential Businesses For Sale

Your Chiang Mai Lanna House Residential Business Transfer Agent will show you several Residential Businesses that meet your Qualifications and Acquisition criteria. Before you investigate the Details about each Business and before you are Introduced to the Owner, go and visit them.  However, be discrete.  The Employees and Residents don’t know the Property is for sale.  Check out the following:

  • Do you like the Neighborhood?
  • Do you like the Condition of the Property?
    • Is it Clean?
    • Is it Well Maintained?
    • How is the Trash Collected?
    • How are the Grounds Maintained?
  • Do you like the look of the Residents going in and out?
    • What is their Age?
    • Are they Quiet?
    • Are they Clean and Presentable?
  • Is there a lot of Traffic?
  • Does it need a lot of Improvements?
  • Does the staff look Efficient?

Then, decide if this is a Business you want.  Make a list of Questions you have from your Visit.

Be careful not to be Conspicuous to the Staff or Residents. Under no Circumstances ask to see the Owner.  Any Meeting must be arranged with the Agent first.

Phase 6 – Review Business Details

After you sign a Confidentiality Agreement, you may review the Business and Financial Summary of the Business you are Interested in. The Confidentiality Agreement is required by your Chiang Mai Lanna House Residential Business Transfer Agent to protect the Owner's interests.

You will get two or three years information on:

  • Turnover
  • Income
  • Expenses
  • Gross Profit
  • Net Profit
  • Occupancy Rates
  • Non-Payment Rate

Phase 7 – Estimate a Quick Value

If a Property is used to generate Income from Rents or Leases, the Income Method of Appraisal or Valuation is most commonly used.

Looking at the figures for each year, calculate:

  • Gross Potential Income (GPI) or  Gross Scheduled Income for Realestate

 Total Income possible without regard to losses for Non-Payment or Vacancy.

  • Gross Operating Income (GOI) or Effective Gross Income (EGI) in Real Estate

Gross Potential Income – Non-Payment and Vacancy Losses

See Example Below

    • Let's use an example of Gross Potential Income of $54,000. This is if all units are full and all rents paid.
    • Based on experience, the current market and rental occupancies, we estimate that our losses due to Vacancies and Non-Payment will be 5%.
    • 54,000 *.05 = $2,700 (Loss due to Vacancies and Non-Payment)
    • Gross Potential Income – Non-Payment and Vacancy Loss = Gross Operating Income
    • $54,000 - $2,700= $51,300 for our Gross Operating Income

This is a Good, Quick Estimate of the Property Potential Value.  You can then use this to help you determine the Purchase Price Value.

Phase 8 – First Meeting and Facilities Tour

After you have Reviewed the Business profile, your Chiang Mai Lanna House Residential Business Transfer Agent will answer any questions you have or will obtain the answers from Professional / Reliable sources. You will then need to select those Businesses that you like and your Chiang Mai Lanna House Residential Business Transfer Agent will schedule appointments with the Business Owners.  You can then Tour the Facilities and Review the Operations.

Make a list of both General and Specific Questions to ask the Owner.  This list will ensure you don’t Forget something and will prevent the Owner from Avoiding Talking about thinks he doesn’t want to address.  Ensure you know what the Risks to the Business are and discuss them with the Owner.

Most Owners will not have told their staff that they are selling and are paranoid that they may find out.  You must keep this Confidential.  Be Tactful!

Try to meet in a Private location on the Premises, or offer to visit after hours or go to a nearby Restaurant for Coffee or Lunch.

Make it clear that you want a General Chat but that you have a List of Questions.  Look for any inconsistencies in what the Owner says.  Make a Note for Later Discussion.

Find out “Why the Owner is Selling?”  but Asses the Opportunity on its own Merits, based on Detailed and Careful Research.  You will largely Ignore the Answer you are given.

More Relevant Question are:

  • How long has the Business been on the Market?
  • Is anyone else Interested?

Be very wary about Businesses that have been on the Market for a long time or where there are no other Interested Parties.  Maybe the Business is a Bad Investment or the Owner is asking Too Much.

It rarely pays to get into a Price Discussion at this Early Stage.  Leave the Negotiations for a Later Date and let your Chiang Mai Lanna House Residential Business Transfer Agent handle it for you.

The Chiang Mai Lanna House Residential Business Transfer Agent will attend these Meetings to:

  • Introduce the Business Owner
    • Tour the Facility
  • Ensure you get all the Information you Require
    • Ask Operational and Business Questions

Phase 9 – After the First Meeting

If you were prepared for the First Meeting, you probably obtained most of the Information you need to decide if you want to continue with that Business.  However, you may think of more questions after a day or two – ask your Chiang Mai Lanna House Residential Property Transfer Agent.  He will probably be able to answer most of them or he can ask the Owner for any Additional Information that you want.

If you like the Business and want to continue, you can then proceed to the next Phase.

Phase 10 – Check the Location

Location is Critical for most Businesses.  Here are some items to consider:

  • Is Visibility Important?  Can people see your Business from the Street?  Are there Retail Shops on the first floor of the Business?  Can they be seen?  Check the Footfall (the Volume of Pedestrians Walking past the Front Door).
  • How is the Parking?  Do you have enough Parking for both Motorcycles and Cars?  Is the Parking close to the Entrance?
  • Are there likely to be changes in Planning that could adversely affect the Business? Do any of these apply to the Business you want?
    • Pedestrianisation
    • One-Way Systems
    • Ring Roads
    • Traffic-Calming

Ask the Owner but also ask around the Businesses in the Neighborhood.  Ask the Local Planning Department also.  You are responsible for finding this Information.

Phase 11 – Check the Competition

What Competition does the Business currently have and what new Competition could it face in the future.

Phase 12 – Obtain Detailed Business Records

All Proprietary Information about the Business is CONFIDENTIAL. You may discuss this information with your Professional Advisors and your Spouse.  Please remind them that the Information is CONFIDENTIAL and not to be discussed with other people. Usually, the Employees, Customers, Suppliers, Landlords and Lenders are not aware that these Businesses are for sale. Premature disclosure could have a negative impact on the Business being sold. Unlike the sale of real estate or franchises, the sale of an on-going Business is very CONFIDENTIAL.


Phase 13 – Elements of Business Appraisal

The following Elements are the Basis of Business Appraisal:

  • What a Reasonable Buyer will Pay a Reasonable Seller.
  • Value of a Business
    • Asset Value
      • Machinery
      • Equipment
      • Buildings
      • Land
      • Usable Stock
      • Other Legal Rights
    • Intangible Value
      • The Premium Value a Buyer will Pay a Seller for Organization and Historically Recorded Cash Flows.
        • Customer List
        • Covenant Not To Compete
        • Goodwill
        • Other Documented Items
  • Accuracy
    • Only as good as the Data Provided
    • Minor Adjustments for Mistakes in Judgment and Interpretation
  • Estimated Values are Limited by Time
    • Change as Market Conditions Change

Phase 14 – Fair Market Value Approaches


The most important market factor for the value of a Business is the Supply and Demand of an equally desirable Business that is available in the Marketplace.  According to the element of substitution, the value of a thing (Business) tends to be determined by the cost of acquiring an equally desirable substitute.  A Buyer will pay no more for a Business than the cost of purchasing a similar Business.  This concept is the basis of fair market.

There are three approaches to determining the value of any Business:
               

  • Cost Approach

The Cost of Purchasing or Producing the Business.

  • Income Approach

A financial analysis consisting of Capitalizing an Income Stream based on the cost of money and a risk rate that reflects current market conditions

  • Market Data Approach

The Business based on current sales in the Marketplace for the same or similar Businesses.

Key  factors to consider:
                                                     

  • History and Nature of the Business.
  • Economic Outlook.
  • Book Value.
  • Earning Capacity of the Enterprise.
  • Dividend Paying Capacity of the Enterprise.
  • Goodwill and Intangible Assets.
  • Recent Sales of Stocks.
  • Market Value of Comparable Companies.

Phase 15 – Assess the True Value of a Business

A Business Appraisal cannot be Guaranteed, nor can it be proven.  A Business Appraisal must not be considered absolute but should be used as a Starting Point of Documented Value by Analysis of the Assets and Financials that may be used as a Basis for Negotiations.

At this stage, you can Estimate the Value of the Residential Property by:

  • Reviewing the Occupancy Rate x Rental Rate for the Past 3 Years
  • Determine if the Occupancy Rate is Increasing, Steady, or Decreasing
  • Determine if the Rental Rate is Increasing, Steady, or Decreasing
  • Determining the Gross and Net Profit / Loss
  • Determine if the Profit / Loss is Increasing, Steady, or Decreasing
  • Determine the Cost of Necessary Repairs

This Estimate is only a Estimate and Assumes that Profitability is at Normal Average Levels for a Residential Business of this Type.

It can be used for picking out Businesses that seem to be worth looking at more closely, and for preliminary discussions with the Agent and Owner. However, you will need to do the proper Valuation Exercise before agreeing a Price with the Owner. There could be many special reasons why any particular Business is offered at a Price widely different from this Estimated figure, but knowing the Estimated figure at least enables you to open a general discussion on how the Owner assessed the Price he is asking for the Business.

If the Real Estate Business includes the Land, then there is also the question of the property value to be considered and added to the Estimated figure.

Although you are not going to undertake a detailed examination of the trading records at this stage, the only way that you are going to be able subsequently to verify the accuracy of the trading information you are being given is by looking through the annual accounts and daily books kept by the Business. The first key question, therefore, concerns the quality of the detailed accounting information you are going to receive in due course, and it is strongly recommended that you ascertain this before going much further. However attractive a Business may seem at this stage, you are not going to buy it if you have no confidence in the truthfulness of the accounts.

Items you will want to review include:

  • Tax Records
    • Monthly
    • Yearly
  • Bank Records
    • Deposit Slips
    • Withdrawal Records
    • Bank Account Book Copies
  • Office Records
    • Registration Forms / Records
    • Occupancy Records
    • Cash Receipts Records
    • Petty Cash Records
    • Non-Payment Records
  • Employment Records
    • Personnel Records
    • Payroll Records
  • Maintenance Records
    • Bills / Statements from Contractors
  • Supply Records
    • Bills / Statements from Suppliers
  • Computer Records
    • Copies of all Computer Records

The Annual Accounts will have been prepared from the Bank Statements and Bookkeeping Records maintained by the Business throughout the year. Obviously the Annual Accounts are more likely to be completely accurate if the Daily Records are well maintained than if paperwork is just tossed into a shoe box for the Accountant to sort out later.

Your Chiang Mai Lanna House Residential Business Transfer Agent will provide you information on:

  • How Recent are the Available Annual Accounts?
  • Who prepared them?
  • How good are the Bookkeeping Records?

Phase 16 – Due Diligence

You must now review the Operating Information and Financial Summaries of the Residential Businesses that you think may be what you want. You need to select the Business that you feel best meets your needs and begin your Due Diligence process. Checking out the Business is a very time consuming process for you, your Business Transfer Agent, and the Business Owner.

Furthermore, costs may be incurred for such things as Professional Advisors, Copies of Documents, Lien Searches and Closing Documentation. The Business Owner does not want to go through a detailed Due Diligence process without knowing the buyer is serious and willing to make an acceptable offer to purchase the Business.


Phase 17 – Offering Process and Price Negotiation

Now you have come to the Technical Part of the process.  Your Chiang Mai Lanna House Residential Business Transfer Agent will:

  • Help you to complete the Price Negotiations and Terms of Sale
    • This is best left to your Agent
    • He can Negotiate on your Behalf and usually Obtain a Better Deal
  • Ensure the Due Diligence process has been Completed

Phase 18 – Letter of Intent


Before copies of Tax Returns, Bank Records, and other Business Documents can be obtained and before any contact can be made with Landlords, Bankers, Suppliers, Employees, or Customers, a “Letter of Intent” must be presented and accepted by the Business Owner. The basic steps are:

  • Your Chiang Mai Lanna House Residential Business Transfer Agent will help you complete the “Letter of Intent” and Escrow Agreement. This paperwork provides the terms and conditions under which you are willing to Invest in the Business and the Seller is willing to sell the Business. Final closing documents, such as:
    • Bill of Sale,
    • Note and Security Agreement,
    • Closing Statements,
    • Non-Compete Agreements,
    • Leases, and
    • Approvals from various parties will be handled by the Escrow Attorney prior to closing.
  • The amount of Earnest Money required to be submitted along with the Earnest Money Agreement will depend upon the size of the Business transaction. The amount needs to be sufficient to show your serious intent to buy the Business and to encourage the seller to take the Business off the market while you complete your Due Diligence. For most small to midsize Businesses, earnest money of 100,000-200,000 baht is typical. If any of your requirements in the agreement are not met to YOUR satisfaction after Due Diligence, the escrow funds are 100% Refunded to you.
  • The Chiang Mai Lanna House Residential Business Transfer Agent will assist in the Negotiations between you and the Business Owner to secure an Earnest Money Agreement that is acceptable to all parties.
  • The Standard Earnest Money Agreement gives you 15 to 30 days to complete your review of the Business Financial Documents, Operating Agreements, Property Leases and other aspects of the Business after the agreement has been approved by you and the Business Owner.
  • During the Due Diligence period, the Chiang Mai Lanna House Residential Business Transfer Agent will coordinate your request for documents and assist in arranging meetings with related parties to the transaction including the Business Owner's Professional Advisors, your Professional Advisors, the Landlord, Lenders, the Escrow Attorney and others as needed.

Phase 19 – Closing Process


When you have completed your Due Diligence and are satisfied with all aspects of the Business, you will authorize an Escrow Attorney to conduct Lien Searches and prepare the Bill of Sale and other closing documents for all parties to review. After the closing documents have been Approved by the Principals, a closing date will be scheduled. A Cashier's Check will be required at closing for the amount due. The Chiang Mai Lanna House Residential Business Transfer Agent will coordinate with the principals and their advisors, landlord, lender, and others, to insure that all the necessary paperwork is completed by the closing date.

Investing in an existing Business can be a wise choice for Entrepreneurs who desire to have their own Business. A proven track record, skilled employees, established customers and suppliers, is to your advantage. Utilize the services of a Chiang Mai Lanna House Residential Business Transfer Agent today to help you fulfill your dream” ... owning a successful Business of your own.

 
 

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