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"buying" A Sole Trader Business - Help Needed


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I did consider the ltd company route but it seems so much more complicated and i'll then have the NI bill from employing me.

The customary solution to that is to pay yourself something approximating to national minimum wage in salary. Then you take as much as you want/can afford as a dividend, which avoids the NI.

In my last full tax year as a one-man company I took a salary of £12k (taxed at the standard 44% rate), a dividend just enough to stay below the higher-rate-tax threshold (taxed at the small-company rate - about 20%), and left a few quid in the company. All perfectly open and legal.

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You might feel that 12K is a fair price for your desired outcome, in which case you might choose to ignore what I am about to say, but:

Are you sure that you are not paying more than you need. Look at it from her point of view:

She owes wages / commision to the tune of £28,000. She is about to shut the business, so although she paid £16k for the stock, it is worth a small percentage of that (for example if sold at a commercial auction if the business was liquidated). Without the business she has no way of selling that stock and recouping its value, so all it is is a load of clutter that has to be stored or disposed of.

She wants to find the best way out for her and she comes up with a cunning wheeze which does the following:

a) gives her full value for the stock which in reality she cannot shift.

b.) removes her debt of £16,000 to you.

c) You give her £12,000 to pay her unpaid wages.

d) she disposes of a business that she has no interest in running anyway.

e) She might even get out of the lease on the unit (though this is irrelevant to you and your purchase)

If she took another route, she would still be liable for her debts (£28k), she might be liable for redundancy payments too), she closes the business, hopefully gets out of the lease. The stock is sold at a liquidators auction for 20% of the book value. She ends up at least £25,000 worse off than in your scenario above.

It is never easy to negotiate with your friend or your boss: (I know form personal experience of trying to buy a restaurant / hotel business).

You will need to take advice form your accountant, which will cost. You will certainly need good legal advice too. Your professional fees could be between £1,000 and £3,000. Suddenly the cost of purchasing the business is going up rapidly.

You are in the position of strength. She is the one with all the problems. IF YOU WANT TO, you should negotiate and get the price down. Remember she is the one who owes you £16,000 and wants you to write that of in return for stock for which she cannot realise full value otherwise.

Also, if even if you do not think it is relevant, look into getting a condition written in to the transfer contact that she cannot set up in competition to you for a period of time

Also talk to your accountant about apportionment of the value between fixtures and fittings, equipment, goodwill, stock etc. It can

be tax efficient to increase the amount paid for goodwill (definitely for a ltd co. I assume for a sole trader)

Good luck!

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Bit of a long story but really need some help on what i could potentially getting myself into.

I work for a very small internet based company on a self employed basis. The company has overexpanded and can no longer run on it's current structure and needs to go back small whereby it will be profitable again, the sole trader hasn't had much to do with the business for the last few years other than being the name above the door so to speak. The company owes me £16000 from unpaid commission and £12000 to another lady who is employed by the business, the business can not pay me this and neither can the sole trader (other newer business (nothing to do with this one) in trouble too.

I want to take on the business myself as i know as a sole trader without employees it will bring me a healthy income, nothing major but as a mum working from home it will be fine. Basically what has been proposed by the sole trader is if i pay off the other employees wages due £(12000) the company website, brand name, customer base and stock is mine. Fair enough i think, the stock in the business roughly equals the money i'm owed so effectively i'm buying a business with a well known name it's in market for £12000. This i'm happy with and project to earn back that £12000 within a year.

However...

the company currently rents a unit on an industrial estate and is 1 year into a 3 year lease. This unit is what has ruined the business as the rent is eating all the profits that would be my commission. The sole trader is telling the landlord today that she is ceasing to trade as a sole trader from the end of June and will be leaving. In theory from the day after i will become that company as the sole trader and i'm running it from my home. The company in the unit next to ours wants to move into our unit so we're hopeful the landlord will be happy to let our lease lapse as the other company will expand into it. However if the landlord isn't happy with this and wants to sue the sole trader for the remaining 2 years rent who will this be? The original sole trader or me as person who now operates under that website name?

We're not talking big business here but one mum company.

The debts will remain with the original sole trader. You have to realise that you aren't buying a "company", if it's currently just a sole trader. All you are buying is "good will" (which has a legal definition), and mabe some assets. The sole trader is personally liable for the debt, unlike if it were an incorporated entity.

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ermmm...yes, you like working for nothing?, suggest you work in a charity shop if you truly want to be altruistic

in the real world there is no hubby`s income

He's been made redundant twice in the last 2 years, we know what no income is like very well. We're old fashioned and always put away enough money to fall back on to see us through the bad times and with kids boy do they throw benefits at you (not that we would ever live that way long term).

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I agree with that, I am currently a Director of Ltd Company. apart from the limited liability aspect which is not always the case,(for instance if you have an overdraft at the bank it is likely your manager will want personal security) I don't find many advantages, in fact the NI really is a disadvantage

I would avoid a LTD company if your risks are minimal, my last company was a partnership which I run from a spreadsheet which was much better

There are benefits as if you ever get sued (accident, for instance) it's the company who's liable not you personally. The company is an entirely separate legal person to your self.

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I can see no reason to 'buy the business' when what you want is certain assets of the business. By restricting yourself to only those part that you want, you avoid any hidden liabilities such as undisclosed creditors and ongoing disadvantageous contracts.

The advantages of a limited company are enormous. The main advantages are not to do with limited liability but tax avoidance. Employers NI was mentioned, yet you can set your salary so low that you do not pay NI, or take no salary at all and take the money as dividends. Those who say there are no advantages lack creativity and imagination.

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  • 2 years later...

Well it's 2 years on and thought i'd post an update. Took the risk in the end and and bought the business and it all worked out really well. I just bought the name and stock and the rental unit remained the previous owners problem. Spent the first year investing in stock and the website and sales were a healthy 6 figure sum. Year two and sales were up 95% and year 3 is looking at a further 40& growth. Been a lot of hard work and long hours but never regretted it.

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Tinpot 'businesses' are always a right pain in the backside.

I too have done freelance work for half-baked companies (at least these weren't sole traders) and although I got my money the time taken chasing invoices added serious hours to work that I'd done for less than the going rate - more to due to shambles and low-paid untrained staff doing everything for peanuts than lack of funds. They kept offering more work and it just wasn't worth the hassle.

Mickey mouse outfits just aren't worth the bother.

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Tinpot 'businesses' are always a right pain in the backside.

I too have done freelance work for half-baked companies (at least these weren't sole traders) and although I got my money the time taken chasing invoices added serious hours to work that I'd done for less than the going rate - more to due to shambles and low-paid untrained staff doing everything for peanuts than lack of funds. They kept offering more work and it just wasn't worth the hassle.

Mickey mouse outfits just aren't worth the bother.

Thankfully i've not got one of those tinpot businesses although i come across a few. Taking a salary of approaching 6 figures this year. Just wanted to say not all of them fail, it was a real risk but it's paid off.

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Perhaps high commercial rents are good. The high rents created an opportunity for some else to take control of the assets from someone else who was perhaps incompetent and turn it into a success. The landlord probably has to lower the rent now. This is how capitalism should work.

Commercial rents Vs Residential rents.

Business owners never receive a "housing benefit". Scrap housing benefit and this economy will be booming. Mark my words.

Perhaps this could be moved to the main forum for a bit...

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Perhaps high commercial rents are good. The high rents created an opportunity for some else to take control of the assets from someone else who was perhaps incompetent and turn it into a success. The landlord probably has to lower the rent now. This is how capitalism should work.

Commercial rents Vs Residential rents.

Business owners never receive a "housing benefit". Scrap housing benefit and this economy will be booming. Mark my words.

Perhaps this could be moved to the main forum for a bit...

That high rent killed off a business that tried to grow a bit and employ some people, leaving only a one-person rump as a viable business.

A successful one-person business is fine for the person concerned, but doesn't create employment, nor is it a candidate to grow and become a future pillar of the economy.

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That high rent killed off a business that tried to grow a bit and employ some people, leaving only a one-person rump as a viable business.

A successful one-person business is fine for the person concerned, but doesn't create employment, nor is it a candidate to grow and become a future pillar of the economy.

Yes the high rent did kill the previous owners business but there were also some pretty shocking decisions made as well. I'm taking on my first member of staff in the Autumn. They are going to help with the day to day processing of orders while i work on expanding the product ranges aind able to spend more time going out to meet customers.

The landlord cut the rent in half to get a new tenant in and then only on a 6 month short lease contract.

Some of my suppliers are caught in the same situation they have reasonbly sized small businesses and are based in industrial units however a massive chunk is going to the landlord and they are now looking to do what i've done.

We're actually in the process of buying a house (before i get a lecture on this...) the house is much larger so can accomodate my family and my work. i'll have a large office and a workshop in the garden. We've been able to save up a good deposit in a relatively short period of time, are borrowing 3 times our salarys and will be able to pay it off in 6 years entirely (unless some catastrophy happens). It's a home forever and we really don't care what happens to the prices as we just want a permanent home. We're renting now and the bedroom i took to work in the kids are getting older and really need their own rooms back (or we do for our sanity to stop the arguing). We did plan to keep renting until we could either pay cash or a very small mortgage but the "perfect" house came up so we'll just pay it down quick. It's actually a house we've always liked every time we drove past and it finally came on the market.

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Just to add we've had our current letting agent around today to revalue our rental property as they know we will be moving on soon. Rent going up by 32% from what we currently pay. Been here 3 years. Anyone had a 32% pay rise? Feel really sorry as this is a family home (4 bed) and it's another family going to be screwed over.

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Just to add we've had our current letting agent around today to revalue our rental property as they know we will be moving on soon. Rent going up by 32% from what we currently pay. Been here 3 years. Anyone had a 32% pay rise? Feel really sorry as this is a family home (4 bed) and it's another family going to be screwed over.

maybe no-one will pay the asking rent...I never did.

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maybe no-one will pay the asking rent...I never did.

To be honest it will still be below what a lot of other houses are around here as if we weren't buying we were going to rent bigger but it would have doubled our current rent (for not a huge amount more room.).

Just to add the house we're buying we got it 15% off peak. not as much as we'd like but meant the property came into our price bracket and prices haven't really dropped that much really in Farnham. Going to shock the people trying to sell in the same street as the semis for sale hae asking prices more than our agreed price for a detached.

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Some of my suppliers are caught in the same situation they have reasonbly sized small businesses and are based in industrial units however a massive chunk is going to the landlord and they are now looking to do what i've done.

Did the same back end of 2009. Was spending 5 figures on a box to work out of. I just scaled down a little and worked out a way to rent space on an ad hoc basis and now work from home.

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nonsense of course.

I am a one man business but outsource significant amounts to contractors and local manufacturers.

Approx. 70% of my turnover is export.

That high rent killed off a business that tried to grow a bit and employ some people, leaving only a one-person rump as a viable business.

A successful one-person business is fine for the person concerned, but doesn't create employment, nor is it a candidate to grow and become a future pillar of the economy.

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It's good to hear a success story, so well done!

I take it you've set up a LTD company to limit your liability?

Just to add the house we're buying we got it 15% off peak. not as much as we'd like but meant the property came into our price bracket and prices haven't really dropped that much really in Farnham. Going to shock the people trying to sell in the same street as the semis for sale hae asking prices more than our agreed price for a detached.

I know a couple of people who are looking to buy in Farnham, my neck of the woods - and I have to say prices are still utterly ridiculous. I would say 15% off peak is probably quite good for the area especially for a detached!

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It's good to hear a success story, so well done!

I take it you've set up a LTD company to limit your liability?

I know a couple of people who are looking to buy in Farnham, my neck of the woods - and I have to say prices are still utterly ridiculous. I would say 15% off peak is probably quite good for the area especially for a detached!

Yep changed to a limited company from the start of this financial year :)

When we told friends who own houses (erm mortgage really) nearby in Farnham they were shocked at "how cheap" what we're buying it for. I've heard it all we're buying "below market value," they were in a hurry to sell, it's worth more than that etc etc. Our survey warned that the local market is extremely flat and expect prices to fall, told same friends and they all said it was rubbish. As our house new home will be bigger than theirs it just can't be possible that we're buying for less than theirs is "worth". I annoying reply it's only worth what someone is prepared to pay and we were the only people offering.....

Prices just can't fall in Farnham, Farnham is different!

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