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About to inherit staff.....???

Paul Longstaff
Posts: 5
20/10/2009 15:33:36
I am about to purchase a small cafe with approx £200k t/o
They have 8 staff on contracts of which one is on maternity and one is long term sick.
This worries me as i am new to business this will be my first venture and am not sure where i stand.

I think i can get the maternity pay back but not sure how?
Long term sickness i have no ideas about. Will i be left to pay this person forever and someobne else on top to cover her while away? I do know her 28week is up in Mud Decemeber but again not sure what that actually means.
the wages bill is the first part of the business to be reviewed as in my oppinion it appears to be too high given the size of the operation but the above now has me wondering whether i will be able to do anything about it.

Any comments from you my learned friends? (Even if its just reassurance!!)

5 Replies
David Rhodes
Posts: 341
20/10/2009 16:46:03
The maternity and sickness pay will not cost you anything as you simply deduct these payments from your PAYE and NIC payment to the Inland Revenue.

Obviously you will need the services of a good accountant or wages bureau if you do not understand PAYE.

Under legislation you are legally required to automatically employ all staff members who are currently employed by the business, however if you intend making people redundant perhaps you can discuss this with the seller and ask him to make these people redundant at his cost. However if you are at an advanced stage in your purchase perhaps it would be best to leave this issue, if you think that the seller will consider that you are holding him to ransom wanting to renegotiate at this late stage.

I would be very careful in making redundancies in ensuring that the people on sickness and maternity are not chosen otherwise you may get a discrimination claim against you.

You or your solicitor should check the reasons for the employees sickness as if the reason is stress or injury YOU may be responsible for compensation should this person decide to take the matter to a tribunal in the future.

You would also need to consider these peoples contracts of employment which should explain what you can do in the event of a long term sickness.

So I would consult your solicitor over these matters.

Horizon Business Agents www.horizonbusinessagents.co.uk

Miguel Villa-Abrille
Posts: 4
20/10/2009 23:34:14
i know this is not related but do you mind if i ask how much you offered for the business? i am about to make an offer for a cafe that has a turn over of about 200k locate din a small town in middlesex. thanks

Miguel
Paul Longstaff
Posts: 5
21/10/2009 16:03:00
many thanks for the comments above, i think your right to hand this one off to the solicitor to deal with as the TUPE regs seem very heavily biased towards the employee so as a new owner caution is the way forward for now.

As for pricing this isnt quite that straight forward (they never are) but i would have thought you should be looking at the assets being included fridges, coffee machine etc
add them up and then discount them down as they are now second hand. how much you discount them depends largely on how old they and what condition they are in. Remember there are loads of second hand commercial eqipment around if you dig so dont get sucked into paying too much for it. then on top of this add the value of goodwill , personally i would be reluctant to pay much more than 2 X Net profit even though some buyers often ask for as much 4 to 5 times the NP.
So lets say the cost of equipment for a commercial style kitchen is £30K brand new but yours is 3 years old but in very good condition whats it worth now ?? maybe £20K?
the net profit on your £200K T/O is shown as.... again lets say £30K?
The MOST i would look to pay is £80K (i.e. 2X £30k NP plus cost of assets at £20K)but would obviously offer less than this to start negotiations.
Hope this helps you.

Now lots of people will read this and have their tuppence to say on whether i am talking clap trap ot otherwise and you may well feel the same. But i am a REAL buyer going through the process now and after 6 months of searching this is the basic formula that I used to rule in or out potential businesses as a purchase.
Miguel Villa-Abrille
Posts: 4
22/10/2009 01:20:50
Thank you Paul. I will take your advise and apply this to the offer im looking to make on friday. thanks again.
Stephen Wright
Posts: 246
05/11/2009 22:18:38
Hi Paul and Miguel,

you are both talking sense and using meaningful bases for calculating a real worth of the business.

I believe David has given his usual carefully considered and wise words on continuity of undertakings. It is a night mare for an employer and is utterly unreasonable.

Let me just add a few thoughts that you really must look long and hard at with your solicitor and or accountant.

What about the lease? is teh rent right? repairing clauses? do not go into this without a survey of ther bricks and mortar. Your solicitor may have a view on some of the clauses. In the end this is a main consideration for you.

Is the location actually better than the vendor understands? With little extra effort can you slap on some real turnover and improve the GP? This of course will be your expertise but sometimes the property is worth more to you than the ticking over business.

I think times 2 is a bit high but as you said it is my tuppence worth. There are still fantasiacal vendors out there seeking totally unrealistic multipliers and aided and abetted by some of the brokers. No wonder they sit on the books forever.

I have recently relocated to a Somerset town and there is a cafe (nearer greasy spoon that Heston B) that I have seen for sale for over 2 years with the same broker. They are asking for 1.4 times turnover on fairly poor NP. The rent is high with nasty clauses and a refurb long overdue. On trading profits it is worth gbp25K. The potential is worth 150k gbp but it can never be leveraged as the man has no comprehension of his trade or the market. Just and example of what is sitting wallowing on this site.

Best wishes

Stephen

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