How will you finance your businessHow will you finance your business? Bank financing in Thailand is quite different for foreigners than what you may be used to in your home country. Much of this has to do with the Asian economic crisis of 1997 and even though that was over 10 years ago, receiving any type of traditional financing for foreigners remains difficult to this day. So, just as in your home country, the fact that you are buying an existing business with positive cash flow does not necessarily mean the bank is going to hand you the cash to acquire it. This is not to say bank financing is impossible, but you must be prepared to pay the majority, if not all, of the purchase price of your Thai business in cash at closing. Most businesses for sale in Thailand are sold on a "cash price." This means that many of the business sellers have priced their business at a price that they feel it is worth with a one-time payment at the time of business transfer. While this means that many times a business buyer will have to come up with a larger sum of cash to get into the business, the overall purchase price will often be less than it would in a western country where bank financing and owner financing are more common. Most buyers would like to see banks and business owners offer more financing options for the acquisition of existing Thailand businesses for sale as it would allow larger businesses to be bought and sold, creating more opportunities for wealth than ever before. In case you are not familiar with the term "owner financing," it means that a business buyer is able to purchase the business outright, while putting down only a portion of the sales price at closing. Often, a business with high cash flow or large amounts of valuable assets, can be acquired with 20-50% cash down and the remainder of the payments over an agreed period of time. This allows the buyer to leverage his investment while also helping the seller achieve much closer to his desired sale price. Obviously, this can be very beneficial, but risky, for the seller and a qualified Thai lawyer should be consulted before entering into a financing agreement. Also, it is helpful to consult your business broker and ask them to assist you in finding businesses with owner financing if that is what you're after. How much business can I afford? While there are many ways to value a business in Thailand, one of the easiest and most straightforward strategies that works the best is to base a valuation on a multiple of the cash flow or owner's benefit. Typically in Thailand, business sellers generally are looking to receive around 3 times their annual owner's benefit/cash-flow in order to transfer the business to a new buyer. Obviously this should be used as a rule of thumb as some businesses, depending on market position, number of years in business, location, market/revenue trends, and other factors, may be asking slightly more, or less, than that multiple. What this means for you is that you can begin to start focusing on businesses in Thailand that fit your available cash situation. Let's say you have 12,000,000 Baht at your disposal to invest in an existing Thai business. Using a multiple of 3 times the annual owner's benefit/cash-flow, you can expect to be looking at business making around 4,000,000 Baht annually. Conversely, if you feel you want to find a business that will provide you with 2,000,000 baht in annual owner benefit/cash-flow, then you should be prepared to spend around 6,000,000 Baht to acquire a business in Thailand. It is worth noting that the above figures are very general and some businesses, depending on their market position, number of years in business, location, market/revenue trends, asset/land value, and other factors may be slightly more or less than the multiple we have used. Also, normally if a Thai business for sale is being offered with owner financing, you can expect it to be priced accordingly and at the higher end of the market value. It is helpful to have your purchase and valuation strategy in mind when looking for businesses in order to save yourself wasted time and money looking at only businesses you can truly afford. Discussing these issues with a Thailand business broker is highly recommended and will help you be prepared to buy a business at a price you can feel comfortable with. |