Q: My bosses have approached me with a good deal to buy the salon I manage. I have a bad personal credit rating and can’t raise finance, but I’m certain I could improve the turnover. What are my options?
Nov 17 2008
Answered by: Clive Lewis Ask a question
You do not mention why you think the offer from your boss is a “good deal”. Before considering the offer you need to address the following issues:
Why do they want to exit the business now?
Have you seen the accounts of the salon?
What is the turnover and profit?
What value have the salon owners put on the business?
What about the premises? Do they own them? In any event, what will the rent be if you took it over?
What other issues arise regarding the property – repairs and maintenance, rent reviews, etc?
Dependent upon the reason for the current owners wanting to exit the business, there might be possibilities by offering “deferred consideration” which basically means paying an initial sum and the balance over, say, three or four years by regular instalments (this is sometimes known as “vendor finance”). This might appeal to the owners if they are prepared to accept payment over a fixed period. However, you will still need to raise an initial payment, and some of the sources of finance for credit-impaired people are listed below.
The agreement between the vendors and you should be drawn up in writing with all the terms and conditions stated. These should cover the payment terms, any interest on the outstanding balance, what happens if you fall behind with payments, and your obligations in terms of insurance of the premises, business rates and repairs. If the business is leased from the freeholder you will need to get their permission for the lease to be assigned to you from the current owners.
But the major issue is whether you will be able to run the business and make enough profit to keep up the repayments on the vendor finance and any other borrowings, as well as provide enough income for yourself. You might need to prepare a business plan or forecast of how this will work out. You seem very confident that you can increase the turnover. The plan/forecast should tell you how much you need to raise it to pay the various bills.
You mention that you have a bad personal credit history However, if you are running a business you will definitely need a bank account for payments. Some banks offer basic bank accounts for credit-impaired people.
Sources of finance:
Grants are available but usually for very specific purposes. The problem is finding whether your business qualifies for any of these grants. Many businesses start out seeking a grant but end up opting for a loan.
In the event that a normal loan from a bank is not an option the following alternative sources of finance and or grants might be possible:
Friends and/or family – a friend or family member, particularly one with experience of running a business, might be prepared to lend you the money. But you need to draw up a written agreement specifying when the loan will be repaid and any interest payable.
Many Enterprise Agencies are prepared to be a lender of last resort for small businesses – after all other avenues have been exhausted. Go to the National Federation of Enterprise Agencies to find your local enterprise agency. They can also help your search for grants.
Many early-stage business people use their credit card to fund expenses – items such as travel, stationery and petrol can be purchased on credit cards which, provided the debt is controlled, is a good way to fund the early stages of a business, although interest charges can be relatively high.
Another alternative is to join a credit union. The Association of British Credit Unions (ABCUL) website provides information regarding members and their services. Some of the larger credit unions offer current account facilities. If you live in an area served by one of these credit unions you might be able to access their facilities. If you are able to save with a credit union (usually for a period of at least three months) you might then be able to access their lending facilities.
If you are between 18 and 30 and unemployed, the Prince’s Trust also offers loans of last resort to people wanting to set up a business. They also offer help for people aged over 50. An organisation called Prime also helps people in this age group wanting to start a business. The Prince’s Trust provides loans of up to £4,000 for a sole trader as well as grants of up to £1,500.
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