Asset Transfer is a well-received option of business transfer for many intending entrepreneurs. They buy over shops or stores from the existing owner, starting their businesses almost immediately, and at lower costs. Party rooms, restaurants and tutoring centres are among the most popular businesses transferred through selling the assets. However, issues concerning license and legislation, contracts, and leases might bring you pitfalls if this type of business transfer is not handled properly.
What is Asset Transfer?
Asset Transfer is a method of business transaction/transfer, commonly known as “buying the shell”. An advantage is that buyers can save time and money to start the business, as it’s normally significantly cheaper (only 80K to 100K) than preparing the whole package yourself, including shop selection, decoration, equipment and license application. The relatively low initial investment and shorter time to market is surely attractive, as the buyer only needs to put in some effort to work out a sustainable business model and operation flow.
Take restaurants and education centres as example, both require a license for operation, which largely depends on if the facilities and shop renovation meet a particular standard. Renovation work and license application could take months to complete, and the approval is not guaranteed, which adds a lot of risks and costs. However, if you manage to buy a place that’s already operating under the respective license, the hassle and uncertainty simply goes away.
Business Model is not Included in the Asset Transfer Package
You may be wondering, why would anyone sell a profitable business. In fact, there are many legitimate reasons: retirement, migration, or the business management is too demanding for them. Even if the business for sale is actually struggling, it might be completely different in the hands of another manager.
No matter if the business is making money or not, when the owner sells the assets alone, the existing business model is not in the package. Let’s face it, he would have chosen to sell the company instead if the business model is proven to be effective and profitable. If you think you can make a difference to turn the business around, this is a chance to prove yourself – by buying an underestimated business like an undervalue stock, your experience and knowledge may bring out its true potential.
How to Spot a Good Opportunity?
Simply put, you just need to look for those assets with a full-suite hardware and license package. As discussed earlier, the value lies within saving time and cost to open the shop. Look for those with new or well-maintained equipment, stylish or distinctive décor and good location.
Don’t limit yourself with what the place is currently equipped with, check out the license and see its true potential. Say you come across a café with general restaurant license and a liquor license, once bought it can turn into business with more prospects, like a bar or high-end restaurant. Think big, and you could get there sooner than you think.
Do I have to Engage an Intermediary Company?
The answer is not that simple. On one hand, you do save the commission and fee if you can liaise with the seller directly, work on the contracts, negotiate the terms, check and follow-up with all the transaction details like debts, financial healthiness, licenses and lease etc. all by yourself. However, not many people are trained and experienced enough to handle all of this, not to mention how difficult things can become if the counterparty is deceptive.
With a reasonable amount of service charge, you can avoid the troubles of the above procedures through intermediary companies. A reputable intermediary company will remain neutral, protecting the interests of both buyers and sellers, and enter into clear and valid terms of the sale and purchase agreement. In addition, most of the settlement procedures are followed up by intermediary companies to ensure a smooth settlement process.
Other Things to Pay Attention to
Just like buying any product, the quality needs to be checked. Before confirming the transaction, you need to research everything about this business; reason for sale, development potential, any concealing debt or maintenances clauses that you need to comply with, etc. Plan ahead and work with a professional consultant, who will guide you through the process without falling into any traps. Come talk to AGPS if you have some ideas in mind. We might find you a good bargain as the first step in realising your dream.
