Thailand Stocks
Thailand Stocks
Buying A Business In Thailand – The Pitfalls To Avoid When Buying A Thai Company
As the Thai economy continues to mature, it is becoming easier to find a going concern that fits with one’s interests and skills. However, this is one of the riskiest areas of business investment. Considerable care should be taken to investigate all aspects of a proposed business purchase. The normal due diligence taken when purchasing a business overseas should also be rigorously applied in Thailand, and there are specific areas which require special scrutiny. This applies equally to buying a business outright as to buying a share in one.
The first and most important consideration is obviously the price. An initial asking price may be much higher than the vendor is willing to accept. Thai and foreign vendors will try for as much as possible, particularly if the purchaser is perceived to be inexperienced in Thailand. Some ridiculous asking prices can be quoted, as many foreigners make the mistake of converting the asking price into their own country’s currency, rather than analysing the local value of the business. Asking prices of more than ten times the real value of the business are commonly advertised, and paid. This is especially the case for bars and restaurants in the popular tourist areas of the country. A careful valuation of the premises, fixtures, fittings and equipment, and stock should be undertaken. Local knowledge, if it can be obtained, is invaluable in assessing whether the asking price of a business is a fair one.
The second area that requires special scrutiny is the financial record of the business. Cooked books and plausible but false reasons for a business’s financial performance are depressingly common. All claims of financial track records should be treated with an appropriate degree of cynicism. The reason why the business is being offered for sale should also be carefully examined.
The future viability of the business should be carefully looked at, by an independent auditor if possible. Vendors obviously have a vested interest in “talking up” the opportunities, and can be extremely good at painting a wonderful picture of the future. Special areas of concern are competition, the stability and future development of the customer base, and changing government regulations.
The business’s existing liabilities and commitments should be made clear. Hidden liabilities are common, and claims made against stock or premises as security against the previous owner’s personal debts are a thorn in the side of many new business owners. Contracts, especially property leases, should be very carefully examined for loopholes – make sure that the property is not sublet to the business and that the lease has an adequate and extendable period of tenancy.
The final area that a prospective purchaser should carefully investigate is the legal structure of the business. Its Articles of Incorporation should be studied to find out whether any special rights or restrictions apply to any shareholder or director. Licences and permits should be transferable to the new owner. This is very important, as some licences have different regulations depending on whether the business owner is a Thai national or foreigner. Patents, copyrights, and trademarks should be the property of the business or transferred to it at no extra cost. Lastly, the nature of fellow shareholders or others with legitimate interest in or claims against the business must be considered.
This is an excerpt from the Living In Thailand eBook, 400 information packed pages to jump-start your new life in Thailand. Available for $19.95 from http://www.living-in-thailand.net
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