Doing Business in Thailand

I  have made a lot of posts about starting a business in Thailand but I never discussed the issues that need to be addressed when buying a business. In this post I will first address some general issues to consider before buying a business in Thailand

Buying Business VS Starting a new business

Buying an existing business may seems at first the way to go. Indeed with an existing business will come an established customer base, an established location, an existing inventory and supplier contacts, trained employees and of course an existing turnover all thing you don’t have when starting a business from scratch.

While there is value in buying a business there are also many pitfalls or traps to avoid.

It does make sense to buy an existing business but only if you intend to run the business as it is (improving it of course if you can). For example, buying an existing French restaurant to transform it in a pizzeria as I have seen it done recently might not be the best move.

Yes you will still have the benefit of buying a business which is located into a location that has proven its worth but you will be losing the customers. Also you will have to close the restaurant for a period of renovation to change the theme and the style of the restaurant. So if you purchase an existing business but do not run this business as it is you will pay for a customer base, and an existing turnover that you will lose anyway. In other words you may overpay your business.

Another issue when purchasing a business is the lease agreement. Most business owners do not own the lease premises, they rent it. In most cases the lease agreement will be for duration of 3 years. Why 3 years? Simply because in Thailand a lease of more than 3 years needs to be registered with the land department this may trigger the attention of the Revenue Department.

Therefore most owners prefer to sign lease for duration of 3 years only. Most owners will also request part of the rent to be paid under the table. Often the amount to be paid under the table is not mentioned into the main lease agreement and has to be paid under the form of a key money. You do not want, as an investor did one time, to buy a business for 5,000,000 THB and three months into your lease to have the owner of the lease premises coming to request a 6,000,000 THB key money from you in order to issue your new lease agreement for the next 3 years.

Or you do not want like another investor to invest 3,000,000 THB building a warehouse on a land you rent and to suddenly receive a letter from the real owner of the land informing you that you have to leave the premised next month because your “landlord” was a cheat that did not have any right to lease you the land.

Another problem is that many investors that are purchasing businesses into Thai sea resorts will take their decision to purchase their businesses while in vacation. Now most people will take their vacation during the high season and forget that in Thailand like everywhere else in the world there is a high and low seasons.

To conclude this post on a colorfull note I would like to warn “Would Be” gogo bar owner that an important asset when purchasing a gogo bar will be the “mamasan”. Purchasing a gogo bar to see a few days after the purchase the mamasan leave the bar with most of the girls will simply kill the business.

Those are only a few of the general issues to consider before purchasing a business in Thailand. Tomorrow we will discuss the actual purchase process, that is to say how to actually purchase a business.

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

© Copyrights 2009 – Rene Philippe Dubout – This article may be reprinted if information about the author, the websites, and the URLs remain intact.

Originally posted 2009-09-08 09:45:55.

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