Business is always a risk, but with the right approach the business can become very profitable. It is possible to create a business from scratch, but in this case, it is necessary to invest a lot of time and financial resources for testing the niche, setting up processes, working on mistakes and a long, and not always guaranteed, way to profit. An alternative option is buying a ready-made business, which has its advantages, such as already established operational processes; brand, if developed, is already known in the market, the rate of profit and return on investment is higher, etc. If you are leaning towards the latter, the rules below will help you prepare for buying a ready-made business in Bali or another part of Indonesia.
So, you want to start a business in Bali. Firstly, determine what is preferable for you. Our “Ideas for business in Bali” article could be helpful with that. Maybe you are good at retail, and buying a small store would be a good fit for you. Or maybe you are closer to catering and such a choice as a tent with street food, cafe, bar or restaurant will be the best. In any case, it is better to choose the type of business in which you already have experience and interest.
Running out of funding, owner retiring, feeling burndown in the industry - whatever the reason, critically assess whether you can give a second life to the business and bring something new.
The cause may be more serious and serve as a special signal to you. Perhaps the business is in a low-traffic location, or competing with a more popular neighbor, or has a tarnished reputation. If this is the case, think carefully about whether it is worth embarking on the difficult road to recovery.
There are three methods that can be used to estimate the value of a business. However, these methods may not be applicable to all businesses, each case should be considered separately, and it is better to seek help from professionals who specialize in business valuation.
• Market approach
In this method, similar businesses in the industry that have recently been sold are considered. Comparison is possible if truly similar businesses can be found and if the terms of the transaction of the comparable companies are known.
• Income approach
This approach estimates the net income of a company that is expected to be achieved in the next specified period of time, for example, five years, and then calculates the value of that future cash flow.
• Asset-based approach
In this case, a company is valued by adding up its fair market value and business assets (real estate, equipment, customer lists, etc.), and subtracting its liabilities (loans).
A letter of intent is a document in which you express your intention to buy a business. This agreement does not bind you to buy it, the “right of refusal” is reserved for you, but it gives you an advantage at the stage when the seller is negotiating with several buyers. This way the seller will give more information to those who are serious about their intentions. A sample letter can be found on the Internet.
Starting a business in Indonesia also involves a preliminary check of all company documents, as well as other things to pay close attention to:
• Licenses and permits
See what documents are required for this business, whether they are present, whether they are not expired or not
• Bank and tax records
Make sure recent bank statements and income tax returns match the information provided by the seller
• Environmental requirements
Whether the condition of the business complies with environmental regulations and laws
• Condition of tangible and intangible assets
Assess the quality of these assets, whether the business actually owns them, whether their value has been fairly assessed
• Contracts
Check recent agreements and contracts to assess how they will affect the business, what obligations remain and whether current contracts are transferable to the new business owner
• Organizational structure
See if all processes are in place, accounting, personnel, purchasing, workflow and who is responsible for which functions, etc.
• Legal issues
Consider whether there are any legal threats to the business or owner. Litigation, debts, non-compliance with the law, arrests and encumbrances, etc.
After due diligence, agreeing on terms and price, you can enter into a sales contract and close the deal. Selling a business in Bali can be accomplished through one of two methods, each with its own advantages and disadvantages:
• Asset purchase
In this case, the buyer becomes the owner of all business assets such as equipment, customer lists, patents, real estate and more, while the seller remains the owner of the legal entity.
• Stock purchase
The buyer acquires the shares of the company as well as all its assets, liabilities, contracts, etc.
Before signing a contract, apart from the fact that it is important to discuss the type of transaction, you need to consider the specific legal and tax implications in the other country. Doing business in Indonesia involves opening a company, obtaining an individual taxpayer number, opening an account, etc. To avoid mistakes and complex bureaucratic delays that can cost large financial and time losses, our consulting company offers assistance to foreign citizens in buying a ready-made business in Indonesia. We offer legal and accounting assistance, audit of company documents and much more. Contact us for a free consultation and get one step closer to opening your business now!
