Risks When Buying a Company in Indonesia

Establishing a new company in Indonesia can be a long and painful process. Unless you are strongly convinced of the bright future of your new business, and the expectation is supported by proper market analysis, taking over an existing company can be a safer option. However, as always, some basic precautions should be taken.

Reasons for Buying a Company

Start a business from scratch is difficult and doing it in a foreign country is twice as hard. The bureaucratic load is significant and familiarize yourself with new environment takes time. The above-average sales reached back home do not guarantee the same success somewhere else.

Your profit can shrink significantly due to the different consumer behaviour, misapprehension of your customers’ needs, lower purchasing power and many other factors that are be hard to evaluate from abroad. Whether the product will become a best seller or it will turn into a dead loss is never clear beforehand.

Taking over a well-established company with proven history will reduce unnecessary trial-and-error learning process and its cost. But there is more you can gain.

Existing customer base

Arguably the most precious asset of any company that has been often built over the years. Make sure that you cater not only to your new customers that are interested in your current portfolio of products and services but also to the loyal clients who have been attached to the brand for a long time.

Offices, inventory and other facilities

Using existing offices that are equipped and ready to use saves a lot of money and time. However, it is important to check the current lease agreements and other details. If inventory is part of the deal, make sure you do not pay for something that needs to be written off anyway. Outdated software or a large stock of perishable good is not a wise investment.

Knowhow

Purchasing a company will give you an insight into the market through its performance records, market analysis and other documents accumulated in the past. Moreover, long-time employees are another valuable source of information.

Do Not Risk and Avoid Buying a Pig in a Poke

Besides indisputable benefits, there is a row of questions to be asked before you commit to buy a running enterprise. An established company that has been around for a while comes as a package. You may like some parts of it and dislike the others, but you need to take them all.

Therefore it is important to scrutinize the history, current condition and the future potential for growth of the business. That is not an easy task and a proper due diligence investigation carried out by professionals such as Cekindo is a vital part of the purchasing process.

It helps you to assess risks that can be sometimes over-looked and discover even the less visible problems that can emerge as an unpleasant surprise later on.

What Needs to Be Checked

The most basic question that can direct further background check is why in the first place the company is for sale. There might be legitimate reasons behind the intentions to cash someone’s long-time effort but also an attempt to get rid of a business that is in the doldrums.  We strongly recommend screening the following areas thoroughly to prevent every possible risk.

Financial health

Your goal, as a future owner, is to pay for assets of the company, not for its debts. Even though you have a financial balance at your disposal, some debts can be easily hidden off the balance sheet. It worth the effort to carry out an in-depth audit and examine all the debts and loans to get a realistic number of the company profitability in the coming years.

Legal history and reputation

Does the company compile with all required laws and regulations? Were there any lawsuits against the company in the past? What is its reputation? Even though the current clients might help to keep a steady profit, it will be hard to appeal to new customers if your credibility is harmed. Make sure you know the whole story before signing up the contract.

Management and employees

Highly motivated management and skilful employees can make the entrepreneur’s life easier. Unfortunately, more often than not some personnel changes are necessary in order to build a strong team.

Nevertheless, laying off the staff and terminating contracts is not cost effective and recruiting within some highly specialized profession is difficult in Indonesia. A deep personnel audit is a key to keep the right people within the company.

For more information about in-depth corporate checks of businesses in Indonesia, do not hesitate to contact experts from Cekindo. Cekindo has been helping foreign investors expanding to the Indonesian market for almost a decade. We will take care of the legality while you can focus on your core activities.

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