Investing in Private company in Poland

Q

quickinvestor

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An old friend in living in Poland. They have been running a very a successful food company. Since moving there with his wife. She is not in the business. Really taking advantage of the new money in Poland.

I have looked over his books for the last 6 years, and he has made a profit averaging 70000 year on year.

He has 200,000 cash to invest soon and needs another 200,000 investment to begin his expansion across Poland

The company has 500,000 in machinery and equipment. 80.000 building in assets.

The company has no debit.

The company has 7 employees.

The aim would be to expand the product to shops across southern Poland and reach profits of

Y1 100,000 -----Y2 140,000---- Y3 200,000------ 320000 Y4------420.000 Y5----- 532000 Y6


If I was to invest: Can you answer the following


Should I give it as a loan or should I buy an equity stake in business?

I see a big future
 
Very difficult for anyone on Askaboutmoney to answer this question.

If you give a loan, he can always repay it according to an agreed schedule and at a particular rate of interest.

However, if you want to participate in the profits and avail of the gains you need to buy shares in the company.

Let's simplify things and say that the business was in Ireland. The general advice would that you should not buy a minority stake in a business. This business will be worth €1m when you both invest. You will have 20% of the shares if it's based on assets. Friends in business often fall out. Projections aren't met. There are differences on strategy. There is almost nothing you can do to get your 20% back. If he decides not to pay a dividend, you are stuck.

Now add the fact that he is in Poland and you double those difficulties.

If you have €2m to invest, and you allocate €200k to this risky investment, fair enough. If you have less than €1m it's a huge risk for such a large percentage of your wealth.

If you do go ahead, you need to reach a shareholders' agreement covering among other things :
How the executives will be paid
How profits will be distributed
What happens if further capital is required
The long term plan for the company - e.g. trade sale etc.

Brendan
 
Have you received third-party verification of these numbers? At the risk of being paranoid; I assume wages-payslips and corporation tax returns all tie-in etc etc.

Why not consider a loan convertible to equity ?

A good deal is a deal both parties walk away unhappy from.
 
Hey Brendan

Thanks for the advice.

I think buying shares is the way to go.

A good shareholders' agreement is the next step to see what's going to happen.
 
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