Tips for Expats Buying a Small Business in the Philippines

Whether purchased for an investment income or simply to provide a ‘keep me busy’ job in retirement, many expatriates decide to buy a small business here in the Philippines. Unfortunately, tales abound of people bemoaning the fact that after paying out for a business, they end up losing money, often all that they originally invested and more.  

However, there are many reasons for a business to fail, and contrary to what some believe, not all small expat businesses fail due to problems caused by local laws, taxes or shifty, unreliable local partners. Many times, people buy a business that is either already failing, provides tiny profit margins, or has some staff, lease, legal, or other problem that needs sorting out. However, many expats ‘see the dream’ in owning a business, not the reality. This is not because expats are stupid, simply that they look at the business being sold through rose-colored glasses, rather than with the harsh clarity required whenever making any financial investment.

One type of business very popular with expats is of course bars; but actually owning and running a bar is often very different from the perception. With the volume of business turnover each year, it is no wonder that in Angeles City and Subic it is a common joke to say that, “the two happiest days in an expat’s life are the day he buys a bar – and the day he finally manages to sell it.”

So, if you are thinking of purchasing a business in the Philippines, especially in tourist areas such as Angeles City or Subic, here are some tips and warnings that hold true for bars, restaurants, cafes, hotels, and quite a few other businesses.

1. Don’t purchase a business (or a share in a business) based simply on perception. If someone comes into town for 3 or 4 weeks a year and sees that bar/hotel/cafe full of people, lots of pretty girls and the owner sitting with a beer and a smile on his face. What they may not perceive is the work involved keeping things running; stocking up, dealing with staff, dealing with local authorities, landlords, customers, etc. So, when they find they can own what they think is a piece of heaven for just a few thousand dollars, they mistakenly jump at the dream, not the reality.

2. Always make sure you know why the business is being sold – and do not forget to get verification on the reasons. It may well be that the owner wishes to retire, move back overseas or similar – but it may also be that the lease they have, or rent they pay, may be due for a price hike. There may also be problems with new businesses nearby taking away customers, or loss of staff means that the business is on the slippery downward slope. Never assume anything, always check.  

3. Don’t base a business income earning perceptions on books or figures from peak-season custom alone. Always remember that any tourist based business has high and low seasons. It may be that during the peak tourist season the business does well and has lots of customers – but what about turnover during the off-season? Also consider what you could do to increase profits. This may require implementing new methods, facilities, prices, or simply reducing current overheads to get the business through lean patches.    

4. Make sure that the business is actually worth what you are paying for it. Many business owners over-estimate the value of their business. This is because they add up the value of stock, fixtures and fitting, often basing their price ideas on what they originally paid some years ago - and what new cost is now; they then add a mystical figure for ‘good will.’ The problem is that unless you actually check the property, fixtures and stock yourself, you may well find you have paid top price for basically useless junk and time expired stock.

5. Is all the paperwork in order? Are all the business permits in order? If there is some legal problem, especially in regard to actual ownership, buying a business can be a very risky venture in the Philippines. If you want to avoid having to wade through reams of lawyer’s letters, local court appearances and months or years of expensive and frustrating legal wrangling, make sure all is in order before paying out or signing anything.   

6. Study the reputation the business has because changing customers’ opinions will take much more than simply putting up a sign saying ‘under new management.’ Be aware that no matter what is done by a new owner, if the business had a bad reputation under the previous owner, there will be an uphill struggle to change customer’s perceptions.

7. Do not spend out more than you can afford, and always leave yourself a buffer of emergency cash. Too many people expect that as soon as they purchase a business, all of their day-to-day business and living expenses will be covered. Even if a high-earning established business has been purchased, there may be a delay between taking over – and receiving a livable income.     

While, just as everywhere else in the world, many businesses fail in the Philippines, many times this is due to lack of planning when the business was purchased. However, a little research, time, and a lot of hard work can do much to make your business investment pay worthwhile dividends - and ensure you have a livable investment income here in this ‘little island paradise'. 

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