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How much is my business worth

Valuing a Business

So, what do you think it’s worth?

The very first question I receive after agreeing on contract specifics.

“So how much do you think we can get”

The truth is there is no sure-fire way to value a business for buying and selling purposes. The true value is the perceived value to a buyer who is ready, willing, and able to buy it.

Business valuation is a mix of art and science. The goal is to find a fair price that satisfies the seller and is in line with the current market.

There are several reasons for valuing a business. Businesses are valued for estate and tax purposes, divorce settlements, and for raising capital. For these needs I would strongly recommend engaging a registered valuer.

Valuation discussions in this article are purely for the purpose of buying or selling a business.

Valuation Methods

  1. Quick Estimate
  2. Market Average
  3. Capitalised Earning
  4. Excess Earning
  5. Cash Flow.
  6. Tangible Assets/Cost to Create.
  7. Intangible Assets

1. Quick Estimate

Often used as a guide to the valuation of a small business. It is only a useful starting point as few buyers will pay one year’s earnings before proprietor’s drawings, interest, tax and depreciation (EBPITD).

Useful for strong branded businesses with a real goodwill factor and transferable long-term contracts. Can also be used for a national franchise or business with high demand

Quick Estimate:

Price of Business = (Plant & equipment + 1 year’s EBPITD.) plus Stock at

Valuation (Cost).

Business which handles a national product and has an exclusive distributorship, produces $100,000 Net Profit (earnings before proprietor’s drawings, interest, tax and depreciation (EBPITD). The plant and equipment are valued at $150,000. The stock on hand cost $60,000. The distributorship is transferable.

Price of Business = $100,000 + $150,000 = $250,000 plus S.A.V $60,000 = total price $310,000

2. Market Average

One of the most common approaches to small business valuation, that I see a lot of brokers use.

The problem with these and all rule of thumb formulas is that they are statistically derived from the sale of many businesses of their type.

You may take statistics for 2 years across 100 lotto shops. Then average the selling price and you have a market average selling price.

However, some of those lotto shops may have sold for twice the market value while others were a quarter of the norm.

We are also aware there can be great variations over a year, particularly if there was an anomaly in one of the years (Covid prices).

In a lot of cases the average is done with nothing more statistical than

“Other like businesses in your area are selling for this”

Market averages may be accurate for those businesses whose performances are on par with the average. The business with expenses and profits that are right on target with industry averages may well sell for a price in line with market averages.

Market averages are a good starting point for valuation. Check to see how closely your firm’s financial performance stacks up to the market averages.

3. Capitalised Earning

Capitalisation refers to the return on investment that is expected by an investor.

The capitalisation rate is determined by learning what the risk of investment in the business would be in comparison to other investments

Capitalisation rates of 20% to 50% are common for a small business calculation. That is, buyers will look for a return on their investment of 10% to 50% (depending on risk) in buying a business after a suitable wage is deducted from the EBPITD.

Best for valuation of businesses that have fixed assets with low wage impact.

A vending machine has been collecting money at the rate of about $86,500 per year steadily for ten years with very little variation. It is likely to continue to collect money at this rate indefinitely.

At the 20% low risk rate, for someone to earn the same $86,500 per year the vending machine earns, an investment of $432,500 ($432,500*20%=$86,500) would be required. Therefore, the amusement machine business value is in the area of $432,500.

This does not include a fair salary for the new business owner

Let’s assume a $30,000 salary to manage the machine.

$86,500 Net Profit (earnings before proprietor’s drawings, interest, tax and

$30,000 Wage depreciation (EBPITD)).

$56,500 divided by 20% = $282,500 being the business value

4. Excess Earning

Like the capitalisation method. The difference is that it splits off return on assets from other earnings.

Let’s assume a vending company has tangible assets of $120,000.

The owner takes $30,000pa as salary

After paying the salary of $30,000 from his $86,500 net (EBPITD) The business has earnings of $56,500 net.

Assume a reasonable return on Tangible Assets of 15% per year

A reasonable number here should be based on industry averages for return on assets adjusted to current economic conditions.

Alternatively, an appropriate return on asset figure is to use a rate 3 to 4 points above the current bank rate for a small business loan, or about 6 points above the current prime rate.

Business profits are derived from the tangible assets of the business ($120,000 x 15%= $18,000) The other $38,500 ($56,500­$18,000=$38,500) in earnings are the excess earnings).

This $38,500 excess earning number is typically multiplied by a factor of 2 to 5, based on such factors as the level of risk involved in the business, the attractiveness of the business and the industry, competitiveness, and growth potential. The higher the factor used, the higher the estimate of the business will be

Assume the business is better than average in these factors and assign a multiplier of 4. Therefore, the value of this business can be determined as follows:

  1. Fair market value of tangible equipment (plant & equipment) Equals $120,000
  2. Total Earnings Equals $56,500
  3. Earnings attributed to Tangible Assets ($120,000*15%) Equals $18,000
  4. Excess Earnings (B – C) ($56,500 – $18,000 = $38,500)
    Equals $38,500
  5. Value of excess earnings (D X multiplier) ($38,500 x 4) Equals $154,000
  6. Estimated Total Value (Tangible Assets plus value of excess earnings) Equals 120,000 + $154,000 = $274,000 Being the Business Value

5. Cash Flow.

Ideal in valuing online businesses that have no real equipment nor stock overhead but generates revenue through no asset sales.

Businesses can be evaluated by determining how much of a loan the net profit will support. That is, they will look at the net profit (EBPITD)) and subtract from this net profit an estimated annual amount for equipment replacement. They will also adjust the net profit by subtracting a fair salary or at least an acceptable salary for the new owner.

The adjusted net profit number is used as a benchmark to measure the firm’s ability to service debt. If the adjusted cash flow is, for example, $100,000 and prevailing interest rates are 10%, and the buyer wants to amortize the loan over 5 years, the maximum a buyer is willing to pay for the firm would be about $253,000. This is the loan payment that $100,000 would support over 5 years.

6. Tangible Assets/Cost to create

Used when a business is worth no more than the value of its tangible assets. This would be the case for some businesses that are losing money or paying the owner’s less than fair market compensation.

Valued at the best possible price for the asset list. Also take into consideration any leasehold renovations you have done.

When buyers do an evaluation, they should consider the costs to create what you already have in place and buy accordingly.

Very applicable to restaurants and cafés, where the general fit out costs can run as high as $250,00 before you open the doors.

Unfortunately, it is very rare you will recoup all these initial costs but need to be factored into your sell price.

When selling a software business, many buyers will purchase the licenses and copyrights as the time to develop themselves can take years or not at all.

They will buy the business based on their projected costs

7. Intangible Assets

Based upon the buyer’s buying a wanted intangible asset versus creating it. Many times, buying can be a cost efficient and time saving alternative.

Commonly used in the acquisition of a customer base. Customers with a high likelihood of being retained are valuable in most industries.

Consider an accounting firm with a $100,000pa turnover.

No. of clients, client break up:

  • SMSF -1
  • Trusts -11
  • Partnerships -3
  • Business -44
  • Individuals284

Because of the large individual customer ratio, the value may only be 70% of the total revenue.

An increase in SMSF or business can increase this value to 100% of the turnover

This approach can also apply to insurance agencies, employment agencies, real-estate agencies (property management), advertising agencies, payroll services, and bookkeeping services.

Primarily businesses that are bought and sold for their customer base.

Conclusion

There is no golden bullet to valuing a business sales price.

The above is differing approaches to get an estimated value.

Ultimately if you can explain an in-depth approach to how the business value was decided, you will be in a much better place in achieving a satisfactory sale.

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Buying a Business

Buying a Business

The beginning of a journey

Starting your own business can be one of the most exciting times you will have in your work career. It can also be the most stressful.

Doing your research and following a system can certainly help relieve some of that stress.

Firstly analyse the reasons why you are doing this

  • If you had a bad day at work and want to leave your boss
  • You think it will be easy
  • You want to work set hours
  • My friends make good many working for themselves

You are probably not doing it for the right reasons

  • If you want the freedom to develop your own ideas
  • You understand workdays can be 24 hours
  • You are looking for long term financial independence
  • The thought of small business excites you

Congratulations. This is a great start.

Starting from scratch

Most people’s first thoughts are generally to take their skills and build a business from scratch. You can develop your own ideas and build the company from the beginning in your image.

You may have an idea that is unique to the sector you are targeting, making finding something established impossible.

This is the unicorn that everyone is looking for.

There can also be distinct disadvantages. Building a customer base, promotion of the brand, finding employees and most importantly, establishing cashflow all without reputation takes more time than most realise.

This can also make it very hard to access finance for expansion

Existing Business

If you have done your research, buying an existing business is less risky than starting your own.

The initial establishment has been done with an established customer base, employees will be in place and familiar with day to day operations.

Proven financial records will be available, with cashflow concerns lessened by having an existing market for your products/services.

Buying a business can also give you access to any patents or copyrights, databases and social media. All of these can be very profitable for the incoming owner

Of course, there are downsides. Cost is always the first hurdle. But consider financing from banks or investors are generally easier accessed when you have a proven track record.

You may lose some clients who are attached to the previous owner, staff may leave or react badly to new owners, inventory or methods may be outdated.

Ensuring you have the right business comes down to you. Getting as much information as possible will alleviate these concerns.

The right business

I’m buying a bar

Ok. So I’m guilty of this. Having a love of music and talking to people, this seemed the perfect fit.

Having never tapped a keg, made a cocktail or cooked for an audience, should have rang some warning bells. But above all of this, not having worked in hospitality was the biggest learning curve.

It was an intense two and a half years of learning. The biggest being. Hospitality is really hard work.

Buying the perfect business starts with choosing the right type of business for you.

Give a lot of thought to the business you want to be in

  • are you physically, financially and emotionally suited to the business
  • have the necessary skills, experience, time, resources, vision and commitment to make this business a success
  • will benefit from this opportunity, bearing in mind your personal circumstances.
  • the geographical area where you want to own a business

Once you’ve chosen a region and an industry to focus on and determined your price point. Its time to see what’s on offer. Business for sale sites are generally the best way to start. Many recommend local papers. I would discount this as most areas no longer have local papers.

Not all businesses are listed for sale. In fact some businesses don’t think about selling until someone asks. The right offer at the right time can certainly provoke interest.

Contact a business broker. The assistance brokers can offer, especially for first-time buyers, can prove invaluable

  • Prescreening. Brokers will have obtained financial statements, contracts and settled on a fair selling price with the seller. Staffing, assets and possible expansion possibilities will also be available.
  • Helping you pinpoint your interest. Finding your skills, interests, geographical preferences and budgets, then helps select the right business for you. With the help of a broker, you may discover that an industry you had never considered is the ideal one for you.
  • Negotiating.  They help both parties stay focused on the ultimate goal and smooth over any problems that may arise.
  • Assisting with paperwork. Staying up to date with the latest laws and regulations affecting everything from licenses and permits to financing and escrow. Working with a broker reduces the risk that you’ll neglect some crucial form, fee or step in the process.

Analysing the business

Get out your microscope

Our analysis starts with some basic questions.

  • Why is this business for sale?
  • What is the general perception of the industry and the businesses position in it
  • What is the future outlook
  • Is the business profitable Will it continue to be profitable?

Assess the company’s reputation and the strength of its business relationships. Talk to existing customers, suppliers and vendors about their relationships.

Look to social media accounts. You will find a wealth of information on customer feedback, business history and penetration in their market.

Once you have satisfied your initial analysis. Examine the asking price to potential returns. Assessments should include financial health, earnings history as well as tangible and intangible assets.

Request a copy of

  • financial statements
  • balance sheets
  • income statements
  • BAS statements
  • Cash flow statements
  • Legal contracts (leases, patents, etc)

It’s always advisable to have your accounting team examine all the above. This will give you a thorough understanding of the business to determine the likelihood of its future success.

Stespar Business Services can also conduct full credit checks to reveal any payment defaults, holds on assets or legal proceedings.

When due diligence is done, you will know just what you are buying and from whom.

Due Diligence

Gathering Information. Evaluate

Before making an offer. Make sure you are fully informed of everything

Inventory. You should have a list of all things that are offered in the sale. Now is the time to do an inspection of the premise and confirm the list. Take a copy to the site, check it off against your list. Take lots of pictures.

You should know the

  • Status of inventory,
  • What’s currently on hand
  • How old is it?
  • What is its quality?
  • What condition is it in?

You don’t have to accept the value of this inventory: it is subject to negotiation. If you feel it is not in line with what you would like to sell, or if it is not compatible with your target market, then bring those points up in negotiations.

2. Assets. This includes all products, office equipment and assets of the business. Take into consideration all the inventory information but include

  • Are the assets purchased or leased?
  • Have investments been made on improvements and maintenance?
  • What changes will you have to make to suit your

3. Contracts and legal. This list can be exhaustive. Here are some of the most important to consider.

  • lease and purchase agreements,
  • distribution agreements,
  • subcontractor agreements,
  • sales contracts,
  • employment agreements
  • business name statements,
  • articles of incorporation,
  • registered trademarks,
  • copyrights, patents, etc.

If you’re considering a business with valuable intellectual property, have an attorney evaluate it. In the case of a property lease, investigate the steps to transfer, how long it runs, its terms, and if the landlord needs to give permission for transfer

4. Inc. If the company is a corporation, where is it registered, are there any decisions against it or pending or is it foreign owned

5. Tax returns. Some small business charge against the business for personal needs. Go through statements and spend the time with your accountant to isolate these charges

6. Financial statements. Compare statements, including all books and financial records, to their tax returns. Have your accountant compare these ratios to other businesses in your industry

7. Sales records. Evaluate the monthly sales records for the past 36 months or more. If more than one product, break down by product. What is the cash ratio of all sales? How do these compare with industry norms?

Who contributes to the revenue of the business? Does one customer give 100% sales or are there multiple customers contributing. What is the breakdown for top 10 customers?

8. Liabilities. Has the owner used assets such as capital equipment or accounts receivable as collateral to secure short-term loans, if there are liens by creditors against assets, lawsuits, or other claims? Are there any unrecorded liabilities such as employee benefit claims, out-of-court settlements being paid off?

9. All accounts. Break them down by 30 days, 60 days, 90 days and beyond. Checking the age of receivables/payables is important in determining how well cash flows through the company.

You should also make a list of the top 10 accounts and check their creditworthiness.

If there are payables older than 90 days. Check if any security on property has been registered

 10. History.  Is the industry or market segment growing or declining or stagnant? Disruption across industries is rapidly changing market sectors (Think Blockbuster or films for cameras)

11. Location Location Location.  This is especially important to retailers, who draw most of their business from the primary trading area. Is the market you cater to primarily located in one area? Are there are any special requirements for delivering the product, or any transportation difficulties encountered by the business in getting the product to market?

12. Reputation. How is the business perceived by your customers? Everyone believes they are doing a great job. But not everyone agrees with you. Check social media comments. Talk to the industry or customers of the business if possible

13. Customer by owner. Are the customers of the business related to the owner or have a loyalty that will take them elsewhere once the owner leaves? If a major client is close to the owner, they may take the opportunity to change camps one the owner is gone

14. Employees. Last on the list but the most important asset to any business.

Keeping staff is always preferable when coming into a new venture. It is important to get an idea of who will stay with the company one the owner leaves

Look at the management practices of the company and know the wages of all employees and their length of employment. Examine any management-employee contracts that exist, as well as details of employee benefit plans.

The Offer

“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.” Warren Buffet

No decision is more emotionally charged. No decision needs less emotion than any other when deciding upon a price for a business.

The owner has one idea of how much the business is worth, that is usually based on the time they have spent, financials, debt owed, retirement needed the blood sweat and tears they have shed.

The buyer will typically have another viewpoint.

Frankly they can’t value your time and hard work, what you need in retirement or the debts you have incurred

The buyer wants to negotiate the very best price they can for the assets involved and a chance to recuperate their initial purchase price in 18 months.

Each party is dealing from a different perspective and usually with high emotion.

Remember price is a very hard element to assess. It is up to the buyer to consider factors that will influence price, such as

  • economic conditions.
  • Motivation
  • How badly does the seller want out?
  • Does the seller have many personal financial problems?
  • Is there a partnership break down?

Deciding on a price, however, is just the first step in negotiating the sale.

Remember, you have the option to walk away from a negotiation at any point in the process if you don’t like the way things are going.

Just because you spent a month looking at something doesn’t mean you have to buy it. You have no obligation.

Mistakes. We all make them

Anxiety, impatience, emotion, or lack of research isn’t going to help you buy a business. Take your time. Recognize that there’s always time to reflect on the business that’s for sale.

Some of the more common mistakes are:

  • Buying on price. Buyers need to consider ROI. If you’re going to invest $20,000 in a business that returns a five-percent net, you’re better off putting your money in stocks. Usually if a price is too good to be true, It generally is
  • Cash. Some buyers use all their cash for the down payment on the business. They fail to predict future cash flow and possible contingencies that might require more capital. You need cash to operate and grow your business. How else will you ensure you’re able to purchase supplies, pay your rent, advertise, hire employees or take care of the myriad other business activities that require money?
  • Verify all data. Many business buyers accept all the information and data given to them by the seller at face value. Use your team to verify everything. You pay accountants and solicitors for a reason. They are the very best at analysing the fine print without emotion getting in the way.
  • Overextending. New business owners often overestimate their revenue during the first year and take on unduly large payments to finance the buyout. Revenue can be affected in the first year of any operation, non-recurring costs such as equipment failures, employee turnover, etc. Ensuring you are within your payment structure is crucial for any business
  • Sellers are human too. People sell businesses for many reasons. Because it’s for sale doesn’t mean they are desperate or need to sell it to you.

Often, the buyer will be cold, rigid and hard-headed.

Just because you have some money and may be interested in purchasing the business, that doesn’t mean that you aren’t going to have to give a little in the process of negotiation.

Transition

To ensure a smooth transition, start the process before the deal is done. Spend some time talking to key employees, customers and suppliers before you take over; tell them about your plans and ideas for the business’s future.

Most sellers will help you in a transition period during which they train you in operating the business. This period can range from a few weeks to six months or longer. After the one-on-one training period, many sellers will agree to be available for phone consultation. Make sure you and the seller agree on how this training will be handled and write it into your contract.

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Selling a business can be complicated

1 – So its time to sell

Time for change

The reasons for selling your business are many; retirement, change in your private or business circumstances, change of lifestyle, rationalising your portfolio or its just time to sell.

Understand the process of selling your business. Prepare all documentation. Research the current market.

Your accountant, solicitor, business adviser or financial planner can help a great deal with all of this. Now is the time to get as much advice as possible. Remember this is a financial transaction. As invested as you are in the business. People buy on returns, not on your emotional attachment.

Engaging into an informative conversation with a business agent can give you a very good idea of what price you can get for your business and how the process works. Most agents will provide free business appraisals. The business agents’ price is based on your trading history, status, market tolerance at time of sale and what they have seen like businesses sell for in current times.

It is not uncommon for the opinions of your advisors and business agent to disagree.

Don’t get discouraged by this, get everybody to clearly explain to you how they arrived to their price and why. The better informed you are, the better decision you are likely to make.

Now is the time to seek financial, legal and commercial advice. Emotional issues need to be dealt with prior to putting your business on the market. Failing to do so can cost you time as well as money.

Costs involved in selling the business don’t stop at fees and charges for advertising and professional services. Selling can be a huge distraction to you, while it is this exact time you should be concentrating on the day to day business needs.

Staff can be a real factor at this stage. Losing members of your business will make both the sale and ongoing trading very difficult. Staff will often feel uneasy when a business goes up for sale. Will they have a future role, should they look elsewhere, will the new owners value them as you have?

With all of this in mind, it is imperative you find the balance of maximising sale exposure, but keeping it as confidential as possible

A good business agent can do this for you.

2 – Choosing a Business Broker

Or why do I need one at all?

There are many business brokers offering services. All will have great features, references and will be the only ones who can sell your business. So, who do I choose?

Does the agent you are speaking to have expertise in your profession. Asking a broker who specialises in cafes will probably not bring you the results you are looking for if you are selling a manufacturing firm. Engaging the wrong agent could mean loss of time and money.

You need to select an agent or a broker that won’t just list your business and run the ads and then send the potential buyer to you to deal with them. The whole process becomes a partnership between the seller, agent, buyers and other business advisors to the seller

You need an agent who will help you prepare the business and yourself, who will lead you and assist you in all steps of the process, who can locate the buyers and closely cooperate with you in order to achieve the best results.

  • How are they going to help you prepare yourself and your business for sale?
  • What is their process during marketing, buyer’s introduction, due diligence, and negotiation?
  • How are they going to locate the buyers?
  • Are they available for after hours meetings if necessary?

Exclusive contracts

Be aware of long exclusive contracts. I am still yet to be given a great reason for any seller to enter an exclusive contract that is valuable to anyone but the agent.

Some of the reasons I’ve heard

            “We will give it our utmost attention and will be driven to sell”

So, what were you going to do before? Just ignore me.

            “We are the only ones who can sell it in a timely manner”

Then you will have no problem with an open contract. You will sell it before anyone else anyway.

            “I can put you in touch with existing buyers straight away”

So, you either have them or you don’t. Do you really want to sell my business?

Locking yourself into a long exclusive contract with the wrong agent can create a lot of trouble and account for a lot of lost time and opportunity.

I’ll sell it myself

This is an option and one I’ve seen many times. Usually put on social media or one of the selling sites such as Gumtree. This will create calls.

Consider that out of 100 enquiries taken, around 5-10 are what we consider real enquiries. You will get a lot of calls from your competitors wanting your trading figures. People who have had a bad day at work and start to look at business sales, then realise that employed work is not that bad after all. People who just randomly pick businesses they may be interested in but are really only wasting time.

Yes. You will receive calls from business brokers asking to represent you.

Once you have found the ones who are genuine, you will then need to engage legal from both sides, organise deposits into trust funds, do all negotiations that come at this stage (agreeing on the price is only the beginning) and coping with landlords and advising the buyer how to become a suitable candidate.

All this needs to be done while you are still running your business. Besides the time taken and the organisation that needs to be done. You will need to be in a position you can accept money into trust. No buyer will give you a deposit without it being secured.

The fees and charges

Some agents charge up front fees, for listing and marketing fees. Some don’t.

Choice is the ideal solution. Ask what you receive for what you purchase.

Some listings require in depth information memorandums that can take up to 2 weeks to compile. Large complex businesses are well benefited to this approach. Don’t sell your self short by opting for cheap.

On the other side if you are selling a smaller business with minimal stock and records. Don’t pay large amounts for something that can get you the result from a one-page informational document

Don’t decide based on cost alone. Like any good business decision. Evaluate what’s on offer and sign what’s right for you.

3 – Preparation for Sale

The more you prepare. The faster it proceeds. Do it early.

What is your expectation of return? Have you discussed this with your broker?
Have you agreed on advertised price?

What is your minimum acceptable price and terms?
What you will do if you can’t reach your minimum acceptable terms of sale or what is your alternative to sale of the business?

Do you have time frames for sale?

All books and records need to be brought up to date, and ready for potential buyers’ inspection. Current lease documents and a complete asset list should be all completed and available.

You may be asked for BAS statements to show reportable revenue. Are these up to date and lodged. If your equipment is leased, are you going to pay this out on sale or will the new buyer be expected to take them over.

What are you going to do with the name of the business and any online presence you may have? This can be a huge sticking point for a lot of sellers. Buyers want to take them over as it shows a continuity of service and not scare the clients. Some sellers get emotional about the name.

Frankly if you’re not Apple or McDonalds. Its not worth losing a sale over because you named it after your first pet and feel attached. But your intentions need to be made clear. Telling the buyer, they can’t have what they thought they were buying after the offer is made, leads to great frustration for everyone.

A Sales Memorandum needs to be prepared outlining everything needed for a potential buyer to assess the business. The following information is to be included:

  • Brief description of the business and it’s history
  • Description of customers and markets
  • Description of products, services and pricing
  • Business suppliers
  • Description of premises and lease terms
  • Financial highlights for at least 3 years
  • Employees and wages explanation
  • Assets owned by the business that are for sale with the business
  • Strengths of business
  • Potential for future expansion
  • Reasons for sale
  • Asking price

In addition to preparing your business for sale, you need to prepare yourself.

4 – Marketing

Everything is agreed. Now what?

You feel you have the right team in place. Everyone is comfortable with the range. Excitement is at peak levels. So how do we find buyers.

  • The brokers website
  • Make known to brokers network for their potential buyers
  • Contact existing buyers in database to offer opportunity
  • Place content on Australia’s business for sale websites
  • Identify potential companies that would benefit taking over your business
  • Take advantage of social networks. Video marketing. Mail campaigns
  • Cold Calling

5 – Buyers Enquiries

Sorting and managing is the key

Enquiries will come in from all your marketing efforts and many different sources.

As stated above. Not all will be genuine enquiries.

It is imperative that all enquiries sign a confidentiality agreement before any information is given.

Calls are made to the buyer to investigate

  • Experience in industry
  • Funding availability
  • Expectations from business
  • Time frames of purchase
  • Answering or recording of questions the buyer may have

The buyer will want to meet the owner and inspect the premise. Again, it is vital that it is made clear no meeting or inspection can take place without the agent arranging with the owner

This is to protect the owner. The last thing anyone wants is for a buyer to turn up unannounced in the middle of your working day, asking for the owners’ time, right now and announcing to all, that they are there to buy the business.

Initial meetings with the owner can be arranged outside business premises or outside working hours.

The key to all of these enquiries is communicating the feedback given. Regardless of the time spent to achieve the correct position. Adjustments will need to be made for market uptake.

  • Is anyone seeking more information or just casually looking
  • Are we aiming at the right markets?
  • Is the pricing truly reflecting the current market

This needs to be discussed regularly between agent and seller, so adjustments can be made. This may include price, benefits or even taking it off the market.

7 – Offers

Everyone wants a bargain

All offers will be communicated to the vendors. This is a requirement the broker must adhere to. Remember this is your business and you decide on what offer is right for you.

The offer will include, but not exclusive to

  • Name of the buyer and the date
  • Purchase price
  • Time frame for the settlement
  • Required owners assistance during the changeover, time and nature of their involvement
  • Competing trading restrictions for the owners
  • Exclusion from purchase, if any
  • Conditions the offer is subject to

8 – Negotiation

The art of the deal

The offer may be accepted on first pass, it may not meet the reserved price.

The important thing is not to close communication. Understand each sides position and work towards a solution. At this point you all have a common goal, It just requires working together to make this happen.

Its most important to bring all details out now. Things like

  • Will the owner stay with business. For what period?
  • Will there be a trial period given?
  • Transfer of existing name web sites and social media
  • Landlords agreement if applicable
  • Inclusion and exclusion of assets
  • Existing third-party contracts

Accepting the buyer’s offer does not mean that the business is sold. Often a security deposit is taken, but this is fully refundable until an exchange of contracts is completed.

The buyer can withdraw their offer at any time, also the seller can still accept offers from other parties.

Once the offer is accepted, solicitors from both parties are informed and sales contracts need to be commenced.

9 – Due Diligence

Cavaet Emptor

Any business or potential business owner will not exchange large amounts of money without inspection.

It is in your best interest to have all of these documents ready. They are vital to the smooth transfer of business and to protect you in any future dealings.

Be open and 100% transparent. The list will include but not inclusive of

  • Contracts for sale of the business
  • Financial records
  • P&L for last three years
  • Bank statements
  • Tax returns
  • Proof of past sales
  • Proof of past purchasing
  • Current balance sheet
  • Employment contracts and remuneration amounts Insurance policies
  • Pending quotations
  • Customer database
  • Any Up front payments received Supplier contracts
  • Joint venture and partnership agreements
  • Trademark registration
  • Stock levels
  • Asset registry
  • Customer contracts Property Leases
  • Lease and rental agreements for any equipment and assets
  • Software licenses

10 – Exchange

The deal is done

Exchange is the term used to signify that both solicitors have agreed to all terms and conditions of contract, documents are signed by both parties and the contracts have been given to both sides

Without agreement from both sides, there is no withdrawing from the contract.

The buyer can no longer seek a refund if a deposit has been paid nor withdraw the offer. The seller can longer accept offers from any other interested buyers nor withdraw the sale.

11 – Settlement

Pick a day. Any day

Today is the day. Agreed dates were put into the contracts and here we are.

This can be done at a mutually agreed venue. It can be done at the business site, solicitors office, agents office or at a restaurant if desired.

Payment is given to the vendor less deposit paid (if applicable). The deposit is released from the trust account. The agents commission and any other fees are deducted from the deposit, or are now due.

Once settled the business and all assets are transferred to the buyer,

From this time the buyer is now responsible for

  • Profit and Loss
  • Employee hiring
  • Lease of premise
  • Rental or leasing agreements
  • Contracts
  • Intellectual property
  • Business names and reporting

Step 12 – Change over

Let me help you

In agreement during negotiation stage. The old owner may be engaged for a handover period.

This may be for information exchange, as a contractor to the business, manager of the business or CEO. I have seen instances of the previous owner becoming an employee to the new owners.

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One in three businesses in cash crunch

The AFR reported that almost one in three businesses say their cash on hand would allow them to survive less than three months.
A June survey on business impacts of COVID-19 shows that two-thirds of companies experienced a revenue decline compared with the same period last year and only 8 per cent reported an income rise.

More than 80 per cent of businesses in education and training, accommodation and food services, media and telecommunications, and arts and recreation posted a revenue fall.


Some 26 per cent of businesses suffered a revenue fall of up to 25 per cent; 37 per cent lost 25-50 per cent; 17 per cent posted a 50-75 per cent plunge; and 14 per cent had more than 75 per cent of their revenue wiped out.
The Australian Bureau of Statistics business impacts of COVID-19 survey of 2000 businesses between June 10 and 17 provides a snapshot of how the virus is affecting companies.

The survey was taken as governments gradually lift business restrictions and physical distancing rules.

Some 30 per cent of small businesses said their cash on hand would only support business operations for less than three months, compared with 24 per cent of medium-sized businesses and 12 per cent of large businesses.

Many businesses (60 per cent) are seeking external advice in response to COVID-19.

“This external advice was most likely to be obtained from organisations including banks, lawyers or accountants (81 per cent) and also federal government agencies (64 per cent),” ABS head of industry statistics John Shepherd said.

Firms in struggling sectors such as healthcare, arts and recreational services, and education and training were the most likely to have sought external advice in response to the virus.

Businesses were asked to estimate the length of time that, under current conditions, operations could be supported by the available cash on hand.

“Several businesses commented that existing cash on hand would not be sufficient to maintain operations if not for government support measures,” the ABS said.

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Trade finance can help businesses stabilise shaky supply chains

With many Asian manufacturers suspending their operations due to the spread of the coronavirus, businesses at home are faced with an unprecedented challenge. Industries that rely on imported materials and products from China are scrambling to deal with interruptions to their supply chains. For some, that means finding alternative suppliers, while others seek to stockpile what they need to get through the crisis.

Building new supplier relationships, however, can be expensive, and many businesses don’t have a great deal of liquid capital to work with. This is, in part, the result of recent natural disasters, which have kept consumer spending down for months on end. In order to adapt to changing supply conditions, businesses need to be able to make new supplier arrangements quickly.

To help them get this done, Fifo Capital’s trade finance facility offers a unique solution. It allows businesses to fully finance supplier purchases, allowing them to get back to business as usual as quickly as possible. Not only does this help them to avoid potential setbacks, it offers a unique competitive advantage to those who can maintain their operations as competitors struggle.

Businesses risk lost revenue if they can’t adapt quickly

Businesses that rely on Chinese goods need to respond to the potential interruptions to their supply chains as soon as possible. Traditional retailers otherwise risk running out of stock, while auto manufacturers, for example, might be forced to interrupt production because they can’t get one or more of the parts they need. Every day that production is halted, or customers can’t find what they’re looking for on store shelves, translates to losses for those businesses.

Because of this, it’s critical that they find alternatives as quickly as possible. Businesses who have already suffered interruptions will need to immediately find new suppliers in other countries. Others might opt to stock up from existing suppliers now to hedge against possible supply interruptions in the future. For already cash-strapped businesses, that means finding financing that is comprehensive, fast and readily accessible. Fortunately, Fifo Capital’s trade finance facility is designed to accommodate this type of situation perfectly.

How trade finance works

Most businesses don’t have the working capital on hand to pay for supply shipments up front. To get the financing they need, they use trade finance. This type of financing provides procurers with funds secured against the stock that they purchased with it. As soon as the stock is in hand, the payment can be issued to the supplier. The procurer can then use the purchased stock to pay back the financier and generate profit.

Suppliers, however, can’t risk shipping goods over international borders to a customer without first receiving payment. This is particularly true for new relationships, where no trust and little rapport has been established. The procurer can’t pay for a shipment until it after arrives, and the supplier can’t send the shipment until some kind of payment is received. Traditionally, this issue is resolved by paying the supplier a deposit up front. Sometimes, however, poor financial circumstances mean that procurers can’t afford that deposit, either.

Financed deposits are the key

Fifo Capital’s trade finance facility is designed to allow businesses to finance the entire purchase, including the deposit. This allows businesses to acquire the supplies they need, even if the recent economic conditions have left them out of pocket. It’s possible to do this, because Fifo Capital lets procurers finance the deposit separately, without using the purchased stock as security. Instead, the funds are secured against outstanding invoices or other business assets.

Use trade finance to boost your business’ recovery

The businesses who respond to the current situation most effectively stand to do more than simply avoid potential disruptions to their supply chains. Instead, they might be able to boost their competitiveness while others in their industry are struggling. Customers who were previously loyal to competitors will be faced with empty shelves, and looking for alternatives. At the same time, temporary scarcity resulting from unsteady supply will likely lead to higher prices.

This represents a significant growth opportunity, and the chance to earn greater profits. Businesses who can maintain their supply chains during this time, or who can adapt quickly, will be able to capture new customers simply by virtue of availability. Moreover, those using trade finance to preemptively purchase and stockpile larger quantities of supplies will be able to negotiate for better pricing, benefiting from economies of scale. This, in turn, allows them to price their own products more competitively.

As China races to manage the coronavirus outbreak, its manufacturers are suffering unprecedented challenges. While this will inevitably affect economies all over the world, it also represents an opportunity to those who react quickly and decisively.