Common aspects that create buyer risk, uncertainty, doubt and decrease your economic appeal when selling your business

If you’ve found this page and haven’t yet downloaded the ‘RUDE Booklet for selling your business for its true valuethen click here to download it first.  Otherwise, read on…

What follows are a list of common Risks, Uncertainties, Doubts and Economic Unappealing aspects of a business. These are far from a full and comprehensive list but they are an excellent starting point.

 

Common things that create Risk in a business, especially to an incoming business owner:

  • Small number of customers
  • Large percentage of turnover dependent on one or a small number of clients.
  • No or limited contracts with clients or suppliers
  • Very high reliance on a small number of key, ‘difficult to replace’ staff.
  • Highly reliant on one supplier.
  • High levels of un-reported income.
  • Aging or damaged equipment that may be difficult, expensive or impossible to fix.
  • Very high rent or unfavorable lease terms (especially if coupled with low profit margins)
  • High working capital requirements for the day to day operations of the business.

 

Common things that increase a potential buyer’s Uncertainty about the business’s future.

  • Limited time remaining on the lease
  • High level of knowledge needed to run the business
  • High reliance on the owner for day to day operations
  • Uncertain or changing industry
  • Changes in local or otherwise direct competition
  • Unpredictable or erratic changes in turnover year to year.
  • Very low barriers to entry into industry
  • Lack of proof for un-reported income (if any)
  • High levels of unpaid debt
  • Complex business with limited or know management or system documentation

 

Common things that cause a potential buyer to Doubt your reasons for selling or that they’re making the right decision.

  • Unclear reasons for selling
  • Lack of contracts for ongoing verbal agreements with clients or suppliers
  • No or limited supporting documents for financial reporting.
  • Owner has conflicting financial interests such as a similar business that may compete with or cannibalise sales of business on offer.
  • Important information not readily available to potential buyers.
  • Lack of implemented compliance across areas of the business.
  • Un-resolved legal issues.

 

Common things that decrease the Economic Appeal for potential buyers of your business.

  • Lack of business documentation and automation systems
  • Highly specialised knowledge needed to operate
  • Very high stock levels required to run the business
  • No offer of vendor finance or payment options
  • Lack of management structure causing a high reliance on the owner
  • Ageing equipment with high repair or ongoing maintenance costs
  • Lack of supporting financial documentation needed to acquire a business loan.
  • Sales price too high for target market (closer to sale decision)
  • Banks not lending for businesses in your industry
  • Very high working capital requirements for the day to day operations of the business.

Now this isn’t a full and comprehensive list by any standards, but it’s an excellent starting point. It should also give you a clearer idea of what types of issues can fit into each category of the RUDE system. If you need any further assistance please don’t hesitate to get in contact, furthermore, if you’ve made some progress on your RUDE booklet and would like some more assistance with selling your business, simply click here to enquire directly with us or give us a call on (02) 9817 3331.

I look forward to talking to you. Until then, good luck with your business sale!

PS. The RUDE system is from our DIY business sales book that we’ve recently launched. If you’re more of a DIY sort of person when if comes to selling your business, click here to find out more.

By Zoran Sarabaca
Principal
Xcllusive Business Sales PTY LTD
Sell your business with Certainty
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Sell your business for more by planning NOT to sell; alternatives to selling your business.

Despite the fact that barely anybody does it, planning alternatives to selling your business is a fantastic negotiation tool that could help you sell your business for more…

Picture this: after six long months on the market, you’ve finally found a buyer for your business. You want out and they want in, and what’s more it’s well and truly crunch-time. You have no alternative to selling, no other viable buyer, and you don’t want to (or can’t) be in the business anymore. Then at the 11th hour, your buyer comes back with an extremely low ball offer and won’t budge.

What do you do?

Do you take the offer and end up with less for your business? OR do you push back for more money and risk losing the sale all together?

Neither choice is a perfect one and you can’t possibly know which one is better until you’ve already made the decision.

Here’s where planning NOT to sell comes in handy. Planning a good alternative to selling adds a third option to that conundrum. This takes the pressure off you which means you don’t have to accept your buyer’s lowest offer or risk losing the sale completely. Having this third option available is a fantastic fall-back option that you can use to give you backing during negotiations. You might even get more for your business as a result. So what are some common alternatives to just selling?

  • Commit to stay with the business and invest in building it and increasing it’s profitability for the long term.
  • Do the above and eventually hire a manager to reduce the load on yourself.
  • Do the above two things and sell it after a year or two for a whole lot more.
  • Close and sell the stock, fixtures and fittings to minimise your losses.
  • Consider alternative sale arrangements; 50-50 split, staged buyouts etc
  • Sell, but remain employed with the business as a paid consultant for a period of time.
  • If you’re in real trouble with debt you can consider liquidating.
  • Seek a similar business to merge with. For the right type of business this could increase profitability and reduce risk.

These are just a handful of suggestions (and there are definitely more options), but really the more options you have to selling, the better it is for you and for negotiations.

By the way, this isn’t to say that you shouldn’t accept the low ball offer if it’s still your best option. You really need to weigh up your alternatives and pick the best one. Sometimes under the right circumstances, a low-ball offer might actually be your best offer, something that we wrote about in this blog: (Click here to read about it), so you need to keep that in mind.

Now, as we’re business brokers, it’s our job to sell businesses, so it might seem against our best interests to suggest that you not sell your business. That’s not what this blog is actually about. Really, if you want out, then selling is the only cut-and-dry option with a high return. These alternatives are important to a) reduce the stress on you during the selling process (which can be more disruptive than you think) b) give you extra ammunition during the negotiations (to help you sell your business for more) and c) Give you a handful of options should the sale not go through.

These three things are actually good for your business sale and can help it go through smoother and quicker. So in that respect, it’s a chunk of advice that helps both us and you. Good luck with your planning!

By Zoran Sarabaca
Principal Xcllusive Business Sales Pty Ltd
Sell your business with Certainty.

Would you like to talk to us about your situation? Need help with selling your business? If so, we’re happy to help, just give us a call on 02 9817 3331 or fill an enquiry on this site by clicking here.

We look forward to talking to you.


DISCLAIMER: The information contained in this blog is for information purposes only. It is not meant to be considered as business advice. The points of view expressed represent reactions to the current business market and it should be noted that the market may be subject to change in the future. Reader’s specific circumstances may be different and have not been taken into consideration. Always consult with your professional advisors for any business advice.

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One important question business sellers aren’t answering for their buyers (and how to answer it)

One of the biggest considerations for a buyer of your business is: ‘If I owned this business, what will I have to do?”. That might sound obvious, but in practice, it’s one of the least serviced concerns of a buyer. When you flick through a Sales Memorandum often you’ll see some mention of what the owner does in a business, but usually, it’s nothing more than the hours involved.

If you consider the importance of it though, the question;‘how will my life change through buying this business’, it seems crazy that it’s overlooked at all!

So, to bring in the end of the year, here are two very quick and easy tips to make it easier for you to answer that question adequately.

1. Keep records of YOUR working hours.

Keep a journal of your working hours and what you do. After a couple of weeks, write yourself up a timesheet! It might sound like a silly exercise, but for the most part, it doesn’t take too much time, and it can do a lot to clarify to a buyer what to expect. If you’re worried that you’re putting in too much time, and that it might deter buyers, then consider this: It is likely that your workload will be seen by buyers through their Due Diligence process anyway. On the plus side, conducting the exercise might present you with some possibilities to hand over some of your jobs to your employees. You might find some stuff in your workload that you simply don’t need to do. This in effect will make your ‘job’ more attractive to potential buyers.

2. Write a job description of YOUR job.

Based on your journal, write yourself a job description. Keep it succinct and try to paint a picture of what you do in the day to day running of the business. This is just as important as the timesheet. For a buyer, it will give them a feel for what to expect. It uncovers the unknown… and that is a very valuable asset in any business sale.

… So what’s the point of all of this?

Selling a business is rather like selling anything- it’s all about overcoming barriers to purchase. With a business sale though, you’re talking about a LOT of money and a very big life change which leads to uncertainty in your buyers. By giving some sort of formal answer to the question ‘What will I have to do’, you are actively overcoming an uncertainty that would otherwise be a great, big, fat question mark in the mind of a buyer.

In short, answering this question makes your business more sellable… Which is what this blog is all about!

If you would like help in preparing your business for sale or taking it to the market, we’d love to talk to you. To get started Call us on (02) 9817 3331 or fill in an enquiry form by clicking here.

Also, if you have any success with this process we’d love to hear from you, so let us know by leaving a comment below!

By Zoran Sarabaca

Principal, Xcllusive Business Sales
Sell your business with Certainty

PS. By the way… When should you start? Even if you’re not selling yet, try the job journal exercise now. As we mentioned earlier, you might uncover some jobs that you’re doing that you can give to your staff. Reducing uncertainty about your job is one thing, but if you can make your job easier to do… that’s what buyers really want.

DISCLAIMER: The information contained in this blog is for information purposes only. It is not meant to be considered as business advice. The points of view expressed represent reactions to the current business market and it should be noted that the market may be subject to change in the future. Reader’s specific circumstances may be different and have not been taken into consideration. Always consult with your professional advisors for any business advice.

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Should you tell your staff that you’re going to sell your business? (or, the Story of Agent John)

 

Last week I got the strangest voicemail message from ‘John’ (not his real name), one of our business sellers. In a confident voice his voicemail went:

Hi Zoran. I just wanted to tell you that our outstanding balance on that order will be fulfilled tomorrow” *click*

It was a strange message. Did he have a wrong number? No, because he referred to me by name. So what did he mean? And then it hit me.

I knew exactly what he meant….

Behind John’s voice “…our outstanding balance on that order will be fulfilled tomorrow” , was another cue to its meaning: voices. There were voices in the background; the familiar sounds of everyday life in a business. He was at work and he was sending a coded message that read:

Top Secret. Your Eyes Only. Dear Zoran. I am writing to inform you that I will be signing the contract for the sale of my business tomorrow. There are too many staff around so I must speak in code. Regards, Agent John [End of Message: Burn After Reading]

John, like so many business sellers before him, had decided to sell and found himself leading a double life. On one hand he was working towards a big life change; selling his business. But, to his staff, he felt he had to act like it was business as usual. He was like James Bond undercover; he had secret email addresses, secret forms and files and he was sending coded messages to his business agent.

SO. What should John do? Should he retain his secret agent status or blow his cover?

To start, I should probably say that it’s different for every different business. Truthfully, for some businesses, telling your staff that you’re selling may not be the best course of action, but for others there are serious tactical benefits. So to answer this question we’ll look at the Pros and Cons of telling your staff that you’re thinking of selling.

Cons to telling your staff that you’re selling your business:

  • Staff may leave, fearing for their jobs or treatment under a new owner. This could cost you money in retraining and if it happens too close to the deal could negatively affect the sale.
  • It can affect your confidentiality. What if your staff tell other people? You might consider asking them to sign a Confidentiality Agreement.
  • Staff may begin to slack off. If they know you’re going they might not feel they need to ‘impress’ you anymore.
  • The big con is that it creates uncertainty amongst your staff who will of course be concerned about their employment future.

That last point regarding job uncertainty is potentially the most damaging, so careful management of the situation is needed to alleviate employee concerns. One-on-one, let them know that you need them for their experience and services they provide, and therefore a new owner will also need them. You may even choose to involve them in buyer enquiry process through introductions to potential buyers. Anything you can do to alleviate this uncertainty will offset the majority of the cons associated with telling your stall that you are selling your business.

Now, some of those could seriously put you off telling, particularly the confidentiality issue. If the confidentiality issue is a deal breaker for you, maybe don’t tell your staff, but don’t decide before reading the Pros…

Pros to telling your staff that you’re selling your selling:

  • Staff will have time to acclimatise to the idea, lessening the likelihood of them leaving when they find out later. This information can be leveraged to improve the stability of your business in the eyes of a buyer, increasing its saleability.
  • It will give you the opportunity to overcome your staff’s uncertainty through careful situation management and through introducing them to potential buyers.
  • It will give you a context in which to place certain key staff members under employment contracts, again raising the stability for the potential buyers and thus increasing its saleability.
  • You open up a new pool of buyers; your staff and their contacts. These are people who know the business intimately, know your customers and your suppliers. One of them may be an ideal candidate for the buyer of your business and more importantly, a CONFIDENT buyer.
  • The Due Diligence process is far easier for the buyer. They don’t have to come after hours, operate in secrecy and they can actually meet the staff. This not only builds confidence for the buyer, but it will serve to set the staff at ease.
  • It will give you an opportunity to train key staff for tasks that you currently fulfill. This reduces reliance on you and increases the attractiveness of the business for new buyers.
  • Peace of mind. It’s done. They know. You don’t have to lead a double life anymore.

So, given all of that information, what should you do if you were in John’s position. Truthfully I can’t answer that because it comes down to your personal situation. But I can tell you the rest of John’s story…

THE BIG REVEAL

To tell you the truth, John didn’t leave a message last week. It actually happened about 10 years ago. And John wasn’t his real name. His real name was Zoran… It was me. I, Zoran Sarabaca, left that message for my solicitor at the time.

So what did I do? It was the second business that I’d owned and sold and in the end I decided to tell my staff. Amazingly, one of my staff ended up buying the business. As a side note, years later I helped him sell the business again to someone else. So for me it was the right thing to do and I have absolutely no regrets.

In the end, a business can be sold with or without the staff knowing. What you should do in your situation really comes down to a decision on case-by-case basis. So read through the Pros and Cons above and weight them up against each other. If you have any questions at all leave a comment below or feel free to contact us.

I look forward to hearing your story.

To talk to us about you personal business sales situation please don’t hesitate to call us on (02) 9817 3331 or click here to leave an enquiry.

Thank you for reading!

(PS. I hope you liked the twist)

By Zoran Sarabaca
Principal, Xcllusive Business Sales.

Sell your business with Certainty.

DISCLAIMER: The information contained in this blog is for information purposes only. It is not meant to be considered as business advice. The points of view expressed represent reactions to the current business market and it should be noted that the market may be subject to change in the future. Reader’s specific circumstances may be different and have not been taken into consideration. Always consult with your professional advisors for any business advice. 

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Why a good ‘Sales Memorandum’ will help you sell your business quicker. (Also, what is a Sales Memorandum?)

One document can make all the difference in selling your business.

The Sales Memorandum isn’t just a mere formality; it is the first vital point of formal information exchange between buyer and seller, that if done right can propel your business sale jumps ahead.

(if done poorly, it has the exact opposite effect)

So, here it is; What is a Sales Memorandum and Why you need a Sales Memorandum:

What is a Sales Memorandum?

To put it dryly, the ‘Sales Memorandum’ is a roughly 20-page document that details your business’s operations, covering everything from your basic functions through to financial figures. It is given to your prospective business buyers, not immediately after they have enquired, but after they have signed a confidentiality agreement. This is because the document may contain sensitive information about your business that you don’t want to just ‘give out’.

When a buyer has filled out the confidentiality agreement the Sales Memorandum is the very next thing that you need to send them.

(NOTE: speak to your solicitor about creating a good confidentiality agreement)

Why do you need a Sales Memorandum?

The document itself is not an ‘advertisement’ for your business. It needs to be an un-biased information source for potential buyers that allows them to understand your business from the inside out. So why do you need it? Here’s why:

The current buyer’s market is at its height of caution at the moment and it’s not that hard to see why. When a buyer visits a business classifieds site they need to sift through countless businesses, some of which perform exactly as advertised… and some of which do not. The issue that buyers face is that the only way to tell the difference between a good business and a ‘bad’ business is to spend long hours in due diligence- often only to find out that the business they’re looking at is nothing like the business that was advertised.

This is why buyers are so uncertain, and it’s also the precise reason why you need a Sales Memorandum; to assist in overcoming this uncertainty. If you overcome this uncertainty you can

  • accelerate the buying process,
  • gain an advantage over other businesses on the market that don’t have a memorandum
  • and Encourage more buyers to proceed from the enquiry stage.

All of this can add up to a quicker sale and with a bit of luck- a higher selling price.

The thing is, the only way to truly do this is to objectively show your business- warts and all.

Why warts and all? Think about it like a used car sale.

You don’t want your Sales Memorandum to play the part of the used car salesman who does nothing but talks up your car. Business buyers don’t trust that guy. Instead, you want your Sales Memorandum to play the part of a trustworthy third party vehicle inspection that shows the good with the bad. By you disclosing the good with the bad in an unbiased way, your potential buyers will feel more comfortable trusting that what they’re reading is true. If they can trust what they’re reading then their uncertainty is lessened and they will be able to make an informed decision about whether or not to pursue the sale.

Quick List: How do you write a Sales Memorandum?

To describe exactly how to write a Sales Memorandum would far exceed the scope of this blog. So we’ll keep it short. Try to cover the following:

(pssst. You can skip the list if you aren’t writing one today)

  • Conditions of Acceptance
  • The Proposed Transaction
  • Information regarding this offering

(note: these first three are important and you should seek assistance in preparing them)

  • Profile, Description and Brief History of the Business
  • Description of the Market and the Customers
  • Product, Sales and Pricing
  • Specific Trends
  • Suppliers
  • Advertising and Sales
  • Real Estate
  • Shop Fixtures, Fittings and Software
  • Training and Introduction
  • Guarantee
  • Financial Highlights
  • Employees and Wages
  • Skills and Licenses Required
  • Current Issues
  • Strengths of the Business
  • Reasons for Sale
  • Sale Price
  • Summary of Investment Considerations
  • a List of Documents available for review

 

Now, this list offers a framework from which to start, but keep in mind that some of these items might not apply to your business, nor will they encompass everything that you’ll need to include. Try to cover what is important for your business, and remember, try keep it objective and keep the ‘sales’ speak to a minimum.

To recap, through reducing the uncertainty for buyers, a good Sales memorandum can

  • accelerate the buying process,
  • help you gain an advantage over other businesses on the market that don’t have a memorandum
  • and encourage more buyers to proceed from the enquiry stage.

And once again, all of this can add up to a quicker sale and with a bit of luck- a higher selling price. So if you’re thinking of selling, any time spent making your Sales Memorandum as good as possible is NOT time wasted.

To talk to one of our agents today about selling your business and preparing your own sales memorandum, click here to fill in an enquiry or simply call us on (02) 9817 3331.

 

By Zoran Sarabaca

Principal of Xcllusive Business Sales
Sell your business with Certainty.

DISCLAIMER: The information contained in this blog is for information purposes only. It is not meant to be considered as business advice. The points of view expressed represent reactions to the current business market and it should be noted that the market may be subject to change in the future. Reader’s specific circumstances may be different and have not been taken into consideration. Always consult with your professional advisors for any business advice. 

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Why high stock levels are a problem when selling a business (and what to do about it)

If your business requires a lot of expensive stock to run you may have a problem to overcome when you sell. Even if this doesn’t describe your position, it’s an interesting issue that gives you an insight into the buyers’ market, so read on….

Why is high stock value a problem when selling a business?

It all stems from how businesses are actually priced. Businesses are priced on a multiple of usually between one and three times yearly profits. This range can vary greatly depending on where the market is and the risks involved in the business, but let’s say for argument’s sake that an average business will fetch three times profit on the market. This represents a problem for businesses with high stock levels.

To illustrate this problem, let’s use two similar examples.

This is Sam.

 Sam’s business returns a profit of $300,000 p/a after owner’s wages. He has good financial documents and a relatively safe income stream, so his business is valued on three times earnings.

Sam’s Business with $300,000 profit at three times earnings = $900,000 asking price.

 

This is Jennifer.

Jennifer’s business also returns $300k profit after owner’s wages. It’s also a safe business and has all financial documentation meaning that it is also valued on three times profits. The only difference between Sam and Jennifer’s business is that Jennifer’s business also has about $600,000 worth of stock that will need to be sold with the business.

Jennifer’s Business with $300,000 profit at three times earnings = $900,000 + $600,000 stock. Which means that Jennifer will need to ask for $1,500,000 asking price. 

But will she get it? Unfortunately not… and here’s why.

When a buyer is searching for a business, they will search for the greatest return on their investment. When faced with a choice between Sam’s business and Jennifer’s business this is what they’ll see:

You can see why Jennifer, with her high stock levels now has a problem. On the market, despite her business being almost identical, it is not going be nearly as attractive as Sam’s and it is very likely that she will struggle to find a buyer without significantly dropping her price.

Does this mean that stock has no value in a business sale?

Not exactly. Stock definitely has value, but on the business sales market, the substantial increase in initial investment means that it’s value can actually impede your business sale and make your business unattractive to the market.

So how could Jennifer solve this problem? There are three ways. She could:

  1. Reduce the investment by working down her stock levels to essential stock only. This will work for some businesses, however, if your business needs very high stock levels to run, then this first option isn’t an option at all. It also still means that the business will still need to go onto the market at a higher price than non stock-heavy businesses, so it may not quite solve the problem anyway.
  2. Sell the stock to the buyer on consignment. Jennifer could offer terms whereby an incoming vendor could buy the stock as they sell it on consignment. For the buyer, this would allow them to enter the business at a much lower initial investment cost, and for Jennifer it would allow her to sell her business with the stock at full price- only the stock values would take much longer to be returned.
  3. Offer vendor finance on the stock to remove her buyer’s concerns about high initial investment. This would allow the business to be marketed at as close to $900,000 as possible (it’s core value) and the stock be paid for in full ($600,000) over a set, negotiated period of time. Some discount to the business value may have to applied due to the cost of vendor finance if any. This may be preferable to consignment as it would remove the risk of stock not ever selling and it sets in place a timeframe for the return.

These three options, particularly the consignment and vendor finance options, would allow Jennifer’s business to compete on a level playing field with Sam’s or any other business on the market whilst still getting a full return on her stock value, or near enough to.

So, if you find yourself in Jennifer’s position, take heart- there are plenty of solutions to your problem (even if you didn’t know you had one). Speak to your solicitor about how to structure a consignment or vendor finance deal on your stock and advertise it as part of the business sale. And of course, if you need any advice or assistance on how to sell your business, please call us on (02) 9817 3331 or submit an enquiry by clicking here.

We look forward to hearing from you and good luck with your business sale!

By Zoran Sarabaca

Principal of Xcllusive Business Brokers
Sell your business with Certainty.

DISCLAIMER: The information contained in this blog is for information purposes only. It is not meant to be considered as business advice. The points of view expressed represent reactions to the current business market and it should be noted that the market may be subject to change in the future. Reader’s specific circumstances may be different and have not been taken into consideration. Always consult with your professional advisors for any business advice.

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Why you NEED to understand the buyer’s process if you want to sell your business: an insight into the buyer’s mind.

Understanding how business buyers make their final buying decision is absolutely core to developing a good strategy to get them over the line. Are they actually buying what you’re selling? You may be surprised with the answer…

As a business owner, you may have a very clear idea as to what you’re selling. On the surface you may be selling the fitout, the systems, the location, the lifestyle, the brand or any other number of things. Logically, you’re also of course selling the profits and the turnover. Under the surface you may also be unconsciously selling all your years of hard work building the business.

That’s a lot of stuff to sell in one package.

What a buyer in the current market is actually buying is much simpler…

So what are they buying? You might find yourself jumping straight to higher level concepts such as ‘independence’ or ‘lifestyle’. Though it’s true that those things may attract them during the early enquiry stages, they are not the things that convert an enquirer into the person who actually buys your business. The reason: the business research process. Due Diligence, by its very nature is a highly technical, highly involved research process that by its conclusion, has stripped away the more romantic drivers to purchase in a business buyer. This reduces what a buyer is buying into its simplest form:

A business buyer is buying your business’s future profits for which you can demonstrate that, under predictable circumstances, they can and will be sustained for the next 3 to 5 years.

That may sound like a bit of a dry distillation of the business buying mindset, but the reality is that this sentence contains the two main drivers to purchase:

  1. That you can adequately predict your future profit (by demonstrating your historical profits through financial documentation).
  2. That under foreseeable future scenarios, the business’s future profits are not under threat (by demonstrating how internally secure your business is and how stable your industry/market is)

Of course, things like the fit-out, the lifestyle, the location etc are extremely important, but you could have one of the most wildly attractive and profitable business in the country and not be able to get a single buyer across the line if you can’t demonstrate those two main drivers to purchase.

The point of this blog isn’t to scare you. Not at all. The point of this blog is to remind you to keep this stuff in mind. If you are thinking of selling down the line, always remember what the buyer is actually buying, and take steps to cater for that.

Whether you’re selling today or in three years, here’s what you need to do:

  1. Start preparing your financial documentation:
    (if you’re a long time reader of this blog, you’re probably getting sick of hearing this) 
Financial documents are the basis for any due diligence that a buyer might conduct, and without a solid method of verifying your profits, turnover and financial situation, most serious buyers will simply walk away. To solve this, you could speak to a financial advisor to see what you need, but really; just put yourself in the buyer’s shoes. What would YOU need and want to see if you were making a substantial investment in a business.
  2. Do what you can to reduce or eliminate risks, doubts and uncertainties in your business.
    That’s easier said that done. SO, we’re going to give you a tool with which you can manage this process. It’s a free 12-page system designed to eliminate or offset the negative elements of your business that could cause a buyer to perceive a threat to your profits and stop them from proceeding with the sale. It could make you a LOT of money.

To get your copy of this booklet and to start working towards selling your business at its TRUE value, click the link below to download your FREE booklet.

Do those two things, and you’re on your way to selling your business for its true value.

Thank you for reading and good luck!

By Zoran Sarabaca

Principal of Xcllusive Business Sales
Sell your Business with Certainty

If you would like to speak to someone today about selling your business, or have any questions about your personal circumstances don’t hesitate to call us on (02) 9817 3331 or you can submit an enquiry by clicking here and we’ll get back to you as soon as possible.

DISCLAIMER: The information contained in this blog is for information purposes only. It is not meant to be considered as business advice. The points of view expressed represent reactions to the current business market and it should be noted that the market may be subject to change in the future. Reader’s specific circumstances may be different and have not been taken into consideration. Always consult with your professional advisors for any business advice.

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Five ‘quick’ tips to boost your business’s value before you sell. (part 1)

One of the biggest concerns for a buyer is how the business will continue to function without you running it. Will it continue as it always has, or will all hell break loose and everything go wrong the second you’re out the door? These things REALLY matter to buyers and whatever you can do to alleviate this concern will absolutely work in your favour when you come to sell. You must become a master of risk management. What follows are five ‘quick’ tips that you can use to boost the value and saleability of your business.

(Ahem. ‘quick’ means quick to read, not necessarily quick to implement. Some of these require some work, but will be worth it to you in the long run)

1. Make yourself un-necessary.
(to attract WAY more buyers and charge more too)

If you left your business tomorrow, how long would it take for it to fall to the ground in a dramatic fiery heap? Trust me, that’s something that buyers have a massive concern about. If the success of the business is wholly tied to you being there, then when you’re not, it’s a perfectly reasonable concern to them that things may go wrong. Imagine you’re Fred Flintstone trying to sell his foot powered car.

The buyers would be worrying that the car might be too heavy to run, or impossible to break in or that turning will be a problem. This is because the car doesn’t run itself- Fred Flintstone runs the car (literally in this case). Without Fred behind the wheel, will the car run at all? This is what buyers are worried about. They’re quite happy to drive the car, but they want to know that the car will work without you. So when it comes to your business, that means implementing systems, training your existing staff to manager positions and if you need to, even hiring new staff. Build your business so that you don’t need to be there for every single day. Change your business…

 …from this… …to this…

The downside to this is that it’s takes a lot of time and energy to turn your business into a Lamborghini (figuratively speaking). But if you can get your business to the point where you can say ‘Under Management’ in your advertisement, the number of prospective buyers will soar (and you can also charge a lot more too).

… Plus, maybe a Lamborghini is a little too lofty for most businesses. The majority of buyers will be truly happy with a car that’s reliable and that does the job.

2. Prepare your financial documents (and be prepared to show them)
(Absolutely MUST have) 

Let’s continue with the the car analogy for a little while longer. When buying a business, there is no trusted ‘mechanic’ that a buyer can take a business to who can tell them if it’s a good business or not. They have to establish that for themselves. So, they conduct ‘due diligence’; they spend their own time and money on investigating the business in order to make a decision about whether to purchase it or not. It is the most important part of their decision making process and it can’t done without seeing your financial documents such as tax returns, profit and loss statements, balance sheet, bookings, forward orders, quotes etc. Here’s why:


Imagine you’re buying the Kingswood Ute in the picture above. You love how it looks, you love how it drives- but then you ask the owner to pop the bonnet so you can look under the hood. The owner says ‘no’ and starts making excuses about why you can’t. Stuff like:

  • I don’t want to let you look under the hood until you pay a deposit
  • The car doesn’t have anything under the hood
  • Oh, sorry, the bonnet doesn’t open
  • You don’t need to look under the bonnet, you can see how well it drives
  • Tell you what, how about I just show you these engine mounts. That should do right?
  • Um, look the engine isn’t ready yet, how about I send it off to my mechanic and I’ll get it to you in a few weeks…

Would YOU trust the owner if they said those things?

For businesses, providing financial documentation (such as tax returns, profit and loss statements, etc) is the equivalent of popping the hood in the above example. If you are unable provide financial books and records, chances are you’ve got a very legitimate reason- but to a buyer, any excuse you give runs the risk of sounding as untrustworthy as any of the reasons above.

So what does that mean for you? Make sure that when you put your business on the market your financial documents are ready. You’re going to want at least one year of well-recorded financials (but in reality most people expect three), they need to be presentable and easy to understand, and above all else, you have to be willing to share them with buyers who have signed a confidentiality agreement.

One more quick tip: don’t stop keeping good records when you go on the market. Keep your financial documentation up to date! If you’re on the market for six months, and you haven’t been keeping up to date over that period, then you’re going to find yourself in a position where you’re missing your most important information.

… Ok, I know the heading said that there were five tips, but we’re already up to about 900 words which is far too long for a blog. SO, make sure to watch this space for Part Two. If you aren’t receiving email updates for these blogs, click here to sign up to our mailing list and we’ll email you when Part 2 comes out.

By Zoran Sarabaca

Principal of Xcllusive Business Sales
Sell your business with Certainty 

Would you like to talk to someone about how to sell YOUR business? Our team are happy to talk to you about your personal circumstances so if you’d like to know a bit more about selling your business call us on (02) 9817 3331, or fill in an enquiry by clicking here. We look forward to talking to you.


DISCLAIMER: The information contained in this blog is for information purposes only. It is not meant to be considered as business advice. The points of view expressed represent reactions to the current business market and it should be noted that the market may be subject to change in the future. Reader’s specific circumstances may be different and have not been taken into consideration. Always consult with your professional advisors for any business advice.

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The Low-Down on Cash Businesses: How the cash economy impacts business value.

For decades our parents and grandparents were buying and selling businesses based on ‘gut feelings’. They bought on how many coffees sold, or kegs sold or packets of cigarettes sold. They valued based on turnover or rules of thumb. They valued based on cash.

Those days are well and truly behind us, and it’s important that you know what’s changed.

Since the Global Financial Crisis of 2007 we live in a very different world. The uncertainties, and in particular the business practices introduced to resolve those uncertainties, have become a part of the business sales market for good. The practice we’re pointing at in this blog is the now absolute necessity for good financials. Quite simply, if you want to get the value from selling your business that you are hoping for, you absolutely need clearly recorded and verifiable figures. This is to satisfy two primary needs.

  1. New consumer protection laws require that clearly recorded and verifiable figures are needed in order to obtain finance.
    As part of the National Consumer Credit Protection Act 2009, providers of credit services are required to meet a range of new ‘responsible lending obligations’. Amongst other things, lenders are required by law to make enquiries about a borrowers financial situation and to take reasonable steps to verify that situation. Technically this has always been the case; it’s just a lot stricter now. For business buyers that means that everything they provide must be verifiable, must be above board and absolutely cannot be based on unreported cash sales. That might sound like it’s their problem, but if you want them to buy your business, it’s your problem.
    (If you want to know more on this, check out the National Consumer Protection Act 2009, Chapter Three, Division Four. Be warned though- it’s not a page turner)
  2. Buyers are considerably more cautious than they used to be- It’s a Buyer’s Market.
    Though we may have weathered the financial storm of the GFC, there are few who can say that we were left unscathed. The biggest change that the business sales market saw was a change in where buyers see business value- and it’s an important distinction. In the past, buyers saw the value in a business as coming from how much money they could make from it. Now, they see value in a business as coming from how much they will make from it in the worst case scenario. In order for the buyer to determine this, they need verifiable historical figures.

What to do if you have a business with a lot of income that is not being banked:
If you want to sell a business with a lot of unrecorded income, there are two ways do it.

One: Start recording and banking immediately and wait a few more years so that you have some historical financials. For many people the thought of doing that 100% might be horrifying, but remember, though the current setup may be excellent for you personally it could render your business close to unsellable at its full asking price- no matter how much money it is actually making. If you don’t want to do this, the other options is…

Two: Reduce your asking price to a figure represented by your recorded income. Again, this may be horrifying to some people, but you have to remember that in selling a business, you are entering a market where un-recorded income is largely ignored. It that tastes a little sour, keep in mind that though you may achieve a lower return from the sale, you have still benefited from this un-recorded income for as long as the business has been running.

What if you have excellently recorded income?
If you own a traditionally cash operated business where you have a long history and everything is recorded and “on the books” then you are in a very good position to sell. Good figures in these industries helps your business stand out and you should sell quickly in the current market for a good price.

If you would like to talk to an agent today and would like to know how to sell a business with your current circumstances call Xcllusive Business Brokers on (02) 9817 3331. We look forward to talking to you about your situation.

By Zoran Sarabaca

Principal of Xcllusive Business Sales
Sell your business with Certainty

 

 

DISCLAIMER: The information contained in this blog is for information purposes only. It is not meant to be considered as business advice. The points of view expressed represent reactions to the current business market and it should be noted that the market may be subject to change in the future. Reader’s specific circumstances may be different and have not been taken into consideration. Always consult with your professional advisors for any business advice.

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The truth about overseas business buyers: What you need to know about ‘overseas buyers’ with ‘deep pockets’.

On the road to selling your business you will likely come face to face with someone claiming that they can sell your business to an overseas buyer for more than it is worth. Despite recent actions taken by the ACCC against unscrupulous vendors (1) making these claims, the myth about overseas buyers continues to plague business sellers.

Advertising overseas will cost as much if not more than it does in Australia and knowing the truth about overseas buyers could save you a lot of wasted money.

So, if you’re thinking of selling your business through a business agency now or at any time down the road, take the time to arm yourself with the myths and facts about overseas buyers.

Myth: Many overseas buyers are willing to pay up to three times what a business is worth.

Fact: If somebody has enough money to pay three times a business’s value you can assume one thing about them: They have a lot of money. There are only a handful of ways to get a lot of money, and most of them revolve around being a savvy investor and/or a good business person, neither of whom would even think about paying three times anything’s value.

Myth: The overseas market is brimming with buyers for the Australian market.

Fact: Though there is a chance of selling to an overseas buyer, unless you are a major international, that chance is insignificantly remote. In fact, one of the sites we use to sell businesses have portals in France, Germany, Hong Kong, Italy, Luxembourg and new Zealand. So technically we advertise businesses for sale in an overseas forum. So why don’t we advertise that we have ‘overseas buyers’? Because the number of overseas buyers is infinitesimally smaller than the number of local buyers and it would be close to unethical to even mention them.

So, knowing what you know now, exactly what percentage of businesses do you think actually sell to overseas buyers? Based on a survey of the Australian Institute of Business Broker’s 353 Members, in the 2012 financial year only 2.6% of businesses were actually sold to overseas buyers or to overseas entities.(2)

In summary, only a tiny, tiny fraction of buyers come from overseas. The ones that do aren’t looking to bankrupt themselves to get a visa, they are good business people and they have the time to be picky. So in short, if anybody tells you they can sell your business for more than its worth to overseas buyers, they’re probably not the business agent for you.

By Zoran Sarabaca

Have you ever been told by an agent that they can sell your business to an overseas buyer? OR have you actually sold your business to an overseas buyer? We’d like to here from you!

To find out more about this topic or if have any questions about business sales make sure you give us a call on (02) 9817 3331 or submit a response or enquiry through the site. We look forward to talking to you.

Disclaimer: The information in this article is intended as information only and should not be taken as professional business advice.

Sources:
(1) http://www.aibb.org.au/press_release.php?Id=23
(2) http://www.aibb.org.au/press_release.php?Id=29

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