Survey Results 1/7/2012

What Xcllusive Says:


Zoran Sarabaca, Pricipal
“This survey has shown a lot of uncertainty on the market, with buyers either equally divided about the possibility of finding a good business or uncertain. One thing that most of the buyers seem to agree on is the availability of finance for SMEs being either very hard or at best, difficult to attain. Because of this market state, it is a frequent occurrence that sellers will provide some form of vendor finance in order to secure the sale.Uncertainty in the market always increases perceived risk from the buyers’ point of view. This, together with hard to obtain finance has definitely created a buyers’ market. When the market is in this state, owners of good businesses are generally discouraged from selling, creating a shortage of quality businesses for sale. Ironically, this in turn makes good businesses easier to sell due to a lack of competition, though, still with prices lower than pre-GFC. From what we can see in this market, it doesn’t look like this trend is going to change any time soon.”

- Zoran Sarabaca

The Results

Xcllusive survey results

This month’s survey has seen neutral or low results for all questions asked. Question one, which indicates the likelihood of buyers finding a business that suits their requirements in the current market, returned a fairly even spread of results. 37.5% of respondents returned a positive response, 31.5% reported that they were unsure, and 30.9% of respondents returned a negative response.

Question three, which asked respondents whether they would be more likely to purchase a business now or in six months, returned a similar spread of results with 38.5% responding negatively, 27.7% reporting that there will be no change and 33.7% saying that they believe that now is a good time to purchase a business.

Question two, which compared the current business sales industry to how it was six months ago, returned a more definitive result with 46.3% of respondents reporting that there has been no change in the industry from that time.

Of the four questions, the most significant result was from question four which indicates the ease at which finance for a business purchase can be accessed, with a massive 73.2% of respondents reporting that finance is either difficult or very hard to obtain, and only 6% of respondents returning a positive response.

The sum of these results has indicated that the overall sentiment from business buyers is low, sitting just below neutral.

By Zoran Sarabaca

Xcllusive Business Sales
Sell your business with Certainty

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How rising unemployment may affect the business sales market and the saleability of your business

Three months ago I was at my local hotel and noticed a new member of the bar staff. He looked out of place amongst the others behind the bar so I struck up a conversation. Turns out, he used to be a financial analyst with one of Australia’s biggest financial institutions.

These are strange times we live in.

With many major corporations and financial institutions announcing mass layoffs over the past few weeks, a new wave of negativity has been injected into the market. Despite this, recent survey results have actually showed an increase in both a buyer’s likelihood of buying a business (6.9%+) and positivity towards buying a business today (3.1%+)

Given the doom and gloom being reported at the moment, these results may seem incongruous with current events, however they actually tie in quite closely with the motivations that spur business buyers. The motivation for buying a business changes with the economic climate. In positive times the business buyer pool is largely populated with securely employed individuals looking to take a risk by leaving their jobs with the intention of making higher profits than their jobs can provide. In uncertain times however, this motivation couldn’t be farther from their minds.

In September of last year we sold a business to an individual who was leaving their middle management job because they weren’t certain that the job was going to remain secure. This person’s motivations are a perfect example of why many people are buying businesses today: to take control of their financial future and secure their income through investment. With the recent layoffs in middle management, it is expected that this motivation will be the driving force behind many business sales in the months to come.

With this motivation also comes a change in the criteria that most attracts buyers. In times of more certainty, buyers are willing to take more risks in exchange for potential high profits. Though the motivation for high profits still remains, the stability of the business is becoming increasingly more important than it already was for this new pool of buyers. High-profit, high-risk businesses are becoming significantly harder to find buyers for at premium prices, and the reason is this: at the moment buyers are more concerned with financial security than increasing their wealth. It is for this reason that the profit multiplier used to value businesses is dropping.

So how will this affect your business? The more protected your business is, the more likely it is to sell. The factors that are most important to buyers today are as follows-

  • Length of operation
  • Even spread of suppliers
  • Even spread of clients
  • Good lease length with options
  • Solid and thorough financials
  • Limited competition with reasonable barriers to entry

This is not to say that buyers weren’t concerned with these things in the past, but more to say that in the past these factors could be more easily offset by high profits. In contrast, in today’s market they affect the business’s ability to sell or even receive enquiries unless the price is dropped dramatically.

The main point to be taken away from this is that there is a new wave of cautious buyers entering the market. These buyers are in a position where buying a business is increasingly becoming a necessity, but as they are coming from otherwise stable jobs they will be looking for equal stability in their investment. Businesses with higher risk factors will still sell, but it is vital that the risk is offset in the price for which it is marketed. Having more buyers is always a good thing, but the game is changing, and how you play it will determine your success.

By Zoran Sarabaca

Xcllusive Business Sales
Sell your business with Certainty

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Business Owner’s Greatest Mystery – How Much is My Business Really Worth?

It is as if the value of a business is the worlds biggest kept secret. Business owners can spend all their business life (in many cases decades) and not really know the real value of their business. By real value I don’t mean book value, but how much would somebody pay to own it.

Often the owner has a overly optimistic value of what the business could sell for due to anecdotal and inaccurate information they have heard from colleges and acquaintances, mostly not first hand but from somebody who has heard of someone who has sold a business. It is more rumour then the real information.

Another way that business owners guess the value of their business is by looking for businesses advertised in daily papers and on the Internet, searching for a business that is similar in size and in the same industry and then comparing those businesses with their own.

There are two reasons why this method wont give you good indication of your business value. The first is there are no two businesses alike. They all rely differently on their owners, have different customers and different risks associated with them, so you’re not comparing apples with apples. The second reason is that businesses often sell for a price quiet different for the one they are being advertised for or don’t sell at all.

So, how do you than gauge how much your business is worth at any given time of its life?

Like this, first detach yourself emotionally from the business then ask yourself the following question:”Knowing what I know now, about my business, it’s profits, advantages and disadvantages, all its benefits and drawbacks, comparing it to other businesses and investment opportunities that I could invest my money in, how much would I pay for it”

If you answer this question without emotional attachment and honestly, you will find the answer to the biggest mystery for any business owner… the answer to real value of your business.

Zoran Sarabaca

Principal

Xcllusive

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Should you or should you not, tell your employees that you’re selling your business?

Losing a crucial employee can be costly to any business. Losses from the business elements that the employee is crucial for together with cost of recruitment and training of the new team member, could be measured in tens of thousands of dollars if not more. Not to mention the difficulty in explaining to buyers the sudden drop in profits due to this event and decrease in their confidence in sustainability of the future business (If the loss of one employee can cost a business so much how much will a change of ownership will cost?)

So reading the above, one could argue that there is no case to be made for telling the employees about the business sale. But lets look at this from the employee’s point of view. What they want is a good environment and income security. It is not the possible change of ownership that makes them nervous but it is the possible LOSS of their JOB that makes them nervous. They will start looking for a new job if they feel that their job security is being threatened.

So if you can assure your employees that they are necessary for the running of the business for the new owner as much as they are to you, this will reduce the chances of the loss of crucial staff through the process and you will also make the whole process much easier.

If your employees know that you are selling the business, you wont have to meet potential buyers in secrecy, the due diligence process will be so much easier, buyers will be able to talk to your employees and form a better judgment of your business.

One more point to consider, very often businesses do sell to management or employees so you never know maybe your buyer is your current employee. The only way to find out is to ask.

Zoran Sarabaca

Principal

Xcllusive

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Overpricing while selling your business can cost you a lot of money

 

Selling a business can take time so you need to make sure you attract and negotiate with suitable buyers from the start. If you don’t the process could blow out to years and result in you receiving less than market price.

Many business owners find it takes several years to sell their businesses and when they do the price is a lot less than their expectation and often less than the market value. How does this happen?

The first few weeks of selling your business are critical. Most buyers are monitoring the market and waiting for suitable businesses to become available. Your best buyers are the ones that show interest as soon as the business goes on the market. They are seeking to invest in businesses with sustainable incomes, with definable risks and good returns. They will be either speculative buyers looking for a bargain or more conservative buyers looking for a secure investment. They are sophisticated and unlikely to pay more than the market value of a business.

If you overprice your business you will first attract buyers who are looking at larger scale businesses. They will not see value in your business. At the same time you will not attract buyers who can afford the true value of your business because of the high advertised price.

Inevitably the business stays on the market with little interest being shown. You therefore drop the price to the true value of the business. Now buyers who can afford it will notice the business but will perceive it to be flawed because it has been on the market for a long time. This will prejudice them against buying it.

With no alternative you drop the price to less than market value to encourage interest. The property is now snapped up by bargain hunters.

At Xcllusive we recommend that when selling your business you need to demonstrate the value of your business to a potential investor and price it accordingly. This ensures you attract the right buyers at the right time and receive the true value of your business.  

 

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