Have a business sale question you’d like an answer to?

Have you got a question about business sales that you haven’t found an answer to in this blog? We’d like to hear it! We’re always on the look out for ways to help prospective business sellers get the information they need.. and what better source than from business sellers themselves!

If you’ve got a question you’d like to see answered in this blog, just click here to ask it and we’ll get back to you as soon as possible.

If it’s a really good question we might even answer in with a feature blog!

Looking forward to hearing from you!

Zoran Sarabaca,
Principal of Xcllusive Business Sales
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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How to price your business without ruining your business sale.

Let’s just get this out of the way: there is no one-size-fits-all formula for pricing your business. Anyone who tells you that there is, is probably about to ruin your chances of selling your business at its full value. 

And here’s why: the price at which you take your business to the market is one of the main determining factors that can lead to a successful business sale. Your advertised price has a huge affect on everything from:

  • Your target market,
  • The perceived return on investment,
  • The availability of finance,
  • Your buyers’ level of trust in your business,
  • The calibre of buyers you attract,

… and most importantly; it has serious implications when you get to the negotiating table.

All of those things put together can have a massive affect on your business sale so, quite simply, if your business price isn’t a strategically calculated figure, you’re shooting yourself in the foot. It can be the difference between selling and not selling.

So, given that minefield, how do you calculate how much your business is worth?

To start, you aren’t going to be able to do it without help. I should probably also say, given what we’ve already said, that you aren’t going to be given a formula at the end of this blog with an answer. What this blog does however, is point you in the right direction. 

Here’s our recommended first step on how to value your business:

Most people’s first thought is to either get a business valuation or to get their accountant’s opinion. Though these are good options, there’s a much quicker (and cheaper) way to get some fairly accurate estimates.

My recommendation for the best first step would actually be to approach some business brokers for an appraisal. Now, this might seem a little self-serving (given that we are business brokers), but it is my genuine opinion (Plus, most good agencies will put together an appraisal for free).

Most business brokers’ appraisals are obligation free and business brokers are uniquely positioned in that they have first hand access to what businesses are selling for in the current market. Furthermore, if they are a reputable broker, the appraisal they give you will be geared towards a realistic selling price. Why? Because it’s in the broker’s best interest to advertise the business at the right price so they can sell it and get paid!

IMPORTANT: Picking the good agents from the bad is core to getting a good appraisal. Make sure you read to the end for tips on how to pick the right agents to produce your appraisal. 

The reason you need to go to multiple brokers is that you want to get at least three price opinions for your business. If they’re all around the same price then your pricing decision will be easy. If however, the appraisals all come back very different then you’re going to need to make some hard decisions. Without business valuation training, the absolute best test you could do is the age old ‘sanity test’. This is a real test that even valuers use, but you can do it yourself.

For each appraised price, you need to put yourself in a buyer’s shoes and answer the following question as unemotionally and honestly as possible:

 ”Knowing what I know about my business;
its profits, advantages, disadvantages, benefits and drawbacks;
whilst considering the current economic climate and industry conditions
and comparing it to other businesses and investment opportunities…
would I pay this price for it?”

If your answer is a very quick ‘Yes’ without too much thought, then the price might actually be a little low.

If your answer is a resounding ‘No; I would invest this money elsewhere, then the price is likely too high.

If however your answer is something more like ‘Yes, but only after thorough investigation and serious consideration’, then you have likely found a reasonable asking price.

 

So, is that it? Well, yes and no. No, because of course you could study up and read through all 1000+ pages of a very thick and heavy valuations manual… but if you’re like most business owners I know then the hundreds of hours required to do so are not really available to you. Otherwise, the process described in this blog is the very process that I used to sell my own business before becoming a business broker (and before reading through all 1000+ pages of a very think and heavy valuations manual).

There’s no way to know exactly how the market will react to your price, so remember; listen to the market. All buyers will likely have concerns over price (obviously), but if buyers are telling you that the business is way over-priced and they are not interested in taking it further, then you need to be prepared to react to that feedback.

Do that, and you’ll be lightyears ahead of your competition.

Good luck!

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

PS. IMPORTANT: Read this to help you pick the right brokers for the appraisal.

 

The main variable of this whole exercise is picking the right brokers to appraise your business. Not all appraisals are created equal and you do need to be picky with the brokers who’s appraisals you trust. Here are four quick tips to help you pick the right brokers to approach for a good appraisal.

  • Any good appraisal requires financial documents to produce. If the broker doesn’t ask for them, then find an agent who does.
  • Stick to agencies with a low business to agent ratio. Do this by counting the number of businesses listed on their website and dividing it by the number of agents they have. If the website has 1000 businesses and only three agents, then those agents are not going to have the time to focus on individual businesses and as a result will often over quote business prices simply to list more. An over quoted price is not what you’re looking for.
  • Avoid agencies with what appears to be very overpriced businesses. Take a look at their listings page, and if their prices make you scoff then maybe give them a miss.
  • Avoid agencies with very high engagement fees. As of 2014, agency engagement fees up to about $2,500 – $3,000 are totally acceptable. If the brokerage is charging you $5,000 – $10,000 just to sign up with them, then their financial incentive is at the front end of the deal. This means that they make their money by signing you up as opposed to selling your business. Under these circumstances it is actually in their favour to over-quote you in order to sign you up and get the engagement fee.

Remember, this tip list is mainly to help you find the right agents to appraise your business. It’s not a be-all-end-all to help you choose the right broker… but it’s a good start.


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 was this one perfect business impossible to sell? (AKA When are you being TOO confidential)

Back in 2010 we were selling a business that should have sold and should have sold quickly… but it didn’t. In fact, it never sold and the reason was obvious. So what was the problem?

Here I take you through what went wrong, and (more importantly) how you can avoid it happening to you! Watch the quick video below:

By Zoran Sarabaca

Principal of Xcllusive Business Sales
Sell your business with Certainty

PS. If you’d like to talk to us about selling your business submit an enquiry or call us on (02) 9817 3331. 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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5 Business Growth Tips: The Free business seminar.

This coming 22nd of February I’ll be presenting at the Sydney Business Super Saturday business building seminar. This five speaker event, valued at $1,299 is being offered for FREE to contacts of Xcllusive (which includes people who enquire through this blog).

Here’s a quick preview of what I’ll talking about:

I’ll be talking about (and you’ll learn about) where the value in a business actually comes from as well as the things that make a business sellable in today’s difficult market. Through understanding these things you can actually take steps to boost the sale value of your business and maximise your return when it comes time to sell.

Also, as mentioned, there are four other speakers. Among the mix, you’ll also be learning about:

  • Secret strategies to double your sales without relying on websites, databases or joint ventures.
  • How to make a fortune on Facebook by generating LEADS instead of just likes.
  • Growth strategies for 2014 and how to increase revenues over the next 12 months
  • How to increase and maintain your business’s resilience in a difficult market. 

I’m really excited about meeting some of you and being able to offer you this unique opportunity.

There are limited spots available, so the sooner you get in, the more likely you are to reserve a spot. Click the link below to learn more or submit your FREE reservation now, or call us for more information on (02) 9817 3331. Don’t wait though- seats are filling up fast!

 **Click here to book your FREE seat**


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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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