Sell­ing a busi­ness

Port Douglas & Mossman Gazette - - FRONT PAGE -

GET­TING the right price for your busi­ness when you de­cide to sell is a lit­tle dif­fer­ent to putting a price on your house.

Conny White, of Bench­mark Busi­ness Sales, says ev­ery busi­ness owner needs an exit strat­egy to achieve max­i­mum sales value in the cur­rent mar­ket. ‘‘ The lack of plan­ning can cost a busi­ness owner hun­dreds of thou­sands of dollars,’’ she says.

‘‘Set­ting the right price is crit­i­cal, and es­ti­mat­ing the busi­ness value is a skill. This is not what you owe the bank or what you paid for the busi­ness; the busi­ness ‘ask­ing price’ is gen­er­ally cal­cu­lated by mul­ti­ply­ing the ad­justed net profit (pre owner draw­ings) by the cur­rent mar­ket re­turn, known as re­turn on in­vest­ment (ROI).’’

Ms White cites an ex­am­ple of a busi­ness with a $200,000 a year net profit at 40 per cent ROI, to be val­ued at $500,000 to­tal pur­chase price (in­clud­ing good­will, plant and quip­ment and stock).

In the cur­rent mar­ket pur­chasers are de­mand­ing a higher re­turn on in­vest­ment (ROI) due to bank lend­ing or the de­clin­ing prof­itabil­ity of many busi­nesses.

There are three es­sen­tial re­quire­ments for the po­ten­tial pur­chaser:

A pro­file of the busi­ness pro­vid­ing suf­fi­cient de­tails of how the busi­ness op­er­ates, bear­ing in mind pur­chasers may be in­ter­state.

Suf­fi­cient fi­nan­cial de­tails for the pur­chaser’s ac­coun­tant to un­der­take due dili­gence.

The busi­ness pro­file and fi­nan­cial de­tails pro­vides the pur­chaser’s fi­nancier with suf­fi­cient in­for­ma­tion about the busi­ness to con­sider a lend­ing pack­age de­pend­ing on the pur­chaser’s fi­nan­cial stand­ing.

A busi­ness pro­file is an over­view of the busi­ness de­tail­ing the sec­tor - for ex­am­ple, im­porter, whole­saler, re­tailer and so on, the prod­uct or ser­vice pro­vided, how long the busi­ness has been es­tab­lished, and fu­ture prospects. It should in­clude: 1. A copy of prop­erty lease doc­u­men­ta­tion, as­sign­ment doc­u­ments and last rental state­ment.

2. A staff sched­ule show­ing staff po­si­tions, salary pack­age and length of ser­vice.

3. A sched­ule of any leased or hired equip­ment or any free on loan equip­ment.

4. Stock value with com­ments re­gard­ing sea­sonal vari­a­tions

5. Copies of any li­cences, fran­chise agree­ments or agency agree­ments, where ap­pli­ca­ble.

6. In­for­ma­tion re­lat­ing to com­pe­ti­tion, ar­eas of po­ten­tial risk etc.

A busi­ness pro­file is the win­dow of your busi­ness, pro­vid­ing ba­sic de­tails for the pur­chaser to de­cide if they have an on­go­ing in­ter­est or not. It is this doc­u­ment that gives the in­ves­ti­gat­ing ac­coun­tant and fi­nancier an idea of what the busi­ness is about.

It’s im­por­tant to re­mem­ber that they usu­ally do not visit the busi­ness, and so it’s cru­cial the busi­ness pro­file is pro­fes­sion­ally pre­pared and signed off by the ven­dor.

The in­ves­ti­gat­ing ac­coun­tant re­quires cer­tain in­for­ma­tion to make an in­formed de­ci­sion about the fi­nan­cial po­si­tion of the busi­ness.

It must be re­mem­bered that a pur­chaser is pur­chas­ing fu­ture prof­its of the busi­ness based on pre­vi­ous trad­ing re­sults and if all the nec­es­sary in­for­ma­tion is not pro­vided it is un­likely that the ac­coun­tant or the fi­nancier will give a favourable due dili­gence de­ci­sion.

Other im­por­tant doc­u­ments in­clude, tax ac­counts for the last three years (profit and loss state­ment and bal­ance sheet), man­age­ment ac­counts for sales to date, BAS state­ments for last 12 months and year to date, and cur­rent de­pre­ci­a­tion sched­ule or as­set sched­ule

The ac­coun­tant may re­quest ad­di­tional i nfor­ma­tion as re­quired, such as bank state­ments, ex­pla­na­tions as to cer­tain in­come or ex­pense items.

Given the ex­ten­sive in­for­ma­tion re­quired, a busi­ness bro­ker is pro­fes­sion­ally qual­i­fied to un­der­take the task of pre­par­ing an in­for­ma­tion me­moran­dum or busi­ness pro­file, know the cur­rent mar­ket, have ac­cess to com­par­a­tive sales and know the re­turns re­quired to sell the busi­ness - that is, the ask­ing price in the cur­rent mar­ket.

A bro­ker would know the most com­mon prob­lems with busi­ness sales and how to avoid or ad­dress them.

Conny White is a se­nior bro­ker with Bench­mark Busi­ness & Com­mer­cial Sales, one of the largest national busi­ness bro­ker­ages with of­fices in Bris­bane, Gold Coast, Melbourne and Syd­ney. She is based in the Cairns area.conny@bench­mark­busi­ness.com.au

DE­TAILS:

The bank man­ager will want to see a de­tailed pro­file of the in­tended busi­ness pur­chase

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