25/06/2009 by info.

Selling your business is for a lot of people the second most important transaction they will have. If you have been particularly successful in business it may be the highest single value transaction in your life.

I am therefore constantly surprised that sellers of businesses do not carry out research on a business transfer agency before they instruct them, but rely on the agents version and the opinion that they are the best business agents in the country.

For there are certain number of high profile business agents in the UK who, if you search their name, not only does their website and their marketing story result but also complaints about unfair contracts, over valuing, excessive fees, intrusive telemarketing calls and broken promises also appear.

One particular business owner I recently became aware about signed a contract with RTA business agents to make life easy for the valuer (on the understanding that he would inform him the next day whether he wished to proceed). You may say that he was silly to sign a contract without being sure that he wished to use their services but he trusted the valuer.

The next day he telephoned the valuer informing him that he did not wish to proceed, however this valuer had already processed the documentation, when he contacted RTA to withdraw his instruction they threatened him with legal action for c. £8,000, even though they had not done any work whatsoever. This situation is still ongoing.

Now if that business owner had simply googled this agents name they would have seen a number of complaints from other dissatisfied business owners, and presumably he would not have instructed this agent.

So before you contact any agent I would suggest that you google their name, if you do not find anything negative about them perhaps it indicates that you might be making the right choice of agent.

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11/06/2009 by info.

The character Captain Mainwaring in Dad’s Army showed how bank managers were once upon a time a respected authority; everyone believed what he said (even though most of the time he was wrong). This created farcical outcomes we enjoyed laughing along with.

Banks however are not the Cassandra’s of this world and do make mistakes, which has lead to a great loss of authority, almost bankrupting the country. There is however one area where a banks authority is still regarded as being paramount and that is the bank status report.

There are two aspects to buying a leasehold business, the first one is to reach an agreement with the owner of the business, and the second is to persuade the landlord of the property that you are able to continue to pay the rent. So a bank status report and trade references are required to prove that you are likely to be a good tenant.

The most important of these is the banks opinion on whether the buyer can meet the rent payment, now this opinion could be totally wrong, but is an overriding make or break piece of paper for a buyers plans.

This is where a first time buyer often becomes unstuck, as they have not informed their bank about their plans. So when the status report is returned often the bank reports that “ they cannot speak for your figures”. Such a report of course is unacceptable to a landlord.

A seasoned business owner with a track record with the bank should never fall foul of banks lack of knowledge of them. A first time buyer should realise that regardless of whether they think they need the support of their bank manager to buy a leasehold business, they have to accept that they need his blessing.

Whether of not you make friends with your bank still has a bearing on your goals and dreams.

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04/06/2009 by info.

I was told a story last week about a Company Director who was hosting a dinner party/business meeting in a plush and upmarket apartment in Central London. He was asked whether he owned the freehold of the apartment (worth millions)…. he said he did. His business contact then reminded him that for £3 he could find out whether he was telling the truth, he didn’t back down. The truth is that he doesn’t own it, but he lost all credibility because this person knew that he was a liar and perhaps couldn’t be trusted.

Jump forward to The Apprentice and Yasmina Siadatan’s interview in the Semi Final where she claimed that her restaurant trading under the name of MYP UK Limited was turning approx £8,000 per week and had a gross (sic) profit of 4.5% this would mean that the net profit would have been in the region of £19,000 per annum. (Actual turnover for the company is apparently approx £290,000 per annum with a net profit of around £8,000)

She was, for a Finance Director, naïve enough not to realise that Alan Sugar, you or I could obtain the annual accounts. The programme suggested that she was not telling the truth but it actually showed that she was a very poor accountant. As the restaurant had only been trading for 9 months pro rata she maybe WAS telling the truth, but the lack of technical knowledge meant that she was unable to explain herself.

These two people were both naïve, one simply wanted other people to think that he were doing better than he really was and the other didn’t want to admit her own weaknesses. Even though she was a Finance Director Yasmina Siadatan knew nothing about finance.

But when you have something to lose such as when negotiating with buyers of your business, honesty is not the best policy, but is the only way forward. At best you can lose face when found out, at worst you can be sued for damages should someone rely on your representations in buying your business.

If you know something isnt true dont lie about it, if you are not sure about the answer, dont be afraid to admit that you need to ask advice before answering.

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04/06/2009 by info.

The recession has hit many sectors, industries and businesses. Some businesses have deliberately contracted cutting their operations and costs in order to survive with a related reduction in turnover; others have had this forced on them by the market.

Many business owners are holding off selling their business until they return to previous levels of profitability, and perhaps they are right in doing that. When you are selling a business, profit and the size of the business is everything. A small business where the owner is simply making a wage could be worth nothing, or at most two times its profit. The larger the business becomes, the multiples someone is willing to pay increases.

So if you own a business and find yourself in this situation of wanting to sell but not believing that you business is worth enough what could you do?

You could accept the lower price, or trade your way out of it of course; another alternative would be if you wanted to sell your business for a good price is to buy a business.

You can buy competitor, and incorporate their turnover into your business, but because you are using your existing infrastructure a good proportion of the costs will disappear increasing your profitability.

Or buy a business or two in slightly different locations and create a chain, re-branding those businesses.

In other words you speculate to accumulate, a £40,000 investment now, could result in a much larger return a matter of a few months later. One time when 1 +1 = 3

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15/05/2009 by info.

Business owners wanting to sell their business sometimes approach me but try to hide the real reason why they want to sell. Being that is that their business is not doing well.

They are evasive about providing recent financial figures, and do not mention the fact that their sales have reduced. Sometimes want unrealistic amounts for that business on the basis that they need a certain figure to pay off their debts.

It is always better to be honest, and to inform your agent that the business is in financial trouble, allowing your agent to present your business in a different way. As certain people are always looking for businesses they can turn around. Just look at the number of businesses in administration that find new owners and survive in some form or another.

Okay, so your business is not doing well and you don’t have the working capital to run it anymore. That does not necessarily mean that it is not of substantial value to someone else though!

You may have a particularly skilled workforce, access to a difficult to penetrate market, valuable patents, a good and respected brand name, perhaps an excellent location for retail premises. These factors or any combination of others could make the purchase of your business a very attractive proposition to someone, if you could find the right person.

The important issue here is to be honest with your agent and proposed buyer, as then you may have a great chance of selling your business. Rather than to try to market it as a strong business opportunity only to be found out later to be hiding the truth an experienced agent will still be able to identify some strength in you business and also to be upfront about the negatives.

You cannot deceive buyers about the true state of your businesses finances, but there is no reason whatsoever why you cannot emphasize the better aspects of your business, and what is more important show how these aspects could be of benefit to a potential purchaser, which is the main thing that he or she will be interested in.

This point is worth repeating over and over again do not try and hide the truth from the market, there may still be a buyer for your business, but if you are not honest to your agent you have no chance of finding the right buyer.

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13/05/2009 by info.

If you want to watch football you should not expect to find an important match being played in July, as it is the off-season. The most important time in a football season is - well now.

There is also a season for selling businesses, and if you put your business on the market in October do not be surprised if the number of people looking to buy your business at that time of year is lower.

In other words you should be planning for the sale of your business now, and have it on the market in the next few weeks if you want to sell this season.

The worst offenders is businesses in the tourist industry, I often hear Guest House owners, and owners of other businesses reliant on the tourist trade say, “I will make a decision as see how I feel about selling my business at the end of the season”. The news for them is that they will have missed the boat.

I’m not sure how many people reading this have been to Scarborough, a traditional Northern English seaside resort, during the summer it is packed with visitors, during the Winter all I can say is you had better have a warm coat to cut out the bitter wind from the North Sea.

You can imagine a business buyer walking along the sea front in January thinking that they cannot possibly see how the business that interests them can have the declared turnover. The result is that the buyer ensures that the seller has to start another season.

So if you have a seasonal business, do yourself a favour try and sell it when it looks busy, you will be able to obtain a much higher price.

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11/05/2009 by info.

Almost unnoticed the FSE100 the share price index of the UK’s largest companies has increased by nearly a third since mid March 2009.

What does this mean in layman’s language, well it means that the value of these companies has increased by nearly a third in a couple of months. Great news if you or your financial advisor recognised the bottom of the market, this however indicates that the worst of the recession is over for these companies.

An increase in the share price means an increase in the value of the company, which indicates that the profitability of that company is increasing.

I would doubt whether the value of these companies were actually that low as markets tend to overshoot as the masses overreact to circumstances.

At the first sign of swine flu the share price of British Airways fell by 20%, I tweeted at the time that surely the value of the company has not decreased by that figure, what has happened? Well the share price has recovered to its previous level after the fear fell away.

The property market in the UK is about at its long-term real house price trend value; however expect the value of property to fall further as the market overshoots due to continued fear. By Winter 2009 you will see real property bargains.

For the prospective small business owner what does it mean? Well now is your chance to make money by buying a business before the masses recognise that the bottom of the recession has been reached as in the few months time by the time that your purchase has completed the recession will be over and you will be best placed to start making money.

The purpose of this is to show that you can take advantage of other people’s overreaction or as Warren Buffett has been quoted as saying, “Be fearful when others are greedy and greedy when others are fearful”

Perhaps now is the best time to be greedy before others do.

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28/04/2009 by info.

You can often get hold of the wrong end of the stick when looking at statistics.

American listing website for businesses for sale bizbuysell.com have recently issued statistics showing that the average price of a business sold via their website fell by 17%.

A reporter for cnnmoney.com reports that “it’s a lousy time to sell your business” presumably on the basis that if you sell the value of your business will have reduced by 17%.

These business sales however have included an element of distressed sales, and of course if you needed to sell your business because you were not doing as well, you had to be realistic with your expectations.

They are right with one aspect of the market that is there are fewer businesses being put up for sale. Baby boomers who would normally be looking to retire, are now delaying that decision, due to fear, thoughts that they may not be able to sell their business for top dollar price, or maybe because their investments have reduced elsewhere.

These are the businesses that a lot of businesses buyers would be interested in buying.

The fact is that business buyers are always interested in buying the best businesses, and if you own the best restaurant in your town or city you will STILL be able to sell for a good price.

But are business owners taking the wrong decision in delaying their retirement?

Profits are a function of the enthusiasm that a business owner has about running their business, and if they feel that they have no option but to carry on trading, perhaps they will start to feel resentful and their enthusiasm may start to wane.

It is this phenomenon that may lead to a reduction in the value of their business not the economic conditions.

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24/04/2009 by info.

That of course is the alternative that people have.

Many budding entrepreneurs try to establish a business, a quick search on google suggests that anything up to 90% of new businesses fail in their first year. Now that may overstate the figures, however the number of failures is quite high.

A study in Ohio State University tracked new restaurants opening from 1996-1999.

The survival rates were as follows:

• First year: 85%
• Second: 70%
• Third: 62%
• Fourth: 55%
• Fifth: 50%
• Sixth: 47%
• Seventh: 44%
• Eighth: 41%
• Ninth: 38%
• Tenth: 35%

Once you’ve hit five years, your odds of survival go way up.

What does this show?

Well firstly that new business owners often underestimate what is needed to start a restaurant, they are often undercapitalised and simply don’t have the skills needed to be successful.

Almost as importantly it shows that buying a business is not as risky. If you buy a restaurant that has been trading for 5 years, the chances of you being unsuccessful are significantly reduced.

Why is this? It is to do with location, location, and location.

There are plenty of empty shops and premises as a result of the recession but these will be the locations where previously businesses have failed, other restaurants, takeaways, cafes, pubs etc.

Often it doesn’t matter how good a chef or manager you may be, the most important criteria for being successful is having the right location, so it is better to buy someone out from a primary location than try to establish yourself in a secondary position.

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24/04/2009 by info.

Business Owners hardly ever take professional advice before placing their business on the market.

I often ask the question to prospective clients “What does your accountant advise over the sale of your business?” and they look at me blankly. They hadn’t even considered telling their accountant about their proposed sale, because of course it would cost them money to telephone them.

Many of them I am sure complete the transaction, and then find out that they actually have tax to pay on the sale of their business. Now I am sure that Alistair Darling would be very happy about that situation, after all he needs to increase his tax revenues! But for the business seller it is too late, they suddenly find that the net proceeds from their sale isn’t as high as they thought it would be.

If I could give you one bit of advice before placing your business on the market it would be, before you contact a business transfer agent you should be contacting your accountant and consider the amount of Tax payable your in their calculations.

It may change your plans.

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