29/01/2010 by info.

Ah, yes, the World Wide Web, the Internet, what fiendishly clever stuff. Everywhere, isn’t it? Still Growing and a fabulous business tool!

Yes, it is. But do you realise quite how fiendishly clever? Quite how much everywhere it is? And what a double-edged business tool it is?

A little bit of history to begin with. As a business transfer tool, the Internet’s been with us for about ten years now. In contrast to traditional newspapers such as Daltons Weekly, it is a hugely efficient medium for agents to find buyers and get businesses sold. Using business for sale websites, buyers now have at their fingertips a wealth of information about virtually any business on the market that interests them. A fabulous marketing tool indeed for the agent.

But just imagine (if you don’t find the idea too outrageous!) a seller trying to pull the wool over a buyer’s eyes.

Imagine that sales details of the Stalefish Arms, a Suffolk seaside restaurant, has charmed a prospective purchaser with glowing descriptions of the reputation the establishment enjoys for service, good food, quality wines and well-kept local beers.

And now imagine the prospective purchaser searching Google, just to impress friends with the Michelin Rated Restaurant he is going to buy, but finding instead independent reviews putting the Stalefish Arms top of a list of Restaurants Best Avoided If You Enjoy Eating. The customer comments are unprintable in a respectable newsletter.

That’s the snag with the Internet. Without your having the foggiest idea, it’s looking over your shoulder at everything you do, recording your secrets on so many billions of terabytes that a bailout of City bankers sounds like small change!

It’s no longer a case of buyer beware. In the Internet age, it’s the seller beware.

For buyers there is sufficient information out there to highlight pros and cons alike of a transaction and to speed up due diligence before any binding commitment is made.

Whereas sellers nowadays are well advised to go online to find out what people are really saying about their businesses. If they’re lucky, they might have time to change their reputation. Not by posting false reviews but by improving the way they run their business.

If they don’t, there’ll be no sale, or not at the price they want!

As the old, true saying has it, keep your friends close - but your enemies even closer!

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26/01/2010 by info.

Well firstly growth of 0.1% for the last quarter of 2009 is a preliminary estimate, based on 40% of the returns and experience has shown that the actual figure has been within 0.2% of the figure initially announced. So we could STILL be in recession. The growth figure is still extremely small so in essence the economy is broadly flat.

Interest rates also rise at the end of a recession, inflation is above the governments target and so interest rate rises is inevitable.

So if you do need to borrow the cost of doing so will increase, and of course we have not even started paying back the cost of this recession and government will want to increase the tax paid on your profits.

The possibility of a double dip cannot be discounted if the government squeezes the economy too soon.

In a war situation often the hand-to-hand combat may end but there are still plenty of explosives in the field ready to harm the unexpected passer-by.

The same is true in business today, when a recession ends it shows that demand is returning, and sales are likely to increase, profit is likely to increase and business values will recover and demand for buying businesses will return to traditional levels. But what does that mean in reality?

Imagine if your sales increased overnight by 50%, what would that mean to your business from a logistical point of view?

Perhaps you might need additional stock, new machinery, have to employ additional members of staff, need bigger premises, all of which needs money to fund it, your businesses resources have been depleted, and the banks are still risk averse, they are not interested in funding your speculative growth. What can happen is that your business may paradoxically run out of money and fail.

So planning and cash flow forecasting is increasingly important. Growth without access to funds is a dangerous thing.

You’ve probably heard the saying “cash is king.” Now you know what it means and why so many business owners take it to heart. If your demand in your business sector is increasing, don’t fall victim to your sales success by running out of cash.

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19/01/2010 by info.

Here’s a danger to avoid!

Retirement beckons. You’re off for ever to your idyllic alpine chalet in its idyllic alpine village in Europe’s idyllic number one avalanche zone… just as soon as the house is sold.

Ah, the house. The modest seaside semi you’ve lived in all these years while your retirement nest-egg grew: the place on which you’ve stamped your personality, and which has YOU written over every feature.

The lighthouse on the roof, the one the coastguards tried to ban.

Your model railway, 4,000 feet of track riveted to the floorboards and punching tunnels through the skirting boards.

The pagoda, modelled on the one at Kew but with your signature touch, a regiment of plastic terracotta soldiers.

Those busts of Karl Marx scattered among the osier-beds!

And the pièce de résistance in the front garden, the mausoleum: 28 tons of white Carrara marble housing the embalmed remains of great-grandpa Jabez.

The market value of this Shangri-La? Three words come to mind: not a lot! It’s so much YOU that NO ONE ELSE WANTS IT!

Ok so that it an extreme example however exactly this problem occurs with business owners and people who want to become business owners.

Many of them think only of moulding a business in their own image, inside their own comfort zone, with never a thought for an exit strategy. So when it’s time to sell, potential buyers just vanish into thin air.

Such people are very often fabulously talented individuals who run fabulously complex businesses. They do people’s accounts, cut their hair, give them marriage guidance, all in a day’s work as they run their leather goods and perfume factories, sell insurance and rent out rowing-boats. But most people want something a lot less complicated.

So it might suit you down to the ground to work 24/7: perhaps you don’t like going home. But it’s not everyone’s cup of tea, and if it takes that level of commitment to make your business function, most people will want to run a mile.

And it cuts no ice to say you work 24/7 because the landlord keeps on raising the rent. That is precisely the point! That’s your choice and your comfort zone: you can’t expect a buyer to pay a rent you’ve never dared question.

So before you rush in, think. Don’t tie yourself up!

Arrangements that suit you now could in the long run cost you thousands by a reduction in the value of your business.

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15/01/2010 by info.

Well (in retrospect, I suppose) what was Sir Alf Ramsey thinking about when he substituted Bobby Charlton in the 1970 World Cup quarter-finals? He obviously thought the job had been done.

And precisely what can explain just about every shot decision made by Kevin Pietersen in the last year which led to his dismissals?

Decisions, decisions, decisions! Even the smallest ones can have the most devastating consequences, and nowhere is this more blatant than in sport. Supporters are passionate, bad decisions lead to bad results (don’t even mention Kevin Keegan’s perm!), and supporters get angry and exasperated.

But hang on a minute! Even in sport, you can’t moan if your team loses in the ninth minute of extra time after defending like a bunch of hibernating sloths. After all, if they’re professionals, they’re supposed to know what they’re doing. Aren’t they?

And it’s no different in business. I care passionately about people selling their businesses and making the right decisions when they do so.

So nothing is as sure to make me as sick as a parrot as people making the wrong decisions when it’s so easy to make the right ones!

So what’s the kind of decision that makes me want to shout ‘foul’? Here are four.

Using an estate agent to sell a business

Trying to sell your business yourself.

Ah, but the customer always knows his or her business best. Or that’s what people usually say.

Well, if the customer has been reading these blogs, it’s to be hoped that the customer does know his or her business best, because one of the main aims I’ve had in writing them is to help you all make the best decisions when selling your business.

So just in case they’d passed you by, I’ll take this chance to repeat these three gems of blunt advice.

Instruct the right business agent.

Give your agent the sufficient time to sell your business - at least 6 months.

If you don’t do these things, and you make the wrong decisions, then you really can’t yell ‘foul’ when your sale snarls up. And I’ll be there on the terraces beside you, telling you that in your case, sadly, you’ve scored an ‘own goal’!

So if you do know someone who is trying to sell a business please let them know about us.
You’ll be doing them a considerable favour.

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12/01/2010 by info.

Business Transfer Agents have the same frustrations as Will Writers.

As a Will Writer will tell you…. you are not going to die in the near future so there is no need to plan for that death, you all have decades to live and to contact them to draw up a Will and put your affairs in order, so we can deal with it next year.

The fact is that a Will Writer will tell you exactly the opposite and unfortunately fate may have other things in store for you.

I am also sure that a good proportion of business owners reading this blog have no intention of exiting their business, they are not going to die, get ill, move, retire and have no intention of finding another business opportunity. So of course they do not need to plan for their exit.

However, the vast majority of people who approach me to sell their business are looking for a quick sale, why is this? It is because their circumstances have changed and they now need to sell or they have been trying to sell their business elsewhere and have been unsuccessful; however because they did not plan for a sale they will not be able to sell their business, or at least for the amount that it technically could be worth.

There are a few very easy steps you can take to increase the value and saleability of your business, too many to list here. The one question you need to ask yourself is “If I put my business on the market tomorrow will it sell for its market value?”

I can assure you that if you answer, “Yes” to that question you may be being over optimistic.

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09/12/2009 by info.

Running a business via the legal structure of a Limited Company can be beneficial to a business owner on more than one level, however if you wish to sell a Limited Company it could become much more costly.

A business owner should be only interested in the net sale proceeds from the sale of their business. That is after the costs of the sale, agents fees, solicitors fees, and of course tax.
When you sell a business trading under the structure of a Limited Company there are two basic methods of structuring a sale of your company. Firstly as a share sale, or secondly as an asset deal.

In the first of these methods you just sell the shares, whereas in an asset deal the company sells the assets of the Limited Company to the purchaser.

In most cases a share sale would be preferred if you’re the seller as it will usually lead to the lowest tax charge. However, many purchasers prefer to acquire the assets of the company so you may therefore have to go down the asset route.

After April 2010 if you sell the assets of the company rather than the shares of the company, the tax changes could prove very costly.

The reason is that as from 6 April 2010 anyone earning over £150,000 per tax year will pay income tax at an effective tax rate of 36.1% on dividend receipts.

In addition the rate of corporation tax for small companies is supposed to increase to 22%.

When you take these two changes into account the tax charge for anyone looking to extract profits from a company via dividends could significantly increase.

So what can you do? Either:

· Sell your business before 6 April, however this even now is very a very short period of time.
· Offer your business for sale selling the share of your company not the assets
· When the business is sold, take out less than £150,000 a year from this company; this would only work if you didn’t need the full sale proceeds immediately.
· Become of non-resident and extract free of income tax, however you would of course need to live abroad.

By far the easiest of these is the sell the shares of the business not the assets

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04/12/2009 by info.

One of the most frustrating aspects of any sale is perceived and unnecessary delay after solicitors have been instructed.

I am sure that many of you who have not sold a business but have been though the process in the sale of a residential property can recognise this feeling.

But if there is any fault whose it is?

There may be a number of reasons for a delay and the simplest one is that either a buyer or a seller is deliberately slowing down the sale process for personal reasons. Perhaps buyers are not ready to buy because they are waiting for a sale of their own to complete or the seller wishes to take advantage of seasonal profitability.

There may be issues that arise that neither party was aware about or one side wishes to try to hide and hoped that due diligence would not uncover the truth.

Sometimes the parties are at fault by instructing the wrong solicitor for the job. A solicitor without significant experience in business transfers can often stress and want answers to unimportant issues in the sale.

If a lease is being transferred the fault can lay with the landlord or landlords solicitor who have no incentive to hurry the process along. Often for them it is the better the devil you know.

Most of the time it is the fault of the buyer, seller or both for not managing their solicitor allowing them to sit on and not deal with paperwork when they receive it; the solicitor as a result with deal with matters when they have the time, so if you want a speedy conclusion you should be more proactive.

So is it ever the agent’s fault?

Well there are a good number of private sales where the seller and buyer conduct a good proportion of sales negotiations directly so an agent never gets involved in the process at all.

If an agent is involved they should provide comprehensive head terms for each sides solicitors and apply for references on behalf of the buyer, however when solicitors are instructed the agents job, that of finding a buyer, is technically over.

An agent may act as a go-between to communicate to both sides who is at fault in slowing the process down. But finding a buyer is what an agent is paid to do, not to try to hurry along professionals whom they have no power over.

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13/10/2009 by info.

Well the answer is it is important to listen to both.

From purely an investment point of view you should hold the business if it generates more pure profit than the investment earnings from the sale proceeds.

So if you have a business worth £200,000 you should be asking your Independent Financial Adviser what return on investment he can obtain for you from your proceeds and compare that with the “pure profit” made from your business.

Pure profit is the excess profit over and above what you could earn from having a job running your business.

So for example:

Business Profits £45,000 less assumed salary £30,000 your pure profit would be £15,000.

Sale Proceeds £200,000 invested at say 10% would be £20,000 so it would be preferable to sell on an investment level.

Owning a business requires passion and a level of commitment, and a business owner should always sell BEFORE that passion dwindles, otherwise the possibility is that the profits and therefore value of the business will fall.

So when making the decision to sell your business, you should check your gut instinct and ask questions like does it feel right to sell? Can I move the business forward next year?

However sometimes, a potential buyer may not support your idea of the business’ potential. Typically, buyers will not pay for future potential, especially if it is not supported by historical performance.

Additionally you should be asking the following questions about your business as without these buyers would be thin on the ground.

· Does the business have a favourable track record of profitability and cash flow?
· Does the business have an attractive outlook for the future?
· Can the business continue without your day-to-day involvement after an interim transition period?
· Are there key managers who will go along with the sale and help the new owner with the transition?
· Does the business have unique assets that would be hard – or impossible – to replicate by a prospective buyer (e.g., an attractive customer base or unique supplier arrangements)?

It is these sorts of issues that should lead you to the right decision as to when you should sell your business.

Whatever your decision you should be taking advice first from all your advisors, your IFA, business agent, accountant as often your assumptions may be incorrect and may lead you to the wrong decision. I.e whether tax would be payable on the proceeds, and your proceeds would be less than you thought.

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09/10/2009 by info.

The Nationwide House Price Index suggests that residential prices are broadly the same as this time last year, and furthermore that prices rose for the fifth consecutive month. So surely we are about to experience a boom in prices again?

However there has recently been a spate of warnings regarding the possibility of further property price falls. So what is likely to happen?

One reason to remain cautious about a sentiment that property prices will continue to rise is that turnover is at a low level. This indicates that demand is still low; prices simply do not increase at low demand levels, and when supply increases this will have a depressive effect on property prices as people have more choice.

Interest rates are also historically low, and if anything pressure on interest rates to rise will increase as we climb out of recession making loans less affordable. Australia recently increased its base rates by 0.25%.

I would expect property prices to reduce again over the next few months, as these recorded increases in property prices are seasonal. My thoughts are that property prices will fall further next year as the graph shows the current prices are at around their long term value, however experience has shown that the market tends to overshoot long term trends.

Firstly, why am I blogging about this, and what do residential prices have to do with business buying?

Well simple, often residential property forms a large proportion of any price paid for a freehold business, a B&B business for example, which has an alternative use as a larger home.

It also affects the valuation of the property; as if bank surveyors expects the value of a property to decrease they will be conservative with the amount they will be willing to lend.

Furthermore residential prices have a longer-term effect on the demand for businesses; during the property boom business buyers used equity or to finance their business purchase.

Also increasing property prices affects the general publics confidence as if they see that their assets are increasing in price they are more likely to feel confident about spending money, thus increasing every businesses profits and therefore value.

But does it really matter if you are thinking of selling your B&B? As if you intend reinvesting in property, prices are comparative anyway, and the property you buy will also cost you less.

The big issue is of course those business owners who bought at the height of the property market, taking on a large mortgage. They are looking at a large loss if they want to sell, either they have to take the financial loss or continue trading, as they are highly unlikely to find another buyer who will be willing to pay the same amount.

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