27/11/2008 by info.

So Woolworths and MFI have called in the receivers, who are basically accountants who will run the business until they decide what is best for the creditors. It is similar to Chapter 11 in the US.

The media are reporting these events and suggesting the firstly these names will disappear from the high street and further that the reason for the administrators being called in is due to the recession.

Firstly, the names may not necessarily disappear, it depends on what the administrators decide is the best option, and they are taking to potential buyers at the moment if reports are to be believed.

Secondly, the reason why these businesses have failed is due to inadequate management who did not ensure that the business had a particular niche of placement in the market. So when times were not so good they were the first to fail.

Why would someone shop in Woolworths to buy a DVD? Amazon and HMV provide a much better option and there is now the option of downloads which Woolworths have totally ignored. And why do the shops close at 5.30 when this is exactly the time that other workers in the town shop and office workers are ready to buy that last minute item? What percentage then drive to Tesco to buy that last minute gift when Woolworths could have been more convenient if it were open?

The knock on effect is when potential buyers were looking at Woolworths as an investment they could not find a reason to buy. What were Woolworths good at?

The same applies to to the sale of small businesses. Why would someone buy your business? What is your businesses Unique Selling Proposition?

Have you entered a competition to be pronounced the “Best Fish and Chip shop” in the region. No doubt these award winning businesses if they are now are placed on the market will be easily sold. However there are probably better Fish and Chip shops in the area whose owners simply did not bother. So if these “better” Fish and Chip shops are marketed, buyers will not necessarily know the quality of the business that is being offered.

So regardless of whether you want to sell or simply increase your turnover awards are one of the ways of distinguishing you from the rest of the businesses in your area, as is creating a niche for your business.

It will help you increase your profits and it will help the sale of your business.

A question I always ask my clients is why would someone want to buy your business? Most of them cannot give a single reason, don’t let that be true of your business.

Posted in Selling Your Business, General | No Comments »

24/11/2008 by info.

So the Chancellor thinks that reducing the standard rate of VAT to 15%, and increasing government spending, will stimulate demand to the extent that the economy will be boosted out of recession in a few months time.

The idea of course is that we all see that the price of a new car has been reduced by £250 so we will all go and buy one.

Personally I think that if you are concerned about your business failing or being made redundant from a job, that you will not be increasing debt just because you can “save” £250 if you buy a new car before the end of 2009.

What will happen is that you will be saving that money, or using it to pay off your credit card debts if the worst happens to you and you lose your income.

“Extraordinary times require extraordinary measures” the Prime Minister told the CBI. With such comments being made, confidence in the economy will not be improved.

Remember that the Chancellor in March this year said that growth would be 1.5 - 2.5% this year, now he informs us that growth will actually be 0.5%. This just shows that they did not have their finger on the pulse, so why should we trust their prediction?

If the government think that the economy will start to grow in 7 months time, it will be the biggest misjudgement since they claimed the end of boom and bust economics.

Or it is more to do with talking up the economy (pending a snap election next year) before we realise the truth?

Posted in The Economy, General | No Comments »

17/11/2008 by info.

Firstly a quick economics lesson.

We have gone into recession for the following reasons.

1. Businesses borrowed money and these businesses could not afford to pay it back

2. Individuals borrowed money and these individuals could not afford to pay it back

Isn’t it strange therefore that governments think that the best way out of the recession is for governments to borrow money and hope that they can afford to pay it back!

This is Keynesian Economics and I’m glad that at least my economic lectures at University are now of some use. Perhaps the Conversative party will readopt Moneterism later.

Maybe though the reasons why we went into recession were:

Firstly that the banks were looking at short term profits and bankers were purely looking at their next years bonuses, lending money that could be repaid in the short term but not in the long term. They then packaged up this “bad” debt later and sold it to other institutions with some “good” debt.

Secondly taxes increased, taking out incentive for people in business.

Why do we tax something that is good for the economy? I.e Jobs via National Insurance Contributions, that has always puzzled me.

We also tax the transfer of businesses via Capital Gains Tax, but surely it is a good thing if businesses are sold rather than closed down? It again maintains employment. Plus the new business owner buying that business is taking on less risk compared to setting up from scratch.

A business is only worth something if it has made profits, and the government has already made money from taxing those profits via Income Tax and Corporation Tax.

So, isn’t it about time that the government stopped taxing goodwill on the sale of a business?

Perhaps then people looking to invest money will not be looking at property, but will invest in businesses and invest in jobs.

The truth is the government just want a share out of any economic activity via taxes, which during a recession is not good for the economy.

Stop taxing business owners and more money will be left in the economy in the first place.

It makes more sense than having governments taking that money from individual business owners via taxes and spending it themselves later (probably in a very inefficient way) in an attempt to take the country out of recession.

Posted in The Economy | No Comments »

13/11/2008 by info.

In fact the same principle applies with shares and residential properties

What there is, is a tendancy for people to do is to look at the historical value of your house, business or shares you purchased and compare the value of those assets now.

They decide that if they would be currently making a loss on their investment if they realised their asset now, then they will keep it, but thats often the wrong decision.

Look at the value of high street banks in Mid 2007 HBOS shares were trading at approx £10.00 a share, early 2008 they were trading at £6.00 a share and you may have thought I won’t sell them now because I will have made a loss. What has happened since then, well they are now selling at £1.00 a share and by not selling a the start of the year the technical loss you have made has been much higher.

Now these shares may recover to a value of £20.00 a share in years to come but can you wait that long before you realise your investment?

Many people are now delaying the sale of shares, houses and businesses thinking that the value will increase. And of course they may increase in time. Over the long term people have made money in the property market and stock exchange.

But can you really afford to wait that long?

What people should be looking at is not the value of the asset now but to look ahead and try to establish what the value of the asset will be within the time frame that they would NEED to sell.

Coming back to your businesses value, the questions you would need to ask are?

When do I need to sell?

When I need to sell, will the recession have negatively affected the value of my business? I.e will the profitability have reduced in that time frame.

It may be your competitors that go out of business leaving you with a higher market share, but they may be in a stronger postition that you.

If you want to sell in 2 years time why should you not place the business on the market now? Surely it is better to sell now for £100,000 than in 3 years time for £50,000?

The effect of delaying the sale may mean that you have effectively worked for 3 years for negligable reward, as the profits have been reducing and the value of your business has been reducing.

Should you wait to sell your business?

The answer is if you are in your late 50’s definately not, if you have plans to emigrate definately not but if you intend selling your business in 10 years time then you should carry on trading.

People are still buying businesses and many will have redundancy money looking for an investment, they wont be concerned with business values in 2 years because they will be trading for the next 10 years. And will still want to buy your business.

Posted in General | No Comments »

06/11/2008 by info.

So the Bank of England has now reduced the base rate by 2% since September 2008, this was what was needed.

I attended a seminar in September 2008 run by the Telegraph Business Club in which Mark Berrisford-Smith Senior Economist with HSBC Bank plc told the delegates that if interest rates was not cut by 2% in the next day that the recession would be prolonged and deep. The cut announced was 0.5% as a result the stock exchange crashed.

The Bank of England have now taken that appropriate action, and rates have been cut to this level. It’s good to see that steps have now been taken to take us out of recesssion next year.

Good news for all businesses, buyers of businesses and sellers of businesses.

Posted in The Economy | No Comments »

06/11/2008 by info.

A recent report stated that:

“According to exclusive research carried out by Financial Mail recently a staggering 60% of small business owners are delaying retirement due to the UK’s economic downturn.

One third of small business owners considering selling their businesses agree that the state of the UK economy has severely affected interested parties; with 20% suggesting the selling price had fallen, leaving them with little option but to continue working for longer.”

At least that is the story that has been reported, but perhaps the truth is more likely to be this.

Business owners are quite happy if an agent informs them that their business is worth a lot of money. Recently there have been a number of agents who have valued business at up to twice the probable selling price. They then take a large up front fees from their new client and the client is happy to pay this if they can get the amount of money the agents suggests the business is worth.

The seller decides at the same time that if my business is worth this amount of money that they can afford to retire.

Now what has happened of course it that these businesses that have been placed on the market have never sold for one reason - they are overpriced!

So the seller then contacts the agent who trying to cover up their deceit suggests that if they want to sell they would need to reduce their asking price, and justifies this by blaming the economy.

Of course they cannot afford to reduce the price because the ONLY reason why they placed their business on the market in the first place was because IF they received that amount of money for their business they COULD afford to retire.

The truth is however that their business was NEVER worth that amount of money in the first place and they started to make plans to retire based on an assumption that was not true.

So sometimes a reporter not really understanding the background behind a story gets the wrong end of the stick.

Business values have remained static since the early 1990 recession and haven’t changed significantly since then.

I would suggest that the truth is that there simply isn’t any evidence that business values have fallen significantly rather reality has kicked in regarding the true value of businesses in the UK.

Sellers had fallen for the age old “buying a listing” trick used by business agents and estate agents to increase their portfolio of clients. In other words overvaluing.

If you want to sell your business don’t be conned into using a particular agent just because they suggest that they can get more than any other agent, you will find that you have fallen for this trick.

Posted in Selling Your Business, Business transfer agents, The Economy | No Comments »