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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