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.

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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.

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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.

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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 »

31/10/2008 by info.

“There’s no point in trying to sell my business at the moment is there?” This is the message that I have had from more than one of my clients.

They think that as the economy is going into recession and credit is difficult to obtain that their are no business buyers ready to buy a business.

Recently I had interest in a Sandwich Bar I am instructed to sell, after the viewing the prospective buyer had told me that the seller was thinking twice about whether he actually wanted to sell as he may not be able to afford to retire as he might not be able to sell his house and relocate as he was planning to do. He is 70 years old by the way.

All business owners in the UK who are offering their business for sale have to obtain an Energy Performance Certificate by 4 January 2009.

What you will find is that a good proportion of the current businesses on the market will be withdrawn due to the fact that the business owner is not prepared to make this investment, or because they think that it will not sell in the current market.

What does this mean?

Well firstly it shows that some business owners perhaps were not really serious about selling their business in the first place, but were willing to list their business at a higher price with agents who didn’t ask for an investment from them, and if someone was interested then they will sell at above market price. My guess is that these businesses will be withdrawn from the market as they will actually have to put up a stake upfront in their gamble.

Others will reply that their is no point in trying to sell, trying to double guess whether a buyer will emerge in the next few months.

This will leave positive business owners committed to selling their business who because they were not negative and have been willing to make an investment will be one of a smaller amount of businesses for sale and will be more likely to sell.

Assume there is a buyer wanting to by a Sandwich Bar in London. (There are buyers out there, cash buyers), who currently has a choice of say 10 Sandwich Bar for sale in the area he is looking. After 4 January perhaps there will be only 5 Sandwich Bars for sale. Each seller rather than having a 10% chance of selling now has a 20% chance of selling.

So if you offer your business for sale now you perhaps are more likely to sell rather than less likely to sell.

If you are interested in selling your business contact us.

Horizon business Agents

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24/10/2008 by info.

For most businesses the answer is no for the following reasons:

1. You are not a professional, are too close to your business and you don’t know how to properly present your business to other people. The chances are that you might already know the likely buyer of your business. You however only get one chance to present that business to them and if you mess up then they will not give your business a second look, even if you subsequently instruct an agent to sell it.

2. Selling a business is a time consuming exercise and the business owner often underestimates the amount of time it will take to sell the business. We will be talking to people on the telephone who are just browsing and those who have no money. He will be wasting hours of his valuable working life not running his business. What happens the business suffers! What most buyers do not appreciate is that business agents do this on a daily business allowing the seller to concentrate on his profits.

3. The business owner is often worried about giving away information to strangers so they will only publish basic information certainly not enough information for a buyer to draw a conclusion on whether they are interested or not. The result they will contact the buyer to get more information (see above point 2). Confidentiality is important to a seller who are often petrified that people will know that he wants to sell. An agent can however maintain this confidentiality, and only disclose the name of the business after certain formalities have been followed.

4. An agent can qualify the buyer, ensure that they have access to the money to buy your business. Buyers especially in todays market overestimate the amount of money that they will be able to borrow to buy a business, perhaps they might think that they can borrow all of the money to pay for the purchase. The result is you do not talk to people who do not have the money to buy your business (see above point 2)

5. An agent will be able to set the most appropriate price for the business and negotiate a higher price than the private seller often would, often this increased selling price pays for the agents services. It is difficult for the private seller to be objective in the negotiations. If you want to give your business away at a bargain price then of course you will have plenty of takers, the skill is to sell it at the market price or above.

6. An agent will know other professionals that can help both you and the buyer complete this transaction. Accountants, solicitors, surveyors, energy inspectors, commercial finance brokers, stocktakers, bankers and some of the professions that may be needed. This smooths the selling process.

7. Arguments, yes selling a business is stressful and often the two parties fall out with each other without that buffer of the agent the sale will collapse, an agent can ofter calm both parties and suggest solutions to the problems.

8. An agent may cut your legal bills, a business agent will provide both sets of solicitiors will head terms, basically terms that have already been agreed, this cuts the opportunity a solicitor has of negotiating the deal and antagonising the other party. Often the buyer and seller are not aware of the information the solicitor needs meaning that they have to constantly write to them increasing the cost of selling.

9. Advertising is expensive, and although an agent may ask for upfront money to cover this cost, he will be able to advertise your business for longer and cheaper than the private seller. Website publications such as businessesforsale.com and daltonsbusiness.com will give an agent much better terms than you can ever get. And for the private seller it is amazing how quickly he can spend £500 on advertising.

10. Buyers may tell the agent the true reason why they were not interested, where they would not do so with the private seller. This gives the agent and the seller an opportuinity to deal with this issue the next time someone is interested.

11. You may accept an insincere offer and spend time and money following this offer only to have to put it back on the market later. An agent is experienced in recognising whether a buyer is likely to complete the transaction.

12. An agent is experienced in overcoming objections, and will recognise whether these is a true objection that he can overcome or ones that can give the insincere buyer a way out without loosing face.

So is it ever a good idea to try to sell your own business?

The answer is yes in one case only, that is when the asking price is so small that the agents commission would swallow all of the sale proceeds. Agents will tend to want a minimum commission £3,000 - £5,000 is commonplace. If your business is not worth much money perhaps it is best to try your luck privately.

Horizon Business Agents

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15/10/2008 by info.

UK unemployment figures increased this month by another 164,000, the biggest rise since 1991. So what can you do if you have been made redundant or have a fear of redundancy but expect a reasonable redundancy package? After all forecasts are that unemployment could reach 3 million by the end of 2009. Source BBC

The problem with the 45 - 65 age group is that although they have excellent life skills employers will subconsiously be looking at younger prospects if they want to take on new employees. Do these people simple live on their redundancy money and get a job at the local Tesco’s store pushing trolleys around the car park? It is an option!

They can start their own business, but this involves risk as 60% of start ups fail within 3 years.

If they want to reduce their risk the best option perhaps is to buy a business.

A recent BusinessesForSale.com survey of 1,000 potential business buyers found that:

48% of respondents saw the current economic conditions as an advantage when buying a business.

11% admitted they wish they had bought 6-12 months ago while an optimistic 19% think it will be better to buy a business in 6-12 months time.

So if you find yourself being made redundant and have a reasonable redundancy package simply look at the opportunity as a new and exciting episode in your life and an opportunity to take control of your life.

Horizon Business Agents

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13/10/2008 by info.

All sellers want to get as much money as possible for their business. However, a marketing price too high can actually reduce the eventual selling price or mean that the business will not sell at all.

Businesses get the most buyer attention when they are first put up for sale. Once a business has been on the market for a while, it gets tired, even with price reductions and new marketing activity.

There are a limited number of qualified, ready buyers for any business. An overpriced offering will turn away these buyers.

Buyers who have looked at the business once, but have dismissed it because of the price, have moved on. Buyers have no interest in a business they have already turned down even if a different agent lists it.

Their initial look at the business may have turned up some problems with the business and the extended time on the market often confirms their suspicions. There’s something wrong with it isn’t there? and others on the market that are better.

When you get ready to sell your business, choose carefully which agent you instruct, and be realistic about your expectations of a selling price.

Don’t be the seller who offers a business at a high price to “see what happens,” or one that is fooled by an agent looking to “buy a listing” overvaluing a business.

Horizon Business Agents

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10/10/2008 by info.

The FTSE 100 has now fallen in value by 40% in the last year. This means that the value of the biggest 100 companies in the UK has fallen on average by 40%. But are these businesses really worth 40% less than they were a year ago?

These businesses would be worth less if firstly their profits reduced, but you still have some businesses such as Tesco’s whose profit has increased in the last year. Oil companies are still doing ok as well. But certainly for the vast majority of these 100 businesses their profits have not reduced by 40%.

What has reduced is the earnings per share or the factor applied to the business - their long term prospects.

But even then the long term prospects for those businesses have not worsened by that amount. The factor behind these falls is fear.

And this fear happens with smaller businesses as well, the owner of a small business thinking twice about whether he actually wants to sell because he might not be able to retire now due to his other investments not doing so well. Or the fear of the buyer not wanting to jump into the frying pan.

I can often see a trend when bad news is released by the media, the number of enquiries for businesses for sale reduces or even stops for a short period of time until they have forgotten about it and started to look again. Its illogical as Mr Spock might say.

You would not close a business on the basis of a few days trading so why react in the short term. Again the answer is fear. In both of these situations, the person in question created a seemingly unsurmountable obstacle that exists solely in their imagination.

People should however be looking at the longer term in these decisions. To get rid of the fear, simply work out what you will do in each of the possible scenarios.

This is called long term planning! This is the basis on which any business decision should be based not on the BBC or Sky News report for that lunchtime bulletin.

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09/10/2008 by info.

If you have ever been turned down for a loan or overdraft application by your bank don’t you think that there is a little poetic justice in banks refusing to lend to each other.

“Sorry HBOS you are too much of a credit risk” says Mr Lloyds Bank but I will buy your business for a knock down price!

Economic growth and wealth only happens when you give away money, and the fear that it will not get repaid will mean that the world economy will be affected.

Imagine the economy as a river and money as the flow of water. If the money does not flow then all that is in that river will die.

What’s in the economy river are businesses some have been eaten up by larger fish/businesses like Lloyds and others the weak that no one wants will die, Lehman Brothers.

Larger organisations like Lloyds know that it is still the right time to buy a business if you are healthy yourself, and if you have cash to spend you can get bargains which would make your empire stronger. That merger would never have been allowed during a time of boom.

The ones that make money from a recession are those that do not panic, whilst all those who are scared of buying a business stagnate in the river you are the one getting stronger because you are investing in buying all your competitors for a cheap price.

The same concept happens in the micro economy, the single hairdressing business in a town who is making profits because they know how to look after customers can end up with being the major hairdresser in the area if they invest in buying their competitors. The same businesses that everyone else is scared of buying now.

And when the river starts flowing again, which it will, they will be the one swimming the fastest and strongest and have the platform to really push ahead.

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