29/07/2009 by info.

When you are selling a business you will probably be asked to sign an agency agreement. This does not differ from the sale of a residential house in that the agency agreement you sign will either be a sole selling rights agreement (where the agent is the only one who can sell your house) or a multi agency agreement (where the agent only receives commission if they sell their house)

A contract with a business agent however differs in many other respects and if you contact three agents you may be asked to agree to completely different terms, the two material aspects being the payment of up front fees and cancellation fees.

Now I consider that it is perfectly legitimate and reasonable to charge both but not on the same contract.

An agent may ask for upfront fees to cover their advertising expenses if they will be embarking on a proactive marketing campaign, or if the client wishes the agent to sell their business at a higher figure that the agents own marketing appraisal.

Alternatively there may be cancellation fees if agents are asked to operate on a multi agency basis or if the seller withdraws their business from the market within an initial period under a sole selling rights agreement.

In my opinion the agreement that the seller should avoid is the one where there is both an upfront fee and a severance/cancellation fee, especially where the agent is operating under a sole selling rights agreement. There are agents such as RTA Business Consultants who operate such an agreement.

With an agreement like this the seller is trapped and the only option they would have is to complain to the OFT that the agreement was unfair under the Unfair Terms in Consumer Contracts Regulations 1999 (The Regulations), or to pay the fees as and when demanded.

It must be noted that the OFT recently ruled that Foxtons Estate Agents operated unfair contracts . They said “businesses offering services need to ensure unexpected or surprising terms are not hidden away in small print. Contracts need to be written in clear and straightforward language with important provisions, particularly those which may disadvantage consumers as in this case, given prominence and actively brought to people’s attention”

A lesson learned by Foxtons and perhaps one soon to be learned by business transfer agents.

Posted in Selling Your Business, Business transfer agents | 2 Comments »

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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08/04/2009 by info.

It is often useful, now that we have the Internet, to look at how comparable businesses are marketed in another country, as perhaps they have new ideas that could be applied in your country.

In America TV advertising simply delivers a message, where as in the UK advertising agencies seem to want to entertain, often the message is lost. How many times do you watch a TV advert and not remember what product it was supposed to be promoting?

This is perhaps due to cultural reasons, British people do not like “in your face” marketing, or maybe it is because airtime in America costs more. Once again, companies in the UK simply add on the cost of advertising to the consumer, US advertising seems to focus on the cost benefits of the product.

In America business transfer agents are called business brokers, and it seems that generally speaking the way that their portfolio is presented to buyers is generally the same. Brokers in the US however don’t seem to provide photographs of the business, indicating that US buyers are not concerned with how a business looks, the financial information is more important to them.

The finance aspects of a business transfer is the main difference, whereas in the UK agents charge 3% – 5% of the sale price on a successful sale, brokers in the US charge 10% – 12% with minimum commission of $15,000 being quoted.

This is where the difference lies, business transfer agents advertise a business and introduce the parties, the finance for that business is provided by banks and other financial institutions. In the US, seller financing is the norm, where the seller provides the loan to the buyer to buy the business, the broker is involved in brokering the deal, not only the priced agreed but the repayment schedule.

It is the norm for the buyer to put down a deposit say 25 – 30% of the purchase price with the balance being repayable over maybe 5 years.

So why don’t British business owners offer the same deal? Often because they want a clean break, or maybe because they are not certain about the strength of their own business.

However if business owners had more confidence in their own businesses and offered finance to the buyer, they would be more likely to sell and get a higher price.

Maybe this is the area where business owners can learn from our US cousins where selling a business is concerned.

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23/03/2009 by info.

If you have not read Richard Koch’s “The 80/20 Principle” perhaps you should, it has applications thought your life.

In business this 80/20 Principle suggests that 80% of a businesses profits come from 20% of that businesses efforts, Business Brokerage is no different.

I was trained by a very experienced, no longer with us, Business Transfer Agent called Todd Barriscale, who told me that he didn’t actually want the Internet to take off and that he never supported any new venture because he simply wanted one place to advertise, that was at that time Daltons Weekly.

Now is well known there are a multitude of places a Business Agent can technically place an advert for a business for sale. In fact on a regular basis I receive telephone calls from new websites offering free advertising if I place my businesses for sale on that website. I always decline, why? For the simple reason, for the same reason Todd gave, it simply increases the effort for no return, time is a cost in business.

That is the reason why most Business Transfer Agents primarily use two websites, businessesforsale.com and daltonsbusiness.com.

Business Transfer Agents are also working on the premise that buyers are also using the same 80/20 Principle. Buyers will find a website at the top of the search engine rankings find plenty of businesses for sale and search that website.

If Business Brokers advertised on all websites available and in all publications they would simply be spending all day updating websites for price changes etc, not a productive use of their time.

So if you want to buy a business in the UK, simply visit the websites at the top of the search engines no further; they will list most of the businesses on the market.

If you are one of the new websites, get to the top of the search engine rankings, perhaps then you will persuade Business Agents to advertise with you.

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26/02/2009 by info.

There are many fallacies about valuing businesses one such fallacy is that businesses are valued on multiplies of turnover - for example three times sales.

Well if that were true it would be simple to increase the value of your business by cutting your prices and increasing your turnover. However you would not be making any money by selling at close to cost. No, the main criteria for valuing a business is based on a multiple of profits.

There is a number often quoted for shares on the stock exchange and that is the P/E ratio. This is the profit earned per share issued. In essence, the P/E tells us how much an investor is willing to pay for £1 of a company’s earnings.

Now P/E ratio’s on the stock market have fallen significantly over the last year, both Vodafone’s and Next’s P/E ratio is now 8 times. So if you wanted to buy Vodafone the value would be technically 8 times their profits.

Some business transfer agents including many that have gone into administration had been working on P/E ratio’s of 4 times for even the smallest business, which was always totally unworkable, hence they didn’t sell those businesses.

Most reputable agents who had been selling businesses had been working on P/E ratio’s of 1 to 2.5 times profits for the small business, however if for the largest businesses that multiple has halved, perhaps there should be a new realism amongst the small business owner?

What might keep the values constant? As I have mentioned before it might be new buyers being made redundant without an alternative but to buy a business, start a business or go on the dole.

In a way business transfer agency businesses are recession proof as often it is these new buyers that keep the market ticking over and mean that businesses are still sold at a reasonable price even during a recession.

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

24/02/2009 by info.

Everyone who starts a business or buys a business should have in the back of their mind their exit strategy.

Unfortunately, most business owners don’t have an exit strategy, an exit strategy if you think about it is a goal, and if you talk to business coaches you will find that a large proportion of business owners run their business without any goals whatsoever.

There is a category of business owners who tend to respond to some event in their lives in their decision to place a business on the market. Such as a new business opportunity or job offer, feeling a lacking motivation that day, cash flow problems, so that when a leaflet dropped through their door asking whether they wanted to sell they called the agent an obtain a valuation.

In other words they acted on impulse.

However, many of these sellers found that buyers don’t buy on impulse, and didn’t get the quick sale they wanted, so the event that lead to them instructing their agent passed. So they simply withdrew their instruction to sell.

From January 2009, this category of seller has disappeared where businesses are linked to property, as when such a business is offered for sale, an Energy Performance Certificate is required.

So now what happens is that I get initial enquiries from potential clients about selling their business, I mention that they may have to invest £500 or so upfront and they decide that they will not sell their business after all.

At least the business transfer agent will now know that the new client is serious about selling, rather than having business owners who are not really serious about selling putting their business on the market just to see what might happen.

So the agent will not be wasting time and money trying to sell a business for the impulse seller and will be able to concentrate on selling businesses for the seller who planned to sell.

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17/02/2009 by info.

You may not be aware of Penman and Sommerlad investigative reporters from the Daily Mirror, but they have recently become aware of the way that some of the business transfer agents in the UK have been operating.

Daily Mirror Article 1

Daily Mirror Article 2

Other business transfer agents have been aware of the way that certain agents have been operating for quite a while now. What is not noted on these complaints is that these agents habitually overvalue businesses in the hope that their potential clients sign an agreement with them. The RTA valuers were also on commission, being given a proportion of any upfront fees they brought in which they had to do to achieve their On Target Earnings.

Let me say firstly that I think that some contribution from clients via upfront fees is reasonable but this must reflect the amount of marketing activity an agent undertakes.

I have however always said that if I took £1,000 in unfront fees from each instruction and fees of £7,000 if I FAILED to sell a business I would not need to sell any businesses.

The market for selling businesses has become much tougher in the last year, and business owners looking for a business transfer agent to instruct have looked for value for money and have not wanted to pay large upfront fees.

Perhaps it is now the beginning of the end for these agents, on 9 February 2009 Bag A Business went into Administration. In fact Bag A Business only traded for 9 months, they bought their assets from SBS Commercial who also went into Administration. The directors of SBS simply started a new Ltd Co and started trading again using the same model.

I have also always said that the worst businesses are the ones that fail in a recession and the business transfer agency market is no different, you make money by selling businesses and if you dont sell any businesses you go out of business. Just as the Dipford Group, owners of Redwoods Dowling Kerr, Kings Business Transfer and Bruce & Co. Ltd did last year. (They are now owned by the owners of Knightsbridge plc)

There is another saying, you can fool some of the people some of the time, but not all of the people all of the time. These agents unfortunately have made business sellers wary about instructing business transfer agents and given it a bad reputation, however hopefully in the next year it will be only the good agents who will survive the recession and these “bad” agents who will go out of business.

Posted in Business transfer agents, General | 4 Comments »

09/02/2009 by info.

So there has been once again a recent spate of sackings in Footballs Premier League in England, this leads to the old debate is it a good thing to sack your manager? And secondly is it actually the managers fault?

Perhaps it’s not standing by your manager that makes you successful; it’s being successful that makes you (more likely to) stand by your manager.

Manchester United don’t keep winning because they’ve stuck by their manager; they’ve stuck by their manager because they keep on winning.

No, the most important thing is not whether to sack or not to sack but to choose the right manager in the first place and give him the right resources to be successful. By for example providing him with a large transfer budget, the best coaches and giving him time to carry out the task he has been appointed to achieve. Maybe therefore it is the Directors of the football club who are to blame if things don’t go right.

So why am I telling you this, after all this blog is not about football.

Well, there are business owners who instruct agent after agent after agent hoping that the new agent is able to sell their business. Then they sack their agent an appoint another one, blaming the agent for the lack of the sale.

But is it really the agents fault?

Yes there are bad agents, but the agent is simply doing his best with the resources that the business seller has provided to him.

If your agent is telling you that he has received feedback from buyers that they need recent financial accounts, that the business premises are run down, that the price is too high maybe you should not be blaming your agent but be looking at yourself.

The business owner should, if a lesson is to be learned from football, simply choose the right agent stick by him and make sure that he has all the resources to sell the business.

Posted in Selling Your Business, Business transfer agents | 1 Comment »