01/04/2011 by info.

TGIF – Do you say this every week?

Life is full of choices; unfortunately sometimes people choose to do something they really don’t want to do as they think they have no alternative.

How many times have you heard someone say thank God its Friday? Basically they spend most of their lives during the week doing someone they don’t want to do just so that they can do something they want to do during the weekend.

Are you in that position?

If you own your own business and find yourself saying that on a Friday perhaps it is time to sell.

And if you are an employee perhaps it is time you looked at either working for yourself starting a business or the easier route buying a business where someone has already done the hard work.

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09/02/2011 by info.

Your attention, ladies and gentlemen – a little scenario!

Imagine you’re a book collector browsing in a Rare and Second-hand Bookshop. You spot what you want, a first edition of A.A. Milne’s The House at Pooh Corner, published 1928, drawings and designs by E.H. Shepard, acceptable condition, only £200.

But the purchase goes badly. The shopkeeper is unhappy about parting with the book, which apparently has sentimental value, a gift from the author to a relative. You’re harassed with questions: why do you want it? Will you look after it? Do you understand its value?

Exasperated by this irrelevant pestering, you resort to sarcasm. Actually, you tell the shopkeeper, you don’t give a damn about the book. It’s all about your neighbours, whom you hate, and who are Winnie the Pooh fanatics. What you’re really intending to do is kidnap them at gunpoint, shred the book before their eyes, and laugh while they weep. You offer £180: unsurprisingly, you’re turned down. You leave, knowing where to find a slightly damaged copy for £160.

Does this behaviour seem odd? It’s actually very common in business transfers, with owners feeling they have an emotional stake in the business they’re selling and becoming precious about what buyers will do after the transaction is complete. Selling a business, however, is a commercial process allowing no place for emotion.

Soon, your business will not be yours. Live with it!

Focus instead on the purpose of your exit. Whether you’re retiring, re-investing or buying a new business, the new owner’s plans are totally secondary to your need to obtain the market value of your property.

Likewise, buyers should think along similar lines. By all means negotiate with sellers, but don’t aim to make the pips squeak! You could find it advantageous later to have paid a slightly higher price, when you’re looking to the previous owner for goodwill and support. It is not better to find the business you would rather own than the business you would rather pay for.

Both parties to a business sale should think long-term rather than short-term. There’s no emotion in buying a Mars bar: think of transferring a business in the same way.

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04/02/2011 by info.

A break clause in a lease gives a business owner the automatic right to terminate the lease at one or more specified dates. An entreprenuer may want a break clause if they are unsure about how successful a business venture is going to be.

So they will negotiate a five year lease for example with a two year break clause, and if the venture is not working out they can then withdraw without any fear that the landlord will want the other three years rent.

The problem with these break clauses of course is that the owner only has a short period of time to decide whether a venture is working or not, and some break clauses require a long period of notice say six months.

The business may not even open for business for the first one or two months of the lease as they will be fitting the premises and stocking it, meaning that the business owner has effectively just over a year to decide whether to opt for the break.

Now most new businesses do not make a decent profit in the first year, most small businesses are sold for one to two times ongoing profitability, why, because that is the opportunity cost or starting a business. You either have the choice of buy a business with immediate profitability or start one and have minimal profitability for the first two years.

A lot of business owners also overestimate their profits in year one, and just because they are not meeting their unrealistic targets they often give up.

So what happens psychologically with a break clause?

The owner knows he has a fall back position and he has to make a decision after a year, is this business going to work? I have already shown that a year may not be enough time to assess whether a business is going to work, an owner therefore may give up just as he business is about to bear fruit.

In addition it stops the owner selling the business as, in year one no one would be interested, and he knows that the business is going to close in 6 months so there is no point in trying to sell it is there?

The problem with break clauses is that they are often used as a substitute for research and business planning. Ensuring that your business proposal has legs and ensuring it will be successful is replaced by a negotiating break clause.

Are lease break clauses leading to the closure of otherwise good businesses? The answer clearly is yes.

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31/12/2010 by info.

Actually, it’s not the speed of light, is it? It’s really the speed of light squared because, as all of us know, e = mc2.

That of course was Albert Einstein, and I doubt there’s ever been a better known equation - although for most of us it’s probably all that we all know about the Theory of Relativity. Now however it’s my turn, and I’m sure Einstein would be proud of me, although I don’t expect I’ll catch on in the same way -

V = (S - E) X D.

That’s a statistical equation of my own I’ve just worked out, and it’s a pretty important one for businesses.

It states that the value (V) of a business is a function of its profitability - expressed as sales (S) minus expenses (E) - multiplied by its desirability (D).

Let’s just focus on expenses (E), i.e. costs, because the simplest way to increase profits is by reducing outgoings. For lots of businesses the impact on profit of cutting costs by £1 is the same as increasing sales by £5.

However, this doesn’t alter the fact that there’s a marked tendency among business buyers and sellers to assume that costs are a constant rather than a variable - that you can’t do anything about them because, after all, there they are in the accounts, year after year. And not only are they always with us, they’re always going up, because that’s what costs do!

Perhaps, however, buyers should instead

· ask sellers when they last changed their utilities suppliers,
· scrutinise the energy performance certificate (EPC) for energy savings opportunities, and
· find out whether Small Business Rate Relief has been applied for.

The possibilities for reducing costs do not end there, and they should be explored. Careful examination of costs can give a buyer an opening to pick up a bargain that has escaped the eye of the seller. Sellers on the other hand should be combing through their costs and trimming them carefully to enhance the value of their businesses on the open market.

How do you mean, you don’t see what that’s all got to do with Einstein? Isn’t it obvious? When there’s a clear relationship between cutting costs, your level of profit and the value of your business? It is all relative!

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15/12/2010 by info.

A report in the Daily Telegraph on 13 December stated that “Family business owners are struggling to sell up to staff because of bank lending policies and the weakness of the economy” Which seems to be based upon a statement made by the president of the Electrical Contractors’ Association.

The president a lady called Diane Johnson stated that some of her members are “closing them (their businesses) down because they can’t find people to buy them, because the people working for them can no longer raise the finance.”

Well certainly if you are just looking for your employees to buy your business you may be disappointed.

It is certainly our experience that there is not a shortage of buyers in the market as the President declares indeed when we obtain an instruction we seem to have no trouble in obtaining plenty of enquiries.

In our opinion this article shows three failures in the selling process with these businesses leading to the business owners failure to sell:

1. The business owners have clearly failed to plan their sale, their strategy seemingly is to look for a buyer within their business and employee without access to any capital. The lack of planning will also affect the selling price of the business.

2. They seem to have not instructed a business transfer agent, rather they would prefer to blame the banks who refused it seems refused their employee funds to buy their business.

3. They perhaps want too much for their business. Business owners sometimes have strange ideas about how much their business is worth. Rather than closing down the business and get nothing for the goodwill, perhaps their best course of action now would be to simply reduce the price.

We have plenty of buyers enquiring about businesses, certainly we do not recognise a lack of buyers, confidence in the economy and access to funding to be an issue, rather that the fault lies with the business owner.

Posted in Selling Your Business, Buyers, The Economy | 1 Comment »

27/09/2010 by info.

I was looking at a business forum today, someone was asking for help as his ex landlord was pursuing him for £13,000 in unpaid rent.

Basically his story was that he was buying another business and wanted to complete quickly on that purchase, so allowed the potential buyer of his business to start trading from his premises before the lease was assigned. Unfortunately the new owner of the business did not pay the rent hence the landlord asking the lessee to pay it.

Now this person was incredibly stupid, and the possibility is that his finances could be ruined because he wanted to rush the process of selling a business too quickly.

You should never allow a prospective new owner to start trading from your business before they have completed.

Unknown to me one of my clients did similar thing a year or so ago. I was talking to this client about the fact that they would be out of their business in a week’s time and they mentioned. “Oh I’ve been out for the last 2 weeks he has started trading already!” Now fortunately this owner suffered no loss, but if I had known this was their plan I would have advised against it.

I would suggest that it would even apply to training a new owner or letting them too much about your business. The very first offer that was made for one of the businesses I was selling was withdrawn without explanation. I spoke to the owner and she said that she was angry at him as she had spent hours and hours and hours with him telling him all about her business. No doubt she told him things he didn’t like.

So if you are selling your business, think twice before allowing a potential buyer inside knowledge prior to completion, it could mean that your sale could collapse. Or even worse never allow them to start trading without a legally binding agreement in place drawn up by a solicitor, as it could leave you financially ruined.

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25/09/2010 by info.

The value of your business is directly related to your businesses profitability and turnover, and for businesses with premises this has in the past been directly related to the businesses location.

Location, Location, Location was the mantra expressed. The greater the number of people walking past your premises, (the footfall), the greater probability that someone will see your premises and display and be inspired to browse.

Location however comes with a huge price and it is called Rent & Rates you can expect to pay a much larger amount in Rent & Rates for premises in a primary position compared to a secondary position.

This increases your breakeven point, risk, and cash flow requirements for your business, and leaves you vulnerable in a downturn. During the recession numerous High Street businesses went bust, because they could no longer cover the costs of their business.

The use of Social Media is one way of increasing your footfall without having that prime high street position, and I am surprised that more businesses are not using it.

For those who don’t know, I am talking about using of Facebook, Twitter, Foursquare etc to promote your business, the costs are low, the risks are low and your customers are already there! By engaging with your customers and potential customer you can increase your footfall and customer loyalty.

Lets take an example of a Hairdressing business.

During a Saturday you will have no problem with appointments, perhaps even you might have to turn business away, but there will be times during the week when your appointment book is empty. You could tweet special offers “First person to book an appointment for this afternoon gets £10 off our prices”

Or offer free haircuts to the major on Foursquare (you need to investigate!)

Or simply ask people to like your business on Facebook and become a Fan and create Facebook only discounts.

So perhaps you don’t need that High Street position anymore, and you can create a business model of buying cheap businesses and build up their profitability and value using Social Media.

Posted in Buyers, General | 1 Comment »

13/09/2010 by info.

It is often overlooked that the Internet is a new invention. In the early days in the growth of the Internet, businesses often did not use a website to market their services.

When the domains were bought, the business owner did not consider that they were buying an asset which he would develop and which would form a major part of their business goodwill.

Registration of a domain is very simple, you fill in a form and pay a few pounds and register the domain name. And because it was very simple, business owners gave no thought to the process.

A domain name and website are important assets of a company and its goodwill, and in effect for many businesses its value lies in its website.

Now you find that some businesses do not own their own domain name, the business is a limited company but the director registered the domain in their name. Or even worse, ownership belongs to the company who purchased the domain on behalf often the website designer or the Welsh Tourist Board. Or even that your business does not own all variations of the domain name.

Now let assume that your business becomes successful. You appear on Dragons Den and obtain investment from Peter Jones and Duncan Bannatyne, your businesses goodwill suddenly increases in value, your domain name is now worth a lot of money.

Surprisingly then, the business Wothenshaws did not own worthenshaws.com, the current owner is offering the domain, and has it seems turned down an offer of £5,000 for the domain.

More surprisingly worthenshaws.co.uk which currently links to the main website is currently registered as being owned by an individual. Surely, Jones and Bannatyne carried out due diligence on the company assets ensuring they have a legal right to the domain before making a large investment?

I was recently told by a client that they had sold a business privately, however I look at the registrant of their website and it is still in the name of the old owner. I wonder does the new owner recognise that they have forgotten to transfer the main asset of the business before completion? We as business transfer agents would not forget, it seems that the buyer and their solicitor may have and as a result potential problems could result in the future with a further sale.

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