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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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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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.

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17/09/2010 by info.

The sale of a business is often the second largest transaction that a businessperson will have in their life behind the sale of their house. And a house sale will be of more interest to a Will Writer than an IFA. For some people it will be their largest.

A business owner invariably expects that the sale of a business will fund retirement; the proceeds will be reinvested in order to gain an income.

However when I am called into providing a marketing appraisal/valuation on a business prior to a retirement sale I am often met with the sentence. “If that is how much my business is worth I can’t afford to retire”.

The owner has assumed that his business is worth more than it really is, and is forced to either carry on working well into his 70’s or to place his business on the market at way above market value in the hope that someone will decide it is worth the over inflated price.

So I am shocked that no Independent Financial Advisor has contacted me asking for an assessment on a client’s business value, after all it is part of their client’s retirement portfolio. Surely they should be looking at ALL their client’s investments in their retirement planning advice? And this includes the value of their clients business. However what is seems they do is to either ignore their clients business or take their clients word for how much it is worth.

If an IFA knew the likely selling price of a clients business they would have time to help them plan their other investments to meet their needs I would have thought.

How many times has this oversight by a business owner and his IFA lead to their client having to work well into their retirement? Or having to retire on a much smaller income?

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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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04/08/2010 by info.

The Goodwill in a business is the future profits of that business, in other words a buyer is buying next years profits.

However, buyers when they carry out due diligence do not understand this fact. They spend time and money verifying the past turnover and historic performance of the business and ask their accountant to look at the latest accounts in detail.

This is important but historic results are no guarantee that a buyer will be successful.

What is often seriously lacking in the due diligence process is an investigation of whether the buyers plans for the business will work.

You see it time and again when new businesses open, they open the doors trade for a little while and then close down. Or a business owner buys a business tries to change that business but fails.

So when you are looking to buy a business perhaps your due diligence should not be aimed so much at proving that the seller is not telling the truth about his profit, but on ensuring that you as a future owner can increase that profit and that you can increase the value of the business.

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