02/10/2009 by info.

There are many businesses who will be looking to the future with relief that they have survived the recession however they may, in the next financial year, have to face paying higher business rates.

Business rates are revalued every 5 years and business pay a multiplier of the rateable value of the property. So for the last 4 years a business has been paying tax based on 2005 commerical property rental values.

But these rates in April 2010 will be revalued and will be based on rents in April 2008, right at the peak of the market, before the bubble burst. So businesses will be paying higher rates regardless of whether the multiplier changes.

Also if the small business threshold does not change for many businesses they may go over the £10,000 rent relief threshold.

So what can a business do?

If they are close to the end of their lease they can look for other premises, ones that may be better located or more suitable give knowledge of their business activity. Premises that may result in higher turnover, but may have lower rents due to the landlord being more reasonable - letting at 2010 rates.

They can ensure that they are actually claiming full rates relief entitlement and halve their rates payable. There are loads of small businesses who STILL do not do this. Alternatively, if they are an essential business in a village (Pub, Post Office) they can apply for full rates relief.

They might consider appealing against the rates valuation. To do this they will need to compare their ratable value against others in the area this needs and note whether they are in the right valuation scheme. I.e you may be valued assuming the business has A3 use, but it may no longer be applicable.

If a business does none of these they may have to face the fact that their profits and the technical value of their business will fall.

Posted in The Economy, General | No Comments »

16/09/2009 by info.

I was speaking to a client yesterday, he told me that we have not been marketing his business properly as he has been advertising his business and has had 4 people respond, although apparently none of these people were interested in buying his business.

Now private sellers will always get a higher response than an agent, why? Because buyers will want to establish whether the seller has made an error in underestimating the value of his business. They will know that an agent will know the value of the business.

Another reason why private sellers get a higher response rate, is simple. When they advertise their business they reduce the price by the agents commission so a £29,000 business is advertised for £25,000 This actually undermines the agents efforts as who is the buyer likely to contact? The private seller offering a cheaper alternative.

The benefit of using an agent is that when an introduction is made to the client the seller knows that this buyer has gone though a vetting procedure. Questions have been asked about how they will finance the purchase. A private seller will have to go through that process themselves, and they will find that they are wasting their time talking to dreamers and timewasters, people without any money at all.

So what actually happened was the client spent money advertising his business and then spent hours talking to people who were never going to buy his business. So how can a seller best sell his business? The best way would be for him to invest and work in improving his business rather than spend money trying to find a buyer, because the better the business the greater the change they have of selling.

The seller also does not include in his calculations the cost of his time, advertising and increased solcitors fees. Yes your solciitors bill will be higher as they will be performing some of the tasks an agent would carry out for you.

So perhaps a private seller is not actually saving any money, and instead of trying to compete against your agent a seller should instead be working with him on a much closer basis.

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Posted in Selling Your Business | No Comments »

21/08/2009 by info.

It is thought that less than half of all start ups have any formal business plan, so it begs the question if they have no business plan, how do they know how much money they will need to run that business?

The fact is that they don’t! People starting business often overestimate their income and turnover and underestimate the amount of capital that is required to continue trading. This under capitalisation leads to business failures due to the owner not being able to invest money into that business.

How many times have you noticed new restaurants or retail shops open, only to close within a year, you can be almost certain that the owner fell into the category of not having a formal plan and being unjustly optimistic about their working capital needs.

The same scenario often happens with business purchases, often a business is sold on the basis that there is potential if only the owner could afford to invest, the buyer thinking they have a bargain underestimates the businesses working capital needs with the result that the new owner rather than the seller is the one who fails.

Maybe a business buyer should be staying clear of businesses sold “with potential in the right hands”, yes the owner could be incompetent without any business acumen and he might be a blithering fool. However the market (his potential customers) has already had experience of dealing with that business and has decided that they will NEVER return. So it might need a lot of money to turn this business around and persuade the market that things are now different.

So why not take this money you will need to invest turning around a business with potential and simply buy a more expensive business one that is generating profits and needs minimal investment.

If you don’t have the funds to do so, conceivably this is an indicator that you are under capitalised and will get into financial difficulties buying that business with potential.

Posted in Buyers | 1 Comment »

06/08/2009 by info.

Many business owners try to sell their business using smoke and mirrors. Hiding the fact that their business during the recession is not doing as well as it has done in the past. They claim a certain turnover but cannot provide any documentary evidence to back up these claims.

Business owner may present historical financial accounts to show that the business is capable of obtaining a certain level of trading; these historic figures are no guarantee of future performance.

But how accurate are these accounts?

One thing to remember is that an accountant will simply prepare accounts based on the information provided to them so there is no guarantee that they are accurate. Perhaps the best way of assessing how accurate they are is to ask to look at the books, if the books are kept well the chances are that the accounts will be “honest”.

I trained as an Accountant in the late 1980’s and prepared plenty of accounts, most of the small business accounts I prepared were from incomplete records. Often these accounts cannot have been 100% accurate as the information and explanations from the client may not have been accurate.

Also on one occasion when selling a business, an owner presented to me accounts showing an immediate jump in turnover of some 20% from the previous year, the business was sold on this basis. The new owner made a comment to me later when he wanted to sell the business that there was no way that these accounts were accurate, and that he had been “stitched up like a kipper”.

Cash takings are involved with many businesses and also the financial accounts will include “one-offs” or discretionary expenses that are not strictly necessary for the production of income. Often the profit stated in these accounts can be understated and if taken at face value can lead to many great businesses being turned down.

And from the sellers point of view the fact that they have tried to reduce their tax liability by introducing private expenditure into their business account, or by understating their turnover may have backfired.

Accounts unless they have been audited, (and that only applied to medium and larger sized businesses); often need to be looked at with a pinch of salt. They are an important part of the due diligence process but not the be all and end all of any buying decision.

Posted in Selling Your Business, Buyers, General | No Comments »

31/07/2009 by info.

It is generally accepted that you should sell your business when it is doing well rather than when it is doing badly. Hence business owners during the recession, unless circumstances have forced them to do so, have delayed putting their business on the market.

Official statistics indicated that for the quarter ended June 2009, the UK was still in recession, however increasingly I now talk to business owners who tell me that for them their turnover has now increased.

So how long would a business owner have to wait to obtain a good price for their business after this recession?

Ideally a business owner should be able to show a number of years of increasing turnover and profitability, however business owners often cannot wait that long, they may be close to retirement age, or simply have to move location.

At this point it would be appropriate to remind the reader that when selling a business an owner is selling the next couple of years profit, so in a way historical information is irrelevant.

Looking at historical financial accounts and making a decision as to a businesses value is like looking at photographs of a potential partner on a dating website when they were a child and making a decision as to whether you would like to meet them!

No, a business should be able to achieve a higher price for their business as soon as they can show that their sales and profitability has improved. So a seller should present to a buyer recent Management Accounts, copies of Vat Returns, Order Books etc showing these improved trading figures.

So the business owner has to prepare their business for sale by providing up to date information if they want to obtain a good price for their business. And as long as they can do this, a Business Transfer Agent should be able to present the business to obtain that good price.

If they do not provide this information they will have to wait for these historical figures to prove that what they are saying is simply not a verbal spin.

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

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.

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