Small Business Term 'ABN' - What does this represent?

Small Business Australia



Australian Business Number (ABN) - An ABN is a unique 11 digit
identifying number that businesses use when dealing with other businesses.

For example, all types of businesses, including small business, generally
need to put your ABN on your invoices, or other documents relating to
sales that you make.  If you don't, other businesses may withhold 46.5%
from any payment to you.

You also need an ABN in certain dealings with the Tax Office and other
areas of Government.

Registering for an ABN is not compulsory, but you will need one to register
for the GST (goods and services tax).

Small Business Term 'SAV'

Small Business Listings Which State The $price + sav

What is SAV?

SAV = STOCK AT VALUE

When the Stock is Valued At Wholesale or Cost Price – The Price Does Not Include Stock

(Used whether buying a small business or selling your small business)

Why Small Business Owners are Choosing to Value Their Own Business

Thinking Of Selling Your Business? Don’t Until You Hear This… Why Small Business Owners Are Choosing to Value Their Own Business

Selling your small business for its true value and at the very best price is definitely challenging, however surprisingly straight forward.  More small business owners are becoming aware of just how simple it is to sell their own business without having to pay the large commissions.

One of the most common reasons why small businesses which are on the market do not sell is inaccurate business valuation, resulting from an incorrect selling price that may either be too high or too low.  In determining business value, the mathematical expression of total assets minus total liabilities is only half the whole picture 

When preparing your small business for sale there are a lot of other variables that must be considered to come up with an acceptable business valuation especially to attract potential buyers.  As you are aware, no two businesses are the same, so why should they be valued the same way?  That is why it is imperative to calculate your business valuation and include absolutely everything - just the 'multiple' method may not cut it.

3 Common Business Valuation Mistakes

Selling a Small Business - Some Common and Scary Business Valuation Mistakes

There is a great deal of confusion when valuing a business and business sellers tend to make the same mistakes. The startling fact is that unfortunately, so-called professionals often repeatedly make these same mistakes.

Mistake # 1 – Applying a ‘one size fits all’ rule of thumb when valuing a business

For example, multiples of profit, multiples of rent rolls or percentages of revenue etc.


While a one-size fits all appraisal method is simple, unfortunately it does not result in accurate business valuations.

A study of the actual sale prices of 5000 small businesses showed the sale price/cash earnings multiple ranged from 0.1 times the earnings with a median of 1.75 times the earnings.

Therefore, it is apparent that applying the average or median ratio as a one size fits all multiplier produces misleading and unfair results, particularly to the better businesses.

Mistake # 2 – Using Contrived Methods when valuing a business

For example, Super Profit - This is one of the more unusual (silly?) appraisal methods, where the method assumes that different parts of the investment in a business have difference levels of risk. Hence, should return differnent rates of returns on the investment.

For example - The plant and equipment in a small business is far less risky than the cash flow.

In reality, when a small business goes under, all business assets lose substantial value - nothing is
protected.

The engine room and fittings of the Titanic were subject to the exact same voyage risk as the
rest of the ship!

Contrived methods were first used in the US in the early 1920's when American lawyers had trouble understanding discounted cash flow. The concept of 'super profit', while having an illogical grounding, was easily understood by lawyers and judges, and was used until fairly recently to settle equity cases - SCARY!

Mistake #3 - Neglecting To Include WIP (Work In Progress) In Business Valuations

It is quite amazing how even people who should know better often overlook WIP when valuing
a business.

WIP is a key element of the business value in both professional practices and contracting
companies. In these environments, there is usually valuable work in progress still to be
invoiced.

We recall an instance in Australia where a major public company sold its contracting and
engineering business and its appraisal overlooked a substantial amount of WIP in the business.
In effect, the lucky (canny?) buyer recouped the purchase price in less than 3 months.
Essentially, the WIP the buyer got free was invoiced and paid - WHOOPS!

7 Things To Ask Yourself Before You Sell Your Small Business

"7 Things to Ask Yourself Before Selling Your Small Business"

Selling your own business is as crucial a business decision as starting, operating, or expanding one.

Aside from investing your resources, time, and effort, it has become a big part of your life and leaving it may have some emotional repercussions if you don't carefully plan for such an eventuality.

On a happier note, if you do make a conscious effort to map out a desirable plan, you are sure to end up  satisfied and fulfilled as you go through the next phase of your life, be it retirement or an entirely new business venture.

The process of selling your own business can be tedious and complex.  There are questions you should ask yourself for which you should find answers.

It is critical that at this point you should give yourself sufficient time to ponder specific questions if you are to achieve your desired outcome.

Here are 7 questions to get you started…

#1 - Why Am I Selling My Business?

The reasons for selling are varied, such as:

• New business undertaking
• Change of career
• Emigration
• Retirement
• Health concerns
• Family issues
• Business failure
• Economic down trend and alike

It is essential that you examine the real reasons why you want to sell your business - because this will become part of the basis to determine the other processes necessary for the sale.  For instance, if your reason is business failure or bad economy, you may not be able to command a good price and it would be best to postpone the sale.

#2 - How Prepared Am I To Sell My Small Business?
The preparation phase entails various processes.
After making a final decision to sell, the key areas and the entire work force of your business should be informed in a discreet and professional manner to avoid speculation and panic amongst the ranks.
Accurate and updated financial records of the business should thereafter be made ready – make an appointment with a Business Accountant.

A complete inventory of all the business' assets, especially the tangible ones, should be undertaken and a thorough review of existing systems and procedures completed.

Other documents that can be prepared at a later time are:

• Information Memorandum containing complete information about your business
• Confidentiality Agreement to prevent information leakage, and
• Letter of Intent embodying the buyers willingness to buy after agreeing with the terms of the sale 

#3 – How Much Is My Business Worth?

While a business can be valued in different ways…


…YOU, as the owner, are in the best position to give an honest and true valuation of your business.

After examining your books of accounts, reviewing the systems and procedures in place, consider your intangible assets, and assess the overall economic environment to include industry performance and competition.

You are now ready to give yourself a tag price that will suit your purpose.

#4 – When Is The Right Time To Sell My Business?

Proper timing is paramount when selling your own business, but there is no hard-and-fast rule as to when timing is right.
Depending on your motives for selling, anytime may be the right time…

…For instance, if maximization of price is your aim, a period of economic recession or depression is definitely not the right time.

If you are seriously thinking of retirement due to age or health, now is probably the right time - And so on.

#5 – Who Can I Sell To?

As you may or may not have noticed, demand for Small Businesses has increased considerably due to recent economic times, so most well prepared business owners can afford to be picky when it comes to who they sell their business to.

Your own family members, friends, customers, suppliers, and employees can be your first prospective buyers.  Even your colleagues and competitors in the industry may be interested given the right perspective.

The public at large is of course your biggest market, but you will need extra efforts and time to reach to them.

#6 – How Do I Sell My Business?

The process of selling has greatly evolved with the advent of the computer.  Reaching out to people far beyond your local area has been made easy with the click of a button or mouse…

…Selling your business through the web is the first option - It allows you to be seen by millions of readers and can be FREE!

Print advertising in newspapers, magazines, bill boards, or posters are good to do in conjuction with the web for maximum exposure.

#7 – Will I Be Happy When I Sell My Business?

Given the right price at the right time at the right place to the right buyer…do you think you will be happy in the end?

...I certainly hope so :-)

How To Sell Your Small Business Franchise Fast - Tips 5 and 6

Selling A Small Business Franchise

Step 5 - Let your potential buyers be aware of your small business. Make your presence visible so that buyers can find you.

Advertise and promote your small business franchise. Stress the good points of your small business - This will attract the attention of your potential market.

Step 6 - Accommodate questions and be spontaneous with your answers.

You will find it necessary to list down all possible questions that a potential buyer may ask during the sales process.

Being spontaneous will draw their interest to the small business.

Stick to the facts and be honest.

Most importantly...Do not oversell!

Recap:

- Sit down and negotiate
- Be professional
- Don’t appear like you are just interested to close the sale. You have to empathize.
- “Go the extra mile” to be of assistance to your buyer, build a good relationship
- Be sure that they can reach you and be ready to assist
- When all parties are satisfied and happy, your franchise business sale is successful

How To Sell Your Small Business Franchise Fast - Tips 3 and 4

Selling a Small Business Franchise

Step 3 - Prepare your small business franchise with a good sales package to target your potential buyers.

Establish the value of the franchise, set a price, include your assets and financial statements (cash flow), and include other pertinent information needed in the operation of the business.

You can include services like free assistance and training in your sales package.

Step 4 - Understand what the market is looking for. What is the trend in the market today? How big is the demand for your franchise? Are you the only small business franchise business of this type in your geographical area and/or for sale?

Know how the market works - When you know your market, you know where to find your potential buyers.

This is necessary in order to locate where to market your small business franchise otherwise you will have little impact in your target in order to sell your business.

How To Sell Your Small Business Franchise Fast - Tips 1 and 2

Selling a Small Business Franchise

Prior to advertising your small business franchise for sale -

Before you even decide to put your small business franchise on the market, review your Franchise Agreement Contract.

Focus on the terms and conditions stipulated when it comes to the transfer and sale of the franchise.

Know your rights and your limitations; the rules that you have to follow when selling your franchise.

After further review and understanding of the Franchise Agreement, here are 2 tips of a series to keep in mind to sell your small business franchise fast:

1/ Inform the franchisor of your decision to sell your franchise in writing. Keep a copy for yourself for future reference.

Sit down and discuss the Franchise agreement contract.

Confirm what you know and how you understand the agreement to avoid any misunderstandings.

Accept whatever assistance they have to offer and try to balance the financial package so as to benefit both you and the franchisor.

Know where the franchisor stands in the transfer and sale of your small business franchise.

2/ In the contract, it may state that a franchisor has the right to approve or refuse a buyer - it is wise to fully understand the transaction and have the last say.

Familiarize yourself with these rights to have a smooth flow of the sales process.

Be aware of the franchisors’ strong contractual claim over the sales and assignment of the franchise.

Even during the sales process, let them know the development of the sale - keep them in the loop for an amicable outcome.

They want to know your buyer’s background as they match them with a list of certain criteria to qualify them as a successor of your small business franchise.

More tips to come soon...

Small Business Valuation - Doing a Business Valuation on the back of an envelop?

It may come as a surprise to learn just how many business brokers price small businesses for sale and business valuation is often written on the back of an envelop.

The business valuation method following is used by business brokers to determine an asking price for a small business; it is based on the adjusted net profit using the most recent profit and loss statements.

The business broker will look at all the business expenses to see what they can 'add back to profit'.  This is referred to as add backs or recasting.

The adjustment is made by adding back to the net profit all the non-essential or discretionary expenses, not necessary to run the business, to show a more accurate net cash flow for the owner.

The business may also have unaccountable expenses - in this case it would be adjusted down.  Once this number is determined, the next step is to get the envelope and pen then the business broker will multiply the adjusted net profit, usually by 2.5 times and they have an answer.

As you can plainly see, business valuation, using this method doesn’t make a great deal of sense and frequently has devastating results for small business buyers and sellers............but it is easy.


Some business brokers may even mention rule of thumb, but as one very wise business valuation practitioner suggests - 'thumbs come in many sizes'. 

The best thing to do is ensure you have a comprehensive small business valuation tool and step by step instuction for an accurate business valuation.

Selling a Small Business - What happens if the sale falls through?

Why your small business sale can fall through without warming.   Selling a small business yourself and what to do if the sale falls through.

Reducing the risk first and foremost -

1. One of the most important things you can do when selling a small business is establish the correct asking price in the first place.  9 out of 10 business owners have no idea what their business is worth 
2. Provide the business buyer and their advisors with a business valuation which gives details as to how you arrived at the price 
3. Show them why it's sound - you're taking the guess work out of it for them

This gives you the support you need to move the sale forward

It is extremely important to present your business in the correct manner to maximise your small business sale potential.

How to Sell a Small Business - Why you need a Small Business Selling Memorandum

A small business selling memorandum is also called an Information Memorandum and is used to present the business buyer with a overview of your small business.

It is a business selling tool, providing answers to some of the basic questions business buyers usually have concerning the business.
So what goes into an information memorandum?

• The history and purpose of the business
• Outline the offer
• Information about its customers and the products or services it provides
• Industry information
• Future plans
• Financial information

Your aim is to give the prospective business buyer enough information to make the next step, so don’t forget to include a call to action - What do you want them to do next?

Small Business Selling - Important points:

1. Always have the potential business buyers sign a Confidentiality Agreement
2. When you complete your Information Memorandum I would suggest you then create a summarised version.  This is then used as the first response to the buyer’s enquiry
3. Limit the information you reveal at the initial stage of the process until you qualify the business buyers

Selling Your Small Business - What Does a Business Broker Charge?

Selling your Small Business knowing the facts about Business Broker Charges -

Most business brokers will charge a commission to sell a business.  The selling fee (commission) is usually 10% of the sale price.  However, did you know, as a rule, business brokers will have a minimum fee on average - in the region of $10,000.  So you would be charged what ever is greater.

In addition a business broker will charge an upfront fee - sometimes called a listing fee - to sell your small business.


It’s normally a non refundable fee and is paid at the time of the business listing.  This fee is typical from $2,000 upwards.

Some business brokers may deduct the listing fee from the sale fee – that’s if they sell the business of course.  Let me give you an example...

...On a $200,000 business sale, listing fee of 2,000 Selling fee will be $20,000.  Commission due to the Business broker will be $22,000.  This will be due at settlement and is normally handled by the lawyer acting for the business owner.

The good news is, there's no need to pay these fees when you have the right information and accurate business valuation tool to sell your small business successfully.

Buying and Selling a Small Business - Why some Business Buyers will Never Buy a Business

The facts about some Business Buyers -
They’re looking for the perfect business.  It’s a case of paralyze by analyze.  Some business buyers just love looking at businesses - they will do lots of spreadsheets; they analyze every detail…it’s a hobby

They are not so much looking for the perfect business, but looking for the fault or the reason why they wouldn’t buy it.

It’s a common characteristic within particular occupations.  The business buyer may begin with the best intentions but lacks the motivation to keep looking and are not prepared to educate him or herself on the process.  Particular buyers have totally unrealistic expectations regarding the price of businesses and think they will buy a good business for nothing.

Some business buyers have very little idea what it means to own and operate a small business and it can come as a rude shock when they learn that most business owners work very hard put in long hours.  They are motivated to buy a business so they don’t have to work so hard , they have naive ideas.

Whether Small business buyers or sellers, they can be easily influenced -

Others who are opposed to the purchase of a business can influence buyers.  Common within family’s that have never experienced small business, they are worried they do not or cannot understand the need to be "your own boss” - transferring their own fears onto the buyer. 

Using a helpful resource such as the Bizbuy Kit or Bizsale Kit assists prospective business buyers and business sellers who need to know about buying and selling small business at the correct value.
 

How to Sell Your Business - Daydreaming about getting out of your business? Wonder how you would go about selling your business?

Do you find yourself thinking about getting out of your business and wonder how to go about it?

Selling your business /exit planning is a broad and complex topic.  No two situations are identical. 

The right exit plan depends on the business itself and the needs and wants of the business owner, however, no matter who you are or what circumstances you are in, this is one strategy that can be used by all business owners:

Do not procrastinate – Get started now.  I cannot emphasise this enough.  Even if you have only just started in your business, you ought to always run your business with one eye on the exit.  After all, you may not control your exit timing.  You may not even be around to manage the process.

However, lets assume you are and you plan on selling your business to retire.

The process of selling your business - Consider that some businesses may take a year or more to properly prepare for sale.  This can be due to the involved nature of them or the lack of prior planning and available information.

Keep in mind that to put a business on the market without the correct preparation can have disastrous consequences on the business valuation- sale price of the business.

Planning and knowledge of the process is crucial and business owners that are educated about the exit planning process will achieve the best outcome.

Start running your business with the end in mind.

For more information visit http://www.bizsalekits.com/.  There's a great little free book for business owners to get started on called 'Insider Tips for Selling a Business'

Preparing your business for sale - Adding value to your business to attract business buyers

As a business owner there are some simple ways to improve your business while preparing your business for sale now or in the future.

In order to add value to your business there are a number of things you need to have very clear in your mind.

Initially, think about the vision that you have for your business and where you see it in the timeframe you estimate selling your business. Go over all the things you really want from your business and seek out ways to improve your business in order to get there.

Then take a step back and make sure your business does not depict you (the owner) as just having a job. You will need to structure your business to show it will run without you. This will attract business buyers and help add value to your business.

“You read a book from beginning to end. You run a business the opposite way. You start with the end, and then you do everything you must to reach it.” Harold S. Geneen

During the process of preparing your business for sale it is important to demonstrate a well-organized and effective operation that can function at arms length – this too will add value to your business and attract business buyers.

There are some things you must put into action first, such as:

- Ensure your business has a clear structure. Separate your activity into sections and areas. For instance, you have to establish what needs to be done and then what should be systemized

- There may be clients /customers you need to meet and networking events to attend to help your business grow

Preparing your business for sale – your business image and your employees

When it comes to having a team or staff, it is vital for everyone to know exactly what they have to do. Each person has to clearly understand his or her role and responsibilities. Your employees represent your business image and play a critical role in attracting business buyers.

You will also need to create a safe and friendly business environment by motivating and supporting staff to be efficient and do their jobs right.

Building and adding value to your business

When it comes to attending to your customers/clients needs, you should be very diligent and make sure their requirements are met 100%. This can be a very time consuming activity, however a ‘must do’ and why this also needs to have set out procedures in place.

Organize your scheduled meetings, settle on the points for discussion beforehand, establish the goals and the strategies to employ in order to reach your goal and keep you on purpose. This will help you save a lot of valuable time as well as help keep everyone on the right track.

As a small business owner you cannot afford to fall into the busy being busy trap – plan your day to guarantee this doesn’t happen.

To ensure you are providing your clients with maximum value added services and faster solutions for their issues, it is extremely important to establish regular communications such as email, newsletters, calls, networking and educational activities.

All these things are of great importance in order for you to structure your business and attract business buyers.

But remember, when preparing your business for sale, the essential thing to do is understand that you cannot do it all by yourself.  Becoming a workaholic is not a solution.  Learn to delegate the minor responsibilities and keep yourself focused on doing the most productive tasks for your business.

By working primarily on the activities that really require your effort and your expertise as the business owner, you will be adding value to your business as well as consistently maintaining maximum value, enabling your business the power to attract business buyers at any time.

Selling your Small Business – Discover the formula for selling a business

Sooner or later most business owners will find themselves asking "what shall I do with my business?”

Like most business owners, you have put your all into your business to get it where it is today and it is a big part of your life you are parting with; there can be a lot of emotion tied up in the process but it is important to work out what you really want and follow a realistic path to get there.

A well thought through and planned formula for selling a business will ensure you achieve a great result for you and the future ongoing success of the business.


Deciding who to sell to as part of your formula for selling a business -

Many small business owners are very concerned with who they sell to and who is going to look after their ‘baby’ (business) if and when they go. Some common questions include:

• Should I sell directly to my staff?

• To the competition up the road?

• Perhaps to a much larger business?

• Should my children have first option?

• Should I stay on and play a role in the business’s future after it sells or pursue other interests?

Customizing your own formula for selling a business –

What do you really want and how will you get there?

Coming to grips with the simple fact that leaving your business is going to eventually happen for one reason or another is difficult, especially when you have invested so much time and energy.  Try and put your emotions to one side for a moment; sit down and really think hard about what you truly want from selling your business.

• What is your desired outcome?
• What will you do with the proceeds?
• What about tax?
• What will you do with your time?

We all know that it is preferred to be deciding when, where and how to sell rather than having to deal with selling should something unexpected arise, however, in reality it is just as important to ensure you include the unforeseen.

Formula for selling a business - Planning

Having a good plan outlined and ready for selling your business is vital.  Strategy comes into play here also and I recommend speaking with a few other business owners who have decided to sell or have been forced to sell in the past. Most business people are happy to share their experiences and recommendations. Obviously, this is just one source for information in the planning process.

Educating yourself and understand the process is highly recommended and with this comes a few serious questions to consider such as:

• What can I do to ensure my business is operating at its best with little time?

• What are the best strategies to market my business?

• When should I get my lawyer and accountant involved?

• How do I sell my business myself – without a business broker? Do I need a broker?

• How do I establish the correct value of my business?

Once you have written down your desires for success in selling your business, run it by your trusted team of confidants for feedback.

Due Diligence Checklist Tip for Buying an Established Business

Buying an Established Business - How can you trust if a seller’s financial claims are genuine?

When you are looking at buying an established business, the seller may provide their earnings in one form or another.  To verify the sellers’ financial claims, the first test is to ask for substantiation.  If the seller cannot or will not back up the information – walk away – do not waste your time. You must be able to thoroughly research and investigate all the information.

Remember, there are many variables to calculate when buying an established business, so it is wise to ensure a close ‘working’ relationship is built so that everything is out in the open and you have peace of mind about all areas of the business.

On some occasions, the seller has a different figure to what is actually in the records. There may be a good reason for this – perhaps there is a percentage of cash which is not always recorded and not relied upon. It is up to you to look into this to ensure you understand why, what amount and when is it taken in.

Do not take anything at face value. The saying “you get what you inspect not what you expect” applies here.

When you do find a business that passes the 1st and 2nd stages of your inspection, you then do a comprehensive due diligence checklist, ready for the remainder of your inspection.

Most sellers are good honest people some however are extremely tricky.

A vital part of buying an established business is conducting the inspection using a comprehensive due diligence checklist. The financials of the business are most important and should be done carefully and at your own pace. Here are a couple of starting points before you go any further in the business buying process:

1/ Request to see previous years tax returns and general accounts documentation

2/ Ask for evidence of all discussions with the vendor eg. Purchases made, staff, suppliers, leasing agreement to name a few

All the information for every facet of the businesses must be carefully investigated before negotiating begins.

When Buying an Established Business - Take your time and don’t be persuaded to rush through your due-diligence checklist. This is a big decision and your future financial situation is at stake. If you’ve covered everything necessary, there will be far less room for error or even regrets.

Start off with all the information by using the Bizbuy Kit.  You can simply step through the process with peace of mind and have the actual business valuation to measure the value of each business you are interested.

Buying an Established Business – Where do you go to Buy a Business?

Buying a business can be a little overwhelming. There are many places which list businesses for sale. The most obvious places to start are of course Newspapers and Trade Magazines; talk to business brokers, and ask your accountant or business advisor if they know of any potential businesses on the market.

Also, research businesses for sale online – It’s a good idea to list your requirements online and receive instant notification when something suitable comes on to the market.

If you are already in business and are looking at strategic acquisitions, you may find word of mouth a useful method – through customers, competitors and suppliers. Naturally this depends on the relationship you have with them.

Every once in a while you may come across a business you would just love to own that is not for sale and wonder how to approach the business owner.  This type of sale happens more often than you would expect, but it must be done in the correct manner to ensure you buy at the right price.

1/  Buying a Business – What type of business can you see yourself owning and working in?

If your not sure and haven’t had a great amount of exposure to small business your first step is to find out more on the life of a small business owner, have a chat with some business owners and find out how their first few months were when they were new to the business.

How has buying a business changed their lives and what advice could they provide. Was their motivation to work in the business or run it at arms length?

Straight talk – unless you are looking at buying the business do not ever ask them personal questions such as how much the business turns over or anything regarding their financials as that’s like someone asking you how much you get paid.

Do not be hesitant to approach a business owner; you’ll be surprised just how much assistance business owners are willing to give you if you’re genuine and transparent about it.  It's a good idea to be prepared and have a couple of questions ready ahead of time, by being tactful and considerate you’ll get some great insights on operating a business from successful business owners!

2/  Buying a Business – Are you a first time business buyer?

It’s very normal for first time business buyers to start feeling overwhelmed and a little hesitant about buying a business, if this is the case you might be more comfortable taking a look at a franchise.

Many first time business buyers feel that buying a franchise reduces the risk and provides them with additional and ongoing support from the franchisor.


3/  Buying a Business – Discover hundreds of different types of businesses for sale

Business buying and selling websites are popping up all over the place which is great for you. There are many sites to look at, here’s a few tips to help you research

- Use a search engine like Google and make sure you’re ‘googling’ in the Google site associated with the country you are looking to buy a business. e.g. www.google.com.au (Australia). This will show your local country pages first, making it easier to get to where you want fast.

- If you don’t know what type of business you’d like to buy, simply search for businesses for sale in the geographical area of choice.

- If you have a clear idea on the type of business you’d like to buy, then simply type the exact business for sale and geographical area.

- Make sure you don’t miss the Businesses for Sale By Owner sites – Google shows a healthy list of them, our research indicates that over 30% of the businesses offered for sale are for sale by the owner (you may see the abbreviation FSBO or DIY ) so Google the abbreviation.

Many smart business owners are now acquiring all the skills and information they need to successfully sell their own business without a business broker. This could be a huge benefit to you as the business buyer.


Buying a business successfully is really quite simple when you have all the information and a helping hand to guide you through the process without making avoidable mistakes.  There are even some interesting ways to assess yourself to see if you are truly ready to run your own business.  Checklists are available in the Bizbuykit and will prove valuable in your quest for a great business.

Why would you Buy an Established Business vs. a Start-up?

Some experts have predicted that a good portion of the workforce will be working in a self-employment capacity in the next decade; business ownership is becoming increasingly more appealing to many people.


Entrepreneurship and small business can be risky for the inexperienced, however, a great way to reduce some of that risk is to buy an established business which has already demonstrated an ability to successfully operate and generate profit.  Of course business buyers must also look at educating themselves on the business buying process to ensure they buy the right business at the correct business value.

Obviously a successfully established business comes at a price and generally you would expect to pay more to buy a business than to start one from scratch.

Looking at the financial side for a moment - It is estimated that less than 10% of all start-up businesses are able to successfully secure the financing required at the outset. This is due to the high level of perceived risk start-ups pose to lenders because every aspect of the business is unproven and certainly not appealing to most lenders.

Depending on the type of business, certain lenders may provide some level of funding however, it will be dependant on a number of factors such as the cash flow, numbers, assets - stock and the security you personally have available to offer the bank.

So, more and more business owners realise the difficulty in financing a business purchase and are open to genuine buyers negotiating for some level of vendor finance, business owners are also looking at different ways to package and present their business, hopeful to attract the right buyer.

It is obvious when you compare buying a business to starting your own your chances of success are still clearly best when you buy an established business.

Here are some key advantages of buying a business vs. start-up:

1/ Business processes and proven methods

2/ Proven products, services, sales strategies and marketing

3/ An established business generates cash flow day one

4/ An established business has much less chance of failure
5/ Customer base and Suppliers established

6/ Vendor will train and help a business buyer understand the business

7/ Vendor may assist the buyer with financing
8/ Lenders are more willing to finance an established business

9/ Business is already successful and credible

10/ Employees are there and should not require training


Securing affordable business financing is so much easier when buying an established business with a positive cash flow, consistent stability and a proven track record versus starting your own business because there is no history – it’s seen as ‘unknown’ territory.  Having the ‘unknown’ details already established and worked out by the previous owner certainly lowers the risk value when buying a small business or company.

Also don’t forget an established business or company should already have a relationship with a business banking manager, if the banks view the business as a good customer they will be keen to retain the business, the current vendor normally is quite happy to make the introduction.

Be ready and armed with all the facts, strategies and tips direct from experts who have walked in your shoes and have your best interest in mind.  You can have all the information you need to make a successful business buying decision without the pitfalls made by many business buyers - using the Bizbuy Kit.

Selling Your Own Business - Small Business Exit Strategy Planning

Exit strategies are a crucial part of the planning process when selling your business. Even if you do not intend to sell your business, you need to have good exit strategies up your sleeve to avoid any complications later. Exit strategies can be your way of planning and managing your eventual departure from your business. Following are 4 key exit strategy tips for you to consider before selling your business:
1. Write down your business exit strategy plan in detail:

It is the foremost exit strategy you need to undertake. To realize your strategy! It is essential to first properly plan your exit strategy and stick to it. 

Having a written plan will enable you to be in control of the process. You need to have a proper exit strategy plan to keep a track on your business proceedings. By making a plan and sticking to it, you will notice an immediate, positive impact on your business. 


2. Know the right time to get out of your business:

It is a well-known fact that the best businesses to sell are the ones that are not time-dependent. Therefore, you need to have a sustainable, durable and predictable type of business to attract prospective buyers. You need to ask yourself certain questions such as ‘why exactly do I need to get out of my business?’ and ‘what do I need to get out of it?’.


3. Assemble and consult your advisory team:
To get the best deal and returns from your business, it will be beneficial for you to take your final call only after consulting your advisory team, who will provide you with all the necessary information. Your advisory team should include your business lawyer, accountant and business broker. You can also consult a tax professional and hire a personal financial advisor.

4. Try increasing your business value:

This is perhaps the most important exit strategy. Your business has to be in good shape to attract the prospective buyers.
Some of the factors that can have a major impact on your business' sale prospects are its profitability, durability, predictability and sustainability.

You need to work on improving these factors before deciding to sell your business. Not having an exit strategy plan may spell doom for your selling prospects. Therefore, it is advised that you consider the above-mentioned exit strategy tips before taking the final call.

For more information regarding exit strategy planning, deciding your business value and selling your own business, be fully prepared by using the BizSale Kit.

Your Exit Strategy - The Importance of an Exit Strategy in YourBusiness Buying Or Selling Plan

It is necessary for every business owner to have a well planned exit strategy ready in view of an emergency exit from the business.

Some would say, planning an exit strategy is just as important as starting the business. A well planned exit will maximize the existing value of your business when you go to sell. It will also considerably reduce the time needed in the preparation required to sell the business.

"You cannot overestimate the need to plan and prepare. In most of the mistakes I have made, there has been this common theme of inadequate planning beforehand. You really cannot over-prepare in business!" Chris Corrigan

Even though everything may be running fine in the business, you never know when you need to sell your business and move on.

The following are situations when an exit strategy for business would be helpful:

1) A sudden change in market conditions

2) A disability or critical illness - loved ones or yours

3) Loss of customers, suppliers or key employees running the business

4) An offer too good to refuse

5) Your death

6) Or simply ready for retirement

The time required to sell your business in such eventualities will be directly related to the complex nature of your business. It also depends on the market conditions and your circumstances to exit the business.

An exit strategy for business is a work in process. A well-planned exit keeps the control in your hands and you are able to maximize the benefits from the sale of your business.

The various advantages that a planned exit strategy gives you include:


It serves as a road map to others and it can be followed with or without you (in event of death or disability) or a well earned extended holiday - far more enjoyable!
A plan will give you an idea about the benefits in case of an exit
It will give you peace of mind, as you have planned and are ready to tackle the unknown circumstances.

The exit plan should be well documented and reviewed every year. It does not need to be the size of war and peace keep the plan short and precise. You should discuss your exit plan with your loved ones, professional advisors and key confidants. A trusted family member or friend should have knowledge of the location of the exit plan.

Remember share the exit plan with a potential buyer. Business buyers are reassured seeing a well planed business, and it will also help them with their future planning and be beneficial in unexpected circumstances.

For more information regarding exit strategies in business, a recommended resource for expert, user-friendly, step by step Business Exit Strategy Information and Small Business Tools, go to http://www.thegbrgroup.com.

The authors of the popular eBooks 'How To Buy A Business' and 'How to Sell Your Own Business' are experts in their fields of Business Buying, Selling and Business Valuation. With decades of experience buying and selling businesses of all sizes, they have seen many mistakes made by both buyers and owners. They have combined all their years of knowledge to deliver a low cost alternative for DIY buyers and sellers, stepping through the process thoroughly in order to avoid common mistakes and significant expense.

How to Value a Business - Have You Wondered Why The Asking Price And The Actual Purchase Price Of A Business Can Be So Different?

Ever wondered how to value a business accurately?

The other day I came across a social media site and noticed an old post.

Someone was asking a question about how to value a business.

Ten people were good enough to answer. I wasn’t surprised when all 10 replied with completely different methods on how to value a business.  You have to assume that people taking the time to answer the question were reasonably confident that they knew the correct answer. It made me wonder where they actually got the information from and how much confusion this subject creates with almost everyone including accountants and business brokers.

So, how do you go about establishing the correct asking price of a business?

This is the method a Business Broker will use to determine the asking price of a business:

The method below is used by business brokers to determine an asking price for a small business; it is based on the adjusted net profit using the most recent profit and loss statements. The business broker will look at all the business expenses to see what they can add back to profit. This is referred to as add backs or recasting.
The adjustment is made by adding back to the net profit all the non-essential or discretionary expenses not necessary to run the business to show a more accurate net cash flow for the owner.

The business may also have unaccountable business expenses. A good example may be the rental expenses, if the business owner also owns the freehold and is only selling the leasehold you would need to ensure that the rental expenses are correct and adjust the profit if necessary, in this case it would be adjusted down.

Once this number is determined, the next step a business broker will take is to multiply the adjusted net profit, usually by 2.5 times, and they have an answer.

Let me give you an example of business broker method.

Business A: Established 12 years, trades 9-5 Mon –Fri with consistent sales, strong industry growth, selection of quality suppliers, and abundant customers etc.

Business B: Established 2 years, operates 7 days a week, sales are inconsistent, cut throat industry with aggressive competition, and it only has one customer.

Both businesses A and B show $100,000 adjusted profit after the owner operator wage is taken out. The business broker will then use the same multiple on both businesses i.e. 2.5 x $100,000 = $250,000. This will include stock, the written down value of the plant and equipment and the goodwill.

As you can plainly see this method doesn’t make a great deal of sense.

As a business buyer or business seller it’s important for you to never assume that the asking price of the business is anywhere close to the correct value even when it’s set by so called professionals.

You can be talking hundreds of thousands of dollars either way. Scary!

Thankfully, there is a better way to value a business.

Find out why Accountants are popping their cardigan buttons!

Checkout this business appraisal tool example and let me know what you think: Small Business Valuation Method Example

Happy Business Valuing!

Buying A Business - How You Can Avoid One Of The Biggest Business Buying Mistakes

First time business buyers are often notorious for letting the emotion of buying a business cloud their judgement and skip the all important risk assessments and due diligence..

....but there are major pitfalls and commond mistake which can have devastating consequences. The good news is, they can be avoided.

Firstly, consider this question:

How do you know if you are truly suited to running your own business?

Most of us at some stage have longed to leave the confines of the 9am to 5pm job and pursue one of our passions to make a living out of the thing that we love to do most, be it a love for:

- Cooking
- Writing
- Interior Designing
- Teaching
- or just following your current line of work

However, let’s be frank, some people are better suited to employment than self-employment and don’t have the skills, knowledge or personality to run a small business.

Have you ever noticed some businesses seem to change owners frequently?

Throughout the years of business broking I have seen many Restaurants and Cafes change hands often to first time business buyers who are following their passion for cooking.

They are so excited, with huge future plans, new menus and a tone of enthusiasm. After all, their family and friends love everything they cook.

Yet 6 months later their business is for sale, so what happens?

The simple answer is not everyone is successful or well suited to self-employment as they possibly lack the appropriate skills for business or they have purchased the wrong business.

Cooking for paying customers is very different to cooking a meal for friends or family at home. Your friends and family are biased and are not a true indication of your actual culinary skills.

If you fancy yourself as a bit of a cook and have visions of your self as master chef and it’s your first business, it may be best to look at gaining some industry experience first or at least buy a business that is not going to require a demanding menu only achieved by a full a la carte chef.

However, there are both advantages and disadvantages to self-employment and it’s up to business buyers to educate themselves to ensure they get the best outcome.

Who Educates Business Buyers?

When you’re looking to buy a business you need to consider more than just the financial return on your investment. There are a number of other matters to take into account to ensure it really is the right business for you, such as:

o Is your intention to work in the business?
o Would you ideally be buying the business to run at arms length?
o Do you realistically have the skills required to operate this particular business?
o Is the business going to suit your personality?
o Consider the trading hours, what about the businesses location!

These are just some of the areas that Marilyn and Ray overlooked when they bought their first business.

It was quite sad hearing their account of buying the wrong business, however as a business broker and business valuer it is not an uncommon conversation, unfortunately it’s just different versions of the same story. Naturally I have changed their names and details but this is their story.

It all became very clear in the first few months, Marilyn and Ray had made a terrible mistake in buying the business but, not being quitters {their words} they kept going for a lot longer than most.

Let me first give you a little background on them, Ray a Mechanic and hobby farmer was retrenched, he had a good payout and they were in a comfortable financial position but still too young to retire, they would need to replace the income in order to maintain their lifestyle, and future retirement, Marilyn hadn’t worked out of the home for many years however was excited when Ray suggested that they look at buying a business, they had 2 daughters still living at home and thought a family business that they could all work in would be wonderful.

After a very short time they found a business, a Jewellery store in a small shopping centre located in a trendy inner city area, the girls fell in love with the business, it would provide a job for all of them and it was decided Ray could stay on their small property and continue with the hobby farm and be responsible for the business bookwork.

Ray said he was relieved, after all what did a big burly bloke know about jewellery. The business was 70 minutes drive from their home but the plan was that they would share the work so Marilyn wouldn’t have to go down every day and the girls were so excited about the thought of the business.

None of them had ever worked in Jewellery or for that matter retail before but they all loved jewellery and joked that they had equivalent to a PHD in shopping for jewellery.

One additional aspect to this business was the outgoing vendor indicating the true profit of the business wasn’t reflected in the financials and actually showed Marilyn and Ray a safe full of money indicating that it was black money.

WARNING
Black money; is money in the business, which is unaccounted for and untaxed.
There are many ways you can be tricked into believing that extra money (black money} exists when in actual fact it doesn’t.
The old saying to vendors that claim to have black money is if you take it one end you lose it the other.

And the outgoing vendors would only provide 1 weeks training as they were moving overseas.

Are your alarm bells going off for Marilyn and Ray?

So Marilyn and Ray purchased the business and paid far more than the correct value.
They did provide jobs for their daughters – but they replaced all the experienced staff.

They had no understanding about retail and fell victim to every salesperson with slow moving stock, quickly becoming overstocked
The daughters couldn’t work together and rapidly lost interest and left the business altogether.

Marilyn worked every day. Remember the business operates 7 days a week.
They couldn’t afford additional staff as the business never achieved the sales they expected so surprise surprise, no black money.

Ray had to help in the shop – it’s fair to say he was a fish out of water and was very uncomfortable as he is a country bloke more at home pulling motors apart and moving cattle around a paddock – he wasn’t really the right personality.

The business was in decline and poor Ray and Marilyn heading for the divorce courts.
The Business was sold at a greatly reduced price, with Ray and Marilyn losing more than half of what they had originally paid for the business.

Over and over, we have seen enthusiastic, honest, hard working business buyers who have used their home and life savings to buy a weak and totally inappropriate business, or worse still are tricked into buying somebody else’s problem with disastrous results. If only they had been better informed about business evaluation before buying they would have had a very different outcome.

Business buyers who are aware and educate themselves to ensure they are fully familiar with the ins and outs of buying the correct business reap the rewards of their investment – many times over!

P.S.
As for Marilyn and Ray, after a well earned break they decided to get back on the horse so to speak and have purchased a new business.

They didn’t rush into the purchase this time but really got clear on what they wanted from a business and took into consideration their short term and long term goals, as they said "this time we had a very different approach and outcome looking at some 40 different businesses and when we eventually found the right business for us we didn’t take anything at face value we carried out our due-diligence and we made sure we understood the business buying process and we have a very different end result".

By: Lee Artis
Author of 'How To Buy a Business'
The GBR Group
The BizSale Kit