In every business there are always things that require spending or reinvestment.  This can be capital expenditure, revenue expenditure, discretionary spending, etc. Whether or not to invest (or reinvest) in the business is a common problem for business owners to contemplate when selling. How much to spend or invest on the business?  Too much expense can be a waste, not enough and the business will be less valuable in a sale. What is the right way to go?  The answer is that there is no right or wrong way, but there are a few points that provide guidance in this situation.  These are: -  Always act is if you were intending to keep the business for at least another twelve months. -  It is easy to save money and elect not to spend on upgrading equipment, or renewing advertising, but this is usually “false economy” as the money will need to be spent eventually, and the Buyer is probably likely to take it off the asking price. -  Don’t make major capital investment if possible.  If capital investment cannot be avoided it may be a good idea to consider leasing the asset rather than owning it so that the new owners can take over the lease, and claim the tax benefits – which you can claim whilst you continue to own and operate the business. – Never try to save money by “doing it yourself”, engage the best people and the best advisors to help you make decisions. – Don’t be afraid to allow a reasonable budget for advertising and marketing the business for sale. You want to be sure that you’ve given yourself the very best opportunity to sell at the very best possible price by ensuring that the business is properly exposed to the widest possible audience.  This is how to “create demand”. – Continue normal spending and investment in advertising and marketing.  If you show a large increase in spending prior to selling it creates a bad (and often misleading) impression that the advertising was just done to “pump-up” turnover to sell the business. – If you have a retail store in a major shopping centre, and it will require a refit at sometime in the near future, it is better to try and arrange the sale so that the new owner is able to complete the refit to their liking.  If the refit is required now, it is probably better to do the refit now, then get a new lease and then sell the business after having secured a long secure lease.

Preparation is vital when selling a business, and there are many little things to consider as being a necessary part of preparation. the time to start preparing your business for sale is the day that you start the business. some things to prepare are: -  Provision of full financial accounts for three years + balance sheets -  Prepare exit strategy or succession plan -  Calculation of nett realisation after sale & Cgt preparation -  Business valuation or appraisal to set realistic price -  Simplified management structure and processes -  Standard operating Policy & Procedure manuals -  Register Copyright or trademarks if necessary -  Improved presentation of business premises and personnel -  Legal advice and preparation from solicitor or lawyer -  Tax planning & financial planning advice -  Elimination of reliance upon “Key People” -  Debtor management -  Rationalise stock to the lowest manageable level -  Estimation of Work-in-Progress & future orders -  Diminish reliance upon either key products or key clients -  Establish secure future trading conditions & tenure -  Ensure all equipment, signage, and plant are in good condition -  Ensure future advertising and marketing are in place -  Consider changing trading name -  Consider appointment of reputable agent or broker -  Plan a marketing and advertising campaign Essentially, the thought and preparation involved at the outset can make a huge difference to the nett amount realised by the seller at the completion of the transaction. Don’t walk away from the sale of your business regretting that you could have done more, and created a better result.  Maximise your nett return by taking time and properly preparing in advance. Often we have seen companies and individuals sell their businesses and then – when the transaction is completed – the owners and management have realized that they didn’t allow for Capital gains tax, or other expenses such as loan payout costs, or release of bank security.  In some cases this has cost many thousands of dollars, all because planning wasn’t conducted at the outset. You really need to think ahead, and the services of an experienced business broker are invaluable in creating a “checklist” of issues to be addressed to make a sale a planned event – rather than a regrettable disaster. Don’t cut corners – engage a professional, and take the time to start planning from the very outset, even if you aren’t thinking of selling today, now is the time to start planning.

There are three basic things being offered when a business is sold: 1.  Tangible Assets – such as plant & equipment, stock, fixtures, etc. 2.  Intangible Assets – goodwill, intellectual Property 3.  Future maintainable earnings – or a degree of certainty The “maintainability” of those future earnings needs to be assured and proven to a business buyer and their financier.  One of the main things that underpins this “maintainability” is secure tenure.  Usually a secure lease, with an adequate amount of time left to run until the lease expires, is the thing needed to provide a degree of certainty about the future income stream. Maximum value can usually be achieved by having the longest, most secure lease in place when offering a business for sale.  So don’t be afraid to take up an option, or get a new lease. it is essential to get the maximum tenure in place before the business is offered for sale, as the uncertainty of having a buyer trying to secure a new lease or option will make the sale doubtful and complicated. Many business owners are unsure about whether they should renew a lease or take up an option on a lease before selling a business, as they feel that the new owner may not want to remain at the same location. it is usually better to have the lease.  In fact, it is a good general rule that you should operate the business as you would if you were going to continue owning the business into the future. If you own a business and the freehold property there are many advantages, and benefits to be derived from arranging a lease between the business and the property owner. For example, you can sell the business, and continue to own the property and either enjoy the passive rental income or sell it to an investor.  There are also tremendous gst issues and possible benefits from having such a lease in place when selling a business. The most profitable business in the world won’t sell if there is no guarantee that it will be able to continue trading as it is into the future.  Certain tenure assists in providing “maintainability”.

Part of business evolution is the need to keep your website up to date not just with great new content, but with modern design elements and improvements on web tools. As part of our evolution we recently made a significant upgrade to our Benchmark Business website, improving on the old design and making the site more robust for mobile device use. BenchmarkBusiness.com.au has now become one of the most widely used websites by business owners Australia wide in their quest to sell their business or buy a business. Our new business sales website is also full of useful information for research purposes, for knowledge development and to help you get a better outcome from your business sale or business purchase. Contact our brokers in the major capital cities for further information. We have specialist brokers in Brisbane, specialist brokers on the Gold Coast, specialist brokers in Sydney, specialist brokers in Melbourne and specialist brokers in Adelaide. Interested in knowing more about websites for business? Give me a call, drop me an email, I am always happy to help. Written by Peter Spinda, CEO www.digitalduet.com.au Peter is the founder of Digital Duet, a Brisbane based company specialising in the design and development of business websites, marketing strategies and online business models. Visit Digital Duet today.

How much is any business worth?  How much is your business worth? the simple answer is that a business is worth what the market will pay for it. this is also the legal definition of value. There are actually two ways to think about business value, and how to maximize value. these two ways are: 1. What creates value? 2. How is value formally assessed? Value for any asset is determined through supply & demand.  If supply is abundant value is low. if supply is limited – value is increased. But, we can create demand, and this is an important way to think about improving the value of your business in the market – by increasing demand for that business.  How do you do that? We will look at that in a later section. When considering how the “formal value” of a business is assessed you need to start thinking about what kind of return a buyer expects from their investment.  It is usual for buyers to want to receive a return of between 25% and 50% on the investment.  So if a business is earning $100,000 per year, it should sell for between $200,000 (50% return) and $400,000 (25% return on investment).  This is known as the capitalization rate. What determines the expected return?  It is risk. so when looking at the value of your business, the next step is to consider the risk.  If a business is considered to be really “safe” and relatively risk free, a lower return of investment is accepted by buyers. An example of this kind of business is a Post office. these are considered to be safe, have government support, an exclusive area, no competition, and only trade for five days.  Therefore, these businesses have a return of around 20% (or five times earnings). A “riskier” type of business is a café.  These are considered to be less “safe” and therefore a greater risk applies. a café buyer will expect a 50% return on investment (or two times earnings). So if the Post office and café are both earning $100,000 per year, the café will sell for $200,000 (50% return) and the Post Office will sell for $500,000 (20% return).

Some owners of small businesses are tempted to minimise taxation by not putting all income into the bank, or “through the books”.  Many years ago this was thought to be a clever way to run a business, and enjoy a little “spending money” – and reduce tax.  Not now.  Today, it is simply more efficient, and straightforward to declare all income, and present a set of clean, transparent accounts to a buyer.  If you want to get the best possible price for your business, there is no doubt that this is something that you have to do. By maximising the income and profit shown on the accounts the sale price increases accordingly. There are two things that business sellers often say to buyers, that buyers will ignore.  These are; “There is loads of potential here”, and “There is cash on top of these figures”.  These types of comments usually mean nothing to a buyer, and their accountant, their solicitor, and their bank manager.  So we recommend that you do not offer your business to a buyer on this basis.  It simply carries no weight with a buyer. A business buyer is relying upon the information provided by the seller to make a decision about buying that business.  The creditability of the seller is a large factor in the Buyers decision.  Your creditability is enhanced through the provision of comprehensive and accurate financial accounts. Concentrate your attention upon ensuring that your financial records are correct and accurate. We know this sounds boring and obvious, but it looks really bad to a buyer when you present a set of accounts, and then offer all sorts of reasons and explanations for the way the accounts look. When selling a business, your financial accounts are going to be scrutinised by the buyer, their accountant, their solicitor, the bank manager, and all other “so-called” experts, such as the neighbors, father, brother and best mates.  Each time the accounts are scrutinised, these explanations start to “wear a bit thin”, and cause suspicion and doubt to grow in the buyers mind.  Don’t let that happen to you.  Make sure the accounts are right. The best way to achieve maximum value for your enterprise is to have your business accounts ready for “due diligence” well before you are ready to sell.  This will ensure that there will be no problems with a sale when a suitable buyer is found.

Nearly every business will demonstrate at least one of the five negative attributes that cause Buyers concern. Being aware of these negatives can assist you to prepare the business for sale, and deal with any objections when the Buyer raises them. What are the Five negative attributes? they are: 1. the need to carry large stockholding 2. the need to carry debtors 3. managing staff – or relying upon “key staff” or the proprietor. 4. long trading Hours 5. Key product or client. Your business probably possesses at least one or two of these negatives, and working on these, can make your business a more saleable, more desirable option for many buyers simply by making some simple changes to these areas. For example, a large rural tyre dealership was recently offered for sale. the asking price was reasonable, and the business was very profitable, but it held $850,000 of stock, and carried over $200,000 of debtors. and after 25 years, the owner was the business. Professional advice was given to the owner that the business could not be sold until the stockholding was reduced, the debtors reduced, and his name taken off the business. By making those changes the business sold for the asking price, and the buyers were able to easily manage the business and grow into the future. – Try to run your business with the lowest manageable amount of stock. – Keep your debtors under control, and to the lowest possible level. – A “managed” business is worth much more than an “owner operated” business – If you trade long hours make sure it is beneficial, and not a problem. – Try and ensure that your business does not rely too heavily upon either one employee, the sale of only one or two products, or sales to only one or two clients. Buyers will always feel negative about these “nasty” areas, but by being aware of this, controlling these, you will help eliminate buyer resistance, and move forward towards a successful sale.

What is a Key Person? Are you a Key Person? If you are a Key Person – you need to change things……….. Without realising it, businesses often evolve and grow, and during this growth the business owner’s role will change.  The owner knows how everything works, who all the customers are, and all the clients know the owner.  The owner has become the “key person”. The key person, is the person that the business relies upon to operate smoothly.  It may not necessarily be the owner who is the “key person”, it could be an employee, or even a sub-contractor. If a business cannot operate without one (or more) people, they are deemed to be a ‘key person.’  Ask yourself ‘does any business rely upon a specific person to function normally’ If your business relies upon a “key person” you need to address this and make changes to enable you to be able to sell the business.  That is unless you sell the business to the “key person”! Often the business may have a manager, or may rely upon the qualifications of one or more key personnel.  This can make buyers nervous too, as they will think to themselves “what will i do if the manager leaves?” To eliminate these potential problems you need to take yourself out of the business, and ensure that key staff are engaged on contracts that “tie” them to the business.  This can be difficult and inconvenient, but it must be done. generally speaking, there is a vastly reduced prospect of selling a business at the right price if a Key Person holds the whole enterprise together. You don’t have to get rid of them, (or sack yourself) all that needs to be done is the business changed to reduce the reliance upon that person (or people). If your business trades under your own name, it may be necessary to change the trading name to a more “generic” name quite a while before the business is offered for sale. For example, a business known as “John Smith electronics” might benefit from a name change to something like “comet electronics”, thereby allowing the new owner to takeover the business, without an abrupt change, and without having to operate under the name of another person.

We have a Receptionist/Administration Assistant full time position available in a busy national commercial Real Estate office on the Gold Coast. The position involves answering and directing calls, advertising and marketing, mail outs, maintaining database and more. The successful candidate must have computer skills, exceptional phone manner, a happy personality, positive attitude, show enthusiasm and ‘A Can Do’ attitude. Please forward a covering letter and resume to: Benchmark Business Sales & Valuations PO Box 3694 Robina Town Centre QLD 4230 ashlee@benchmarkbusiness.com.au

It’s amazing what you will see, and what you can learn about your business, when you look at it through the eyes of a buyer. Have a look at your business, and what you have to offer. think about what a buyer is looking for and what they will find if they look at your business. Here are a few of the things that a Buyer is looking for. all buyers want: 1. to pay the right price. 2. to be told the truth. 3. Future security. 4. transparent accounts. 5. simple management & operation. 6. not to have to invest more in repairs or upgrades. 7. good presentation. 8. no reliance on “Key staff” (see tip Four) 9. no reliance upon “Key Customers or Clients” 10. none of the five “negative attributes” When you have taken a few minutes to look at your business from a different perspective, see if you can find simple ways that you can improve the presentation of your business. Can you ensure that your business gives a buyer some of the 10 points identified above? first impressions count! make sure that the Buyer’s first impression is a good one! We’ve all seen those television shows where a work team comes in and spends a day or two renovating and tidying up the home to prepare it for sale where in then the sale price and value is increased. the same thing applies to the value of your business. it can make a big difference to a Buyer’s first impression if the business looks neat, organized and “under-control”.