Right now is a very busy time of year, as Buyers start their Pre June 30 Financial Year purchase plans. May is one of our peak trading times as many Seller's aim to get out of their salons quickly because they don't want to trade into a new financial year. We find that a lot of business owners will discount the sale price – if they can avoid having to trade into a new financial year. This can save a savvy buyer thousands of dollars. So for all you buyers out there, this is when you can often get some of the best deals of the year. If you have found a few salons that you like, go through the information, and put in an offer. All salons bought in May will have settlements in early or late June. What are you waiting for? Happy Buying… John Kasapi Salon Sales Specialist

There is a growing interest in property investment in the childcare sector – a sector that not too long ago was a fairly specialised and limited investment pool. This new interest in our Aussie long day care centres is attracting a broad mix of local private investors and private property syndicates. With regards to individual investors, we are seeing a modest increase in childcare acquisitions through self managed super funds (SMSFs). There has been a little hype within the industry about abnormally low yields (high prices) being paid by SMSF investors but the reality is that it’s just not that common. The majority of any institutional-based lending on childcare sites will be subject to a ‘panel approved’ child care specialist valuation, with valuations typically showing comparative market yields based on relevant sales evidence. In short, if you borrow it’s difficult to pay well above market value for a centre with this valuation process in place. This safe guard of panel approval is bringing comfort to new buyers who are unfamiliar with the industry, and, by reducing this risk, is helping the decision to purchase less daunting. More mum-and-dad passive investors are coming across from other industries such petrol stations, commercial office space and retail, and interestingly, they are also transitioning from residential investment to childcare. Why is this occurring? Quite simply, these investors are falling in love with the security of the sector, which is underpinned by government funding, corporate competition, higher yields and the year-in-year-out rental increases that many childcare leasehold investments offer. We find that there is some emotion attached to a purchase; buyers become aware of the social importance a facility which is engrained in the local community and provides at the very least -early education to our future generations. Childcare property investment is also powering on at the bigger end of town. Australian property trusts and investment funds have had a longstanding involvement with the sector; much of this involvement grew from the rise of ABC. The collapse of the giant didn’t deter, however, and funds like these continue to invest heavily in the sector and offer secure returns to their clients. When you are considering buying in this sector, as when you are considering any investment, you must do your research. Specifically in this sector, some key considerations when buying are: • The tenant Look at the quality of the tenant. Seek a site that has an experienced long-term operator (corporate, multi-site operator, individual) look for a long lease with options totalling not less than 15 years. Ask whether the centre has strong occupancy, whether the tenant is financially sound and capable of meeting ongoing lease commitments. Are there any outstanding issues between the tenant and landlord? • The building What is the age and presentation of the centre like? What condition is the building in? Will it require capital expenditure? And if so, will the amount be significant? Will the centre’s licence be affected by change in regulations and ratios? If so, will it impact the rent or the services profitability? Find out the replacement cost of the land and building; get a building and pest inspection done. Find out if there any outstanding requestions by the department? • Sustainability Assess the competition from other local centres, and the demographics of the area. Is it an ageing population or growing younger family catchment? Are there any childcare development applications (DA) in with council, what sort of fees does the centre attract? Assess the service location, visibility and user access; is it in close proximity to schools and business areas? Check the availability and cost of comparative land suitable for a childcare centre. • Yield What will be the return on investment? Find out the ‘true’ net yield; consider legal costs, stamp duty, GST, land tax, building insurance and other relevant fixed expenses. Generally, yields for childcare range from approximately the high seven per cent to the low nine per cent, with some rural remote or distressed centres attracting over 12 per cent – as a general rule the higher the yield the higher the risk. Yields should be carefully evaluated; every 0.25 per centre (quarter percent) can result in sizable price difference when selling or buying. • Lease – Work out the lease cost per child place (that is, $130,000 per annum (lease cost, divided by the number of child places, say 75 places = $1,733 per child place). Is the rent market, above or below? Are the yearly increases consumer priced indexed (CPI) or fixed? Are the annual increases noted across all options in the lease? Who pays for building maintenance and air conditioner servicing? When are the market rent reviews? Is there a ratchet clause (clause that stipulates that the rent can’t be less than the previous year), first right of refusal, etcetera. The value of a childcare business is heavily impacted by the length of remaining tenure. Quality operators should seek additional options to ensure that their business value isn’t diminished. Operators generally like to see 20 years or more reaming, and it’s not uncommon to see new lease negotiations with 30 years or more. And as with any investment, the utmost attention must be given to your strategy with finance. Lenders can lend up to a maximum of 70 per cent loan value ratio (LVR) against a child care centre (CCC) freehold passive investment. They can also lend to a maximum of 70 per cent LVR for a freehold going concern (that is when an operator of a CCC also owns the freehold, the lender can lend to 70 per cent LVR against the freehold and going concern valuation). If an operator is seeking finance for a leasehold business, lenders will generally fund a maximum of 50 per cent LVR of the leasehold value. The loan term in this case will also be determined by the terms of the lease, and lenders will require a right of entry (ROE) and mortgage over the lease. In either case, to obtain maximum lending exposure, clients will need to meet the lender’s benchmarks for debt service or cover ratio (DSR) and interest cover ratio (ICR). Each lender has different requirements and benchmarks, but as a general rule they require 1.5 times DSR (that is income is 1.5 times that of the debts that are required to be met), and 2 times ICR (that is, income is two times interest liability). Each lender that is in the child care (CC) space has slightly different policies and I would always recommend every client work with their finance broker/bank, accountant and solicitor conjunctively before making decisions that could become costly down the track. There are cost, taxation, finance structuring and other issues to consider. Each of the professionals highlighted will give advice from very different perspectives – the solicitor will consider asset protection, the accountant will consider taxation advantages and possibly asset protection, that broker and lender will consider ease of transaction, structuring and cost minimisation etcetera. When all three of these professionals work together, generally we’ll end up with a far better outcome for the client. Regardless of whether you are buying or selling, be sure to seek advice from professionals who specialise in the childcare industry. By dealing with solicitors, accountants, valuers, industry-specific lenders and reputable childcare brokers, you will save considerable time and money. Most importantly you will be proactively minimising the risk associated with a specialised transaction. For recommendations for any specialist professional services, or further details regarding buying or selling childcare, contact Lincoln Bridge through the Benchmark Childcare office.

Registered Training Organisations (RTO’s) are those training providers registered by the national regulator, the Australian Skills Quality Authority (ASQA) or in some cases a state regulator, to deliver vocational training services. There are almost 5,000 RTO’s in Australia although the number has reduced in the last two years as ASQA has endeavoured to raise the quality bar and refuse re-registration to an increasing number of RTO’s who fail to meet the required standards. Only RTO’s can:

• Deliver nationally-recognised courses and accredited Australian Qualifications Framework (AQF) Vocational Education and Training (VET) qualifications; and
• Apply for federal, state and territory funding to deliver vocational education and training.

They can offer qualifications at the following levels:

• Certificates I, II, III and IV;
• Diploma;
• Advanced Diploma;
• Vocational Graduate Certificate; and
• Vocational Graduate Diploma.

ASQA is the regulatory body for RTO’s in the ACT, New South Wales, the Northern Territory, Queensland, South Australia and Tasmania.  Those providers in Victoria or Western Australia who offer courses (including online) in any of the other states and territories or who offer courses to international students also fall under the auspices of the national regulator. Are there any RTO’s for sale? There is an active market in the sale of RTO’s so if you are looking to buy an RTO or you have an RTO for sale, call Russell Brockie, one of the few specialist brokers in the sector in Australia, for a confidential chat.

On March 20th 2014 the Real Estate Institute of Australia selected the “best of the best” from all over Australia, when the winners of each state’s Real Estate Institutes were gathered to select a winner for each category. The awards were held in Tasmania for the first time. These awards are considered the pinnacle achievement in Australia as they are judged on professionalism and best practice – from the winners of each state from around the country. This is the first time that a Queenslander has won this prestigious award, and there is no higher accolade that a business broker can attain than the REIA Business Broker of the Year. Iain Horne is in his seventh year with Benchmark Business Brokers, and over his time with Benchmark Iain has become one of Australia’s leading professional business brokers. With this award he continues to distinguish himself amongst his peers.

Iain Horne is the REIQ Business Broker of the Year for 2014. On Friday 7 February 2014 the best real estate practitioners and business brokers in Queensland were revealed by the Real Estate Institute of Queensland (REIQ). About 500 finalists and guests – including the Queensland Premier and the Attorney-General – attended the REIQ’s 2014 Awards for Excellence gala event. Held for the first time in the refurbished Brisbane City Hall, the REIQ awards are considered the pinnacle achievement in Queensland given they are judged on professionalism and best practice. “Every year, our awards grow in stature and importance as agents and agencies seek to differentiate themselves in a competitive marketplace,” REIQ CEO Anton Kardash said. Iain Horne is one of Australia’s leading professional business brokers, and as the second – time winner of the REIQ award he has distinguished himself amongst his peers.

Did you know that many business owners don’t realise that their businesses are valuable? Often business owners simply close down and walk away from their business without ‘cashing-in’ on the Goodwill that they have built up in their business. What a shame…. all those years of hard work – and no reward for their effort…. if they had only known that there was a buyer out there for their business, they may have acted differently. There is another group of business owners who operate their businesses every day, without planning for the day that they will sell out. Oh… they plan to sell, but they just don’t know when, or how, or who they will sell to…….. or how much the business should sell for. There is no plan in place – just a vague intention that one day they will sell. Do you fall into either of these groups? ..or do you have an exit plan for how you intend to maximise the reward that you deserve when you decide that it’s time to move on. Having a plan on how and when you will sell your business is known as having an “Exit Strategy”. What are the benefits of having an Exit Strategy? With an Exit Strategy in place you get to sell your business on your terms, when it suits you, and when you are ready. This makes you a CONFIDENT seller. You will be confident because you will know that your business is ready to sell, and that alone makes it very attractive to potential buyers! Without an Exit Strategy in place you will be a passive seller – waiting and hoping that a buyer will come along and solve all of your problems…. that is like gambling, and that way you are simply reliant upon chance… that’s no way to run a business. Having a proper Exit Strategy in place will allow you to cash-in quickly, easily – and scientifically. Having an Exit Strategy will enable you to:

• Get the best possible price
• Avoid disruption to daily trading
• Avoid “time wasters”
• Save money
• Achieve minimum settlement time

So how do you create an Exit Strategy? You can talk to an accountant, business coach, lawyer or a business broker. Business brokers work in the market everyday, and they know what your unique business will require to be ready to sell for maximum value. They can advise on the 17 areas that you need to consider when selling, and how to implement your plans. An Exit Strategy includes:

• A target date
• Preparation of a list of targeted potential buyers
• Knowing what potential buyers will want and ask for
• Determination of an appropriate asking price
• Preparation of financial accounts and data that buyers will require
• Creation of a marketing plan and tactical execution timetable

Many business owners never get around to actually sitting down and planning how and when they will sell out of their businesses, they procrastinate, and let other issues take priority. Don’t put off this important part of business ownership, do it soon – do it today! Business owners with an exit plan in place are often proven to be more effective business people than those who don’t. This is because they have focus and direction. They are not aimless, because that know where the business is headed, and exactly what they have to do to achieve their goals. Having direction provides confidence, and confidence enhances performance. If you would like to receive a free book entitled “Twelve Tips for Selling Your Business” contact the author. Details appear at the end of this article. CASE STUDY – In 2005 Merv and Linda were ready to retire from their business located in a rural Queensland township. Just like so many other small business owners they had never set a real goal for when they would sell the business – or for how much they would sell for. They had owned the business for over twenty years and had worked long and hard to survive in a difficult region. So without much planning, they decided to put the business on the market. Their financial advisor assisted in selling the business, and after a year, they had not sold. They hadn’t even spoken to one serious buyer. As time went by Merv and Linda started to think about simply closing down the business, but as they owned the premises too, they felt it would be better if they could sell, and find a tenant to operate the business. In August 2006 Merv & Linda engaged a professional business broker to sell their business, and in October 2006 the business was sold… for $900,000 – plus stock! The buyer was a multinational company. Just when they were looking to “walk away” from their business, they found the right person to sell it for them – and they are $900,000 better off as a result! Had they been in a position to plan their sale, and prepare over time, they would have sold their business at a premium price, and they would have sold out within a defined time period.