If you plan to sell your business and wish to achieve the maximum return on your investment, be sure to start the necessary groundwork well in advance of the marketing process as there are many details which must be included in your preparation. As a business owner, this will quite likely be the largest and most important deal you have ever been involved in and as such has the potential to be stressful if not managed carefully. Below are some key points that business owners need to consider prior to going to the market.
Allow plenty of time
The preparation of a business for sale is a process; how long it takes will be dependent on the business itself however a minimum of at least a year should be considered.
Know your market
Thorough knowledge of the market in which your business operates is paramount to the eventual sales price as is accurately profiling your prospective buyer. Be aware as to whether your industry sector is in a growth or declining phase as this will have a direct impact on the eventual sales price. Markets which are experiencing strong growth have greater appeal to buyers who will be assured that there is still room for further expansion once they are in control. Businesses that have already entered the declining phase are more difficult to sell and consequently will achieve a lower return.
Select your advisors with care
Choose your professional advisors with care; you will need suitably qualified financial and legal counsel as well as a professional Business Broker to act on your behalf.
Deal with the skeletons
Starting the preparation early enough will allow you ample time to get rid of all the skeletons; that is anything and everything that has the potential to put your buyer off. For example, review all processes and job designs to ensure they are as streamlined and efficient as possible, follow up on incomplete paperwork, deal with any outstanding employment issues or legal disputes. When you have owned a business for a long time it becomes all too easy to overlook problems, have a business consultant provide you with some impartial advice and commit to acting on their advice immediately.
Consider the implications on stakeholders
Consider how the business sale is going to impact on the businesses immediate stakeholders, whether they are employees, customers or suppliers. Plan how this impact will be managed to negate uncertainty and decreasing confidence in the business.
Think about how you will invest the proceeds
Seek counsel early on in the process from your financial advisor as to how best to invest the proceeds of the sale. This early planning may influence how the Agreement for Sale and Purchase is structured as well as allowing for appropriate tax and investment decisions to be made.
Embarking on the key points highlighted above and having a clear vision as to where you are going before the marketing and negotiation phase starts will increase your chances of getting there with a minimum of stress.
Like what you are reading? Then follow me for all the latest news.
Related:
What is your business exit strategy
Will cheating IRD affect the final sales price of my business
Should you leave your business exit strategy to your buyer
Add to: Facebook | Digg | Del.icio.us | Stumbleupon | Reddit | Blinklist | Twitter | Technorati | Furl | Newsvine
March 11 2010 | 2. Selling a Business | No Comments »
At the height of the lending frenzy, many financial institutions were willing to provide capital for a business acquisition on the condition that is was secured against the buyer’s equity in their family home. Buyers were comfortable with this as ‘property value always goes up’. Those financial institutions that survived the cull are now far more conservative than previously; a visit to the bank can be a harsh reality check for the would-be buyer and they may now find it quite demanding trying to arrange their finance.
Buying an existing business has many advantages including a proven track record as opposed to the financial projections that come with a start-up, so although the process has become more challenging, it is still worth persevering.
The market is being impacted in two directions; on the one hand there are more and more businesses for sale as the baby boomers instigate their exit strategies. And on the other, finance available from traditional sources has been severely retracted. Those business owners that are selling in today’s market – as opposed to yesterdays or even tomorrows – must be prepared to think outside the square if they are truly committed to achieving a sale. Whilst the end goal for the seller may be to cash up completely and move on, it may well be necessary and in order to facilitate the sale to be a little more flexible with how the deal is structured.
There are many ways beyond the traditional to arrange finance for a business acquisition:
Innovative ways to finance a business purchase
Earn out strategy
Using a formula and staged buyer payments, the price of a business can be adjusted based on earnings achieved over a specific period and subsequent to settlement. This is attractive to sellers who may have been negatively impacted by the last year’s trading, yet are confident that the business will improve. The seller will accept the buyer’s price knowing that as the business improves, so too will the price.
Vendor finance
Business owners that are willing to finance the buyer demonstrate enormous assurance in their own business, systems and procedures. In doing so, they will achieve a more attractive sale price as their confidence will impact on the buyers decision making.
Partnering with seller
Buyers partner with the seller, initially owning a fixed portion of the business and then over time purchasing the remaining equity. If the business does better, they can buy out their partner sooner and earn more in the process. This method is particularly appealing to those people coming to New Zealand under the Long Term Business Visa – Entrepreneur Category.
Whilst I have only briefly summarized three methods, there are many more limited only by flexibility of the parties involved. Nvertheless, essential to the process are a realistic seller and a realist buyer who are prepared to work in today’s market.
Related: Business Immigration to NZ – LTBV scheme
Add to: Facebook | Digg | Del.icio.us | Stumbleupon | Reddit | Blinklist | Twitter | Technorati | Furl | Newsvine
February 24 2010 | 3. Buying a Business | 2 Comments »
In New Zealand, the most traditional form of Business Brokerage compensation is in the form of a success fee commission charged to the seller as they are most often the principal to the Agency agreement. Payment of the commission to the Agency (Business Brokerage/Licensee) is contingent upon the Brokerage (1) finding a satisfactory buyer for the business and then (2) successfully negotiating a sale and purchase contract on terms and conditions that are satisfactory to both buyer and seller.
How much the Business Brokerage is in fact paid is dependent on two key points including the actual commission percentage charged by the Brokerage and the final sale price of the business. The percentage fee itself varies dependent on the Brokerage business model and level of services provided, however as a general rule of thumb in New Zealand, one could expect it to be somewhere between 5% and 9% plus GST.
As one can’t predict the final sales price of a business one hundred percent accurately, in order to assist clients in their decision making and as part of complying with the Real Estate Agents Act (2008) a Business Broker (Licensee) must provide (among other things) both an appraisal and an estimated fee based on that appraisal:
Appraisals and pricing
9.5 An appraisal of land or a business must be provided in writing to a client by a licensee; must realistically reflect current market conditions; and must be supported by comparable information on sales of similar land in similar locations or businesses.
9.6 An advertised price must clearly reflect the pricing expectations agreed with the client.
9.7 A licensee must not mislead customers as to the price expectations of the client.
Agency agreements and contractual documents
9.8 When inviting signature of an agency agreement a licensee must explain to a prospective client in writing—
(a) the conditions under which commission must be paid and how commission is calculated, including an estimated cost (actual $ amount) of commission payable by the client, based on the appraised price of the land or business:
What the eventual fee charged will be, is based on the actual selling price of the business and not the appraised price, however in a normal arms length transaction free from extenuating circumstances the two should relate in some way.
For example: The appraised value of the business is $205,000 @ 7% commission. The estimated fee is $14,350 plus GST. The business sells for $200,000 @ 7% commission. The actual fee charged is $14,000 plus GST.
Many Agencies also have a minimum fee and again this varies between Agencies. Furthermore, it is also commonplace to see an ‘Administration’ or ‘Establishment’ fee charged at the time of listing to help cover some of the upfront costs incurred by the Brokerage when performing services on behalf of the client as well as clearly demonstrating to the Brokerage the commitment level of the client.
As with any contract it is advisable to take independent advice prior to signing the Agency Agreement to ensure that you are fully conversant with all the terms and conditions. Certainly, in this age of extra compliance, many of the Agency agreements are now far more comprehensive than they were previous to the new Real Estate Agents Act (2008) being enforced.
Like what you are reading? Then follow me for all the latest news.
Add to: Facebook | Digg | Del.icio.us | Stumbleupon | Reddit | Blinklist | Twitter | Technorati | Furl | Newsvine
February 08 2010 | 2. Selling a Business and 8. Real Estate Agents Act 2008 | No Comments »
What’s going to happen to your business if you are run over by a bus tomorrow? Whilst there are not many certainties in life, exiting your business in one form or another is one that is guaranteed.
Business success is dependent on many factors including considerable time, concentrated focus and strategic planning prior to the actual start-up phase. Many entrepreneurs are swept along on the current of excitement surrounding a new project, however in the long term it will pay handsomely to pause a moment at this juncture and include in the planning your eventual exit strategy.
Leaving a business is a process and as such needs to be considered well in advance. Among the various options available to the business owner are;
- succession within the family
- selling in an arm’s length transaction
- acquisition or
- liquidation
Obviously, some options are more attractive than others.
The length of time needed to exit a business varies and is dependent on the organisational structure, the complexity of the entity and the motivating factors behind the owner’s decision to leave. It may take years to implement your chosen strategy and as such should be a crucial component in your long term strategic planning. Preparation from the early stages ensures the business owner maintains control of the process as opposed to the buyer who will structure a deal in their own favour.
If you are already at the point of no return and need to exit immediately, consult with your professional advisors at once. An Accredited Business Broker will provide you with invaluable recommendations which will assist you in maximizing the eventual return on your investment.
Related: What does a professional business broker do? Should you leave your business exit strategy to your buyer?
Like what you’re reading, then subscribe and get all the latest news from this blog delivered direct to your RSS reader.
Add to: Facebook | Digg | Del.icio.us | Stumbleupon | Reddit | Blinklist | Twitter | Technorati | Furl | Newsvine
January 07 2010 | 2. Selling a Business and The Professional Business Broker | No Comments »
Pursuant to Section 14 of the Real Estate Agents Act 2008, the Real Estate Agents Authority has provided all licensees active within the industry, with a set of Rules which came into force on 17 November 2009. Whilst not intended to be an exhaustive statement, they do however, set the minimum standard expected of all licensees. The Rules are known as the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009, which gives us an insight to the greater emphasis given to consumers involved in all types of real estate transactions. Minimum standards are hardly a benchmark to aspire to, and many licensees are already committed to providing a superior service.
Rule 9 addresses “Client care and dealings with customers”. Under the Act a client is a person who has entered into an agency agreement with an agent to carry our real estate agency work. A customer means a person who is a buyer or potential buyer of land or a business, and who is not a client as defined under Section 4 of the Act.
Appraisals and Pricing
Many people are already familiar with a licensee providing an opinion as to the value of land or business, in residential sales practice it may be at times, the first contact extended either way. That is; the salesperson cold calling a ‘prospect’ and offering to provide an appraisal (free of charge and obligation) as a way of expanding their sphere of influence, or conversely, a prospective seller ringing an agency and requesting an appraisal on their home with a view to selling.
Rule 9.5 formalises the process further by specifying that the appraisal must be in writing, be realistic and supported. Specifically:
9.5 An appraisal of land or a business must be provided in writing to a client by a licensee; must realistically reflect current market conditions; and must be supported by comparable information on sales of similar land in similar locations or businesses.
Agency agreements and contractual documents
Rule 9.8 identifies the minimum compliance standards expected of all licensees prior to their requesting a prospective client sign a real estate agency agreement:
9.8 When inviting signature of an agency agreement a licensee must explain to a prospective client in writing -
a. the conditions under which commission must be paid and how commission is calculated, including an estimated cost (actual $ amount) of commission payable by the client, based on the appraised price of the land or business:
b. how the land or business will be marketed and advertised, including any additional expenses that such advertising and marketing will incur: it must be explained to the prospective client that he or she is not obliged to agree to such additional expenses:
c. that further information on agency agreements and contractual documents is available from the Authority and how to access this information.
Rule 9.8 (a) leads one to the conclusion that a licensee must provide an appraisal on the land or a business before the agency agreement is signed in order to comply with the minimum standards. Adhering to these standards will not be complicated for those licensees who have chosen to specialize in a particular field of real estate such as business broking. These licensees already know the market facts as it is what they deal with every day. In future we may see a trend toward more specialization as agencies and licensees realize it’s no longer financially viable to be a “Jack of all trades, and master of none”.
NB: Under the Real Estate Agents Act 2008, a person must be licensed in order to carry out Real Estate Agency work. “Licensee” means an agent, a branch manager, or a salesperson. Designations are now Licensed Agent, Licensed Branch Manager or Licensed Salesperson.
Click here: “Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009 to read the Rules.
If you would like further information on valuing a business, follow these related links:
How to value a business – establishing the market value How to value a business – the direct market data method What’s so important about a business valuation?
Add to: Facebook | Digg | Del.icio.us | Stumbleupon | Reddit | Blinklist | Twitter | Technorati | Furl | Newsvine
December 02 2009 | 2. Selling a Business and 8. Real Estate Agents Act 2008 | No Comments »
In Business to Sell Businesses
The promotional material for this year’s REINZ Business Brokers’ Conference recommended among other things that “If you are in business to sell businesses and you are serious about being successful, attending this year’s conference is a must!” The Business Brokers’ Special Interest Group Committee had organized a well thought out programme which promised an interesting day. Being perpetually on the lookout for any new knowledge to improve the value I provide clients only committed me further.
The September Conference was held at the Ellerslie Event Centre in Auckland with accommodation available within easy walking distance at the nearby Novotel Hotel. For someone from out of town, continue reading »
November 25 2009 | Real Estate Industry News and The Professional Business Broker | No Comments »
When evaluating businesses for sale and as part of a prudent risk analysis the potential buyer needs to consider the macro-environment within which the business operates. Whilst many variables may be outside a business owner’s direct control, it still makes sense to assess the general environment and how it is likely to impact on the business under consideration.
For example; Hamilton, which is New Zealand’s largest inland city – and fourth largest urban area overall – is experiencing strong population growth. Records from the 2006 census confirm that the population was around 131,000 people. Furthermore, by 2019 it’s predicted the population will have expanded to 167,000 people. Interestingly, in a country with an ageing population, Hamilton bucks the trend. Instead Hamilton has a youthful population with half of the residents being under 30 years old.
As a Hamilton Business Broker, the points made above give me a great deal of confidence when I’m valuing businesses and trying to establish the future maintainable earnings. Business buyers want to know that there’s going to be continued and increasing demand for the goods or services that their business supplies. Additionally, if the business owner’s ambitions are to expand, the prospect of a young population entering their greatest income earning years is far more attractive than a district that has a mature population on limited incomes.
Add to: Facebook | Digg | Del.icio.us | Stumbleupon | Reddit | Blinklist | Twitter | Technorati | Furl | Newsvine
October 29 2009 | 3. Buying a Business and Waikato Region | 2 Comments »
Buying an established franchise business, as opposed to developing a new franchise territory can have immediate benefits. To start with, you instantly establish how successful the business has been to this point and what the expected return on your investment will be. This often appeals to buyers with a low risk profile as it helps to alleviate many of the doubts that come with the unknown.
Before allowing a franchise territory to be developed a systematic risk analysis will have been undertaken to ensure the area meets the franchisor’s specifications. Certain variables are considered including the local geography and population demographics. Territories must be big enough to sustain the business but not too big to be impractical. It is as much in the franchisor’s interest to get this critical detail right as it is in the franchisees; after all, their income is intrinsically linked to yours.
With the help of the franchisor, it will be apparent whether or not the business you are considering is underperforming or has reached its full potential. Underperformance may be attributed to any number of variables such as (a) the business being young and in the growth phase, or (b) the current owner is not managing their business as well as it could be. Underperformance may well appeal to you, the asking price should reflect the underperformance and if you are ambitious you can immediately implement a strategy to grow the business to its full potential.
As with buying any business, much depends on the buyer themselves and what their intrinsic motivations are. I recommend that a thorough due diligence investigation is conducted and legal and financial advice is taken from professionals experienced in the sale and purchase of franchises.
Add to: Facebook | Digg | Del.icio.us | Stumbleupon | Reddit | Blinklist | Twitter | Technorati | Furl | Newsvine
October 22 2009 | Uncategorized | No Comments »
Buying a New Zealand motel can be a rewarding investment, both personally and financially as tourism is one of the country’s consistently strong export earners. The incoming tourists are drawn to a variety of accommodation options dependant on their personal considerations.
The Coromandel Peninsula attracts many of these independent tourists; the drive from Thames to Coromandel following the pohutukawa fringed coastline is undoubtedly one of the most beautiful highways in New Zealand. With a rich and colourful history based on Kauri logging, gold, farming and fishing, Coromandel provides the visitor with much to do.
Jos Pakipaki and Gerrard Kingston are the delighted new owners of the Coromandel Court Motel which is well placed to meet the needs of both national and international tourists. While they may be new to Coromandel, they are not new to the hospitality industry. Having decided that they were going to enter the industry, Jos and Gerrard left New Zealand for an extensive 12 month round-the-world trip. This extended period of research provided many advantages for when they returned. Jos and Gerrard were able to experience firsthand a variety of lodgings, noting the good and the bad from a guest’s viewpoint, as well as observing the business side from a soon-to-be owners’ viewpoint. Furthermore, the experience of visiting many countries has given them a strong foundation for building instant rapport with their own guests.
Whilst they thoroughly enjoyed their overseas adventures, Jos and Gerrard were keenly aware that back home in New Zealand were the same if not better tourism opportunities. On their return, their first foray as accommodation providers was at a Bay of Plenty Holiday Park. As Jos reflects;
“It was a great way to learn the ropes of all aspects of the accommodation industry.”
Having affirmed that this was the lifestyle for them, Jos and Gerrard then chose the Coromandel Peninsula as the most suitable place to own and operate a motel. Their first motel was on the east coast in Whitianga, a position they enjoyed immensely. With clear vision and goals, the Coromandel Court Motel was then a natural progression for this ambitious pair.
As an accommodation provider, the first impression your guests have of your motel is crucial to your continuing success. When conducting their due diligence, Jos and Gerrard were thrilled to find that their own positive first impressions were supported by a strong business and, in line with their ambitions, there was further scope for growth.
As with any new business owner, Coromandel’s newest moteliers have many plans for the popular motel. In preparation for the busy summer season, they have already instigated some changes to provide more accommodation options for guests.
Drawing on their own knowledge gained both here and overseas, Jos and Gerrard acknowledge that presentation and cleanliness, combined with a genuine desire to serve are paramount. Recognising that getting the basics right is essential, they strive to provide the very best accommodation experience to each of their guests. One only has to observe the smiles on the faces of the departing guests, or take a peek in the guest book to know that this enthusiastic and energetic couple is going to more than achieve their goals.
To find out for yourself, plan a weekend break at the Coromandel Court Motel.
Contact Jos Pakipaki and Gerrard Kingston direct at:
365 Kapanga Road
Coromandel
Ph: 07 866 8402
Fax: 07 866 8403
Email: corocourt@xtra.co.nz
Book online: Coromandel Court Motel online booking
Add to: Facebook | Digg | Del.icio.us | Stumbleupon | Reddit | Blinklist | Twitter | Technorati | Furl | Newsvine
October 14 2009 | 3. Buying a Business and Buying and Selling Motels/Hotels | No Comments »
Business Broking is a profession that not everyone is familiar with and at times people are afraid to ask for clarification for fear of appearing uninformed. It is a question that comes up again and again and for this reason I have outlined below the key responsibilities I personally undertake on a regular basis in order to facilitate the sale and purchase of a business.
For the purpose of this article I will focus on the services I provide to the business seller as traditionally in New Zealand, it is the seller that appoints the Business Broker. The following list is loosely sequential; these stages will at times overlap or even be repeated.
Initial consultation
The purpose of the initial consultation is to enable both the seller and myself to establish whether or not there is the possibility of establishing a successful working relationship. Assisting the seller to quantify their motivations and objectives is a significant step. As we will be working very closely together it is essential there is an element of rapport; to achieve the best outcome, we need to be on the same team.
Formalizing the relationship
Once the seller is secure in the knowledge that I can best represent their interests, we formalize the relationship through both signing a listing contract. The listing contract outlines the terms and conditions of our working relationship.
Consultation and education
Quite possibly, the seller has never sold a business before and therefore does not know the journey that we will be embarking on. In my experience when someone doesn’t know what to expect they become stressed or anxious, to negate this I use a consultative approach. From the outset the seller is kept fully informed of the process, including what my role will be as well as their own role and that of their solicitor, accountant and possibly financiers.
Determine an appropriate price for the business
Using all the resources at my disposal I will appraise the business and demonstrate to the seller what an appropriate asking price for the business is. Taking into account their views, together we make a decision.
Prepare the documentation
After carrying out comprehensive research, an in-depth Business Information Memorandum is compiled and submitted to the seller for their approval. Only once this has been approved by the seller will it be made available to qualified buyers. Because this is compiled in consultation with the seller, they feel in control and at ease with the level of disclosure.
Prepare the business for the market
I advise the seller on how best to prepare their business for the market with the aim of achieving the maximum return possible from the sale. This may include business physical, personnel, or record preparation among other things.
Establish and implement the marketing strategy
The marketing strategy I establish will depend on the target market, that is, the type of buyer that is most likely to be interested in this business. It is crucial that the strategy implemented is appropriate to the business, that it provides the best exposure and most importantly makes the buyers ring. If that’s not happening, the strategy needs to be reviewed.
Find and qualify buyers
It’s not enough to passively sit back once the marketing strategy has been implemented and wait for the buyers to phone. While some buyers will respond to the marketing exposure, others have to be more actively sought. It takes incredible tenacity to ensure that the business has been exposed to everyone who has the ability to make a purchasing decision. My role is to find not just any buyer, but to find the most suitable buyer for the business.
Advising buyers
Like the seller, the buyer may have never been through this process before therefore educating them about the various stages will help them in their ability to make decisions. Interested buyers are interviewed and qualified prior to receiving any information of a confidential nature. Once I have established that they have the necessary capacity and are in a position to make a buying decision everything possible is done so as to assist them in making that decision in a timely manner.
Structuring and negotiating a contract
I then draft the offer on the buyer’s behalf, structuring a deal that best represents a practical workable solution for both parties. Negotiation between the parties is likely prior to a conditional contract being formed. This stage may be particularly stressful for people and again I find by keeping everyone informed as to exactly what is happening I am able to negate some of the pressure.
Proactively assisting with due diligence
Once a conditional contract has been formed between the seller and buyer, I assist with the due diligence process. From experience I have learnt that a proactive approach is best to keep the deal moving forward – time being of the essence. This means I will be talking with the seller, the buyer and their respective legal and/or financial advisors on a daily basis. I will ensure that all parties have the documentation if and when required and that everyone is aware of important dates for fulfilling conditions. Nothing is overlooked or assumed. When the buyer has satisfied all conditions they are able to declare the contract unconditional.
Facilitate the handover
Between the unconditional date and settlement/possession dates there are many things to be considered by both the seller and buyer. Again, experience shows that to ensure the succession from seller to buyer is as smooth as possible it pays to be involved. I provide assistance and advice as needed, outlining who is responsible for what and what needs to be done. On the actual handover day, I will be on-site coordinating activities and also on the phone talking to both solicitors to confirm settlement has taken place.
Follow-up
After the buyer has taken over the seller will stay on for a period of vendor assistance as specified in the contract. It depends on the actual business as to how long this period is, at times the buyer quickly feels confident in their ability and it is enough that the seller is available by phone after the initial on-site training. Through this period I will continue to stay in touch with both parties.
For further information contact Sharon James
Add to: Facebook | Digg | Del.icio.us | Stumbleupon | Reddit | Blinklist | Twitter | Technorati | Furl | Newsvine
October 07 2009 | The Professional Business Broker | No Comments »
Next »
