28/04/2009 by info.

You can often get hold of the wrong end of the stick when looking at statistics.

American listing website for businesses for sale bizbuysell.com have recently issued statistics showing that the average price of a business sold via their website fell by 17%.

A reporter for cnnmoney.com reports that “it’s a lousy time to sell your business” presumably on the basis that if you sell the value of your business will have reduced by 17%.

These business sales however have included an element of distressed sales, and of course if you needed to sell your business because you were not doing as well, you had to be realistic with your expectations.

They are right with one aspect of the market that is there are fewer businesses being put up for sale. Baby boomers who would normally be looking to retire, are now delaying that decision, due to fear, thoughts that they may not be able to sell their business for top dollar price, or maybe because their investments have reduced elsewhere.

These are the businesses that a lot of businesses buyers would be interested in buying.

The fact is that business buyers are always interested in buying the best businesses, and if you own the best restaurant in your town or city you will STILL be able to sell for a good price.

But are business owners taking the wrong decision in delaying their retirement?

Profits are a function of the enthusiasm that a business owner has about running their business, and if they feel that they have no option but to carry on trading, perhaps they will start to feel resentful and their enthusiasm may start to wane.

It is this phenomenon that may lead to a reduction in the value of their business not the economic conditions.

Posted in The Economy, General | No Comments »

24/04/2009 by info.

That of course is the alternative that people have.

Many budding entrepreneurs try to establish a business, a quick search on google suggests that anything up to 90% of new businesses fail in their first year. Now that may overstate the figures, however the number of failures is quite high.

A study in Ohio State University tracked new restaurants opening from 1996-1999.

The survival rates were as follows:

• First year: 85%
• Second: 70%
• Third: 62%
• Fourth: 55%
• Fifth: 50%
• Sixth: 47%
• Seventh: 44%
• Eighth: 41%
• Ninth: 38%
• Tenth: 35%

Once you’ve hit five years, your odds of survival go way up.

What does this show?

Well firstly that new business owners often underestimate what is needed to start a restaurant, they are often undercapitalised and simply don’t have the skills needed to be successful.

Almost as importantly it shows that buying a business is not as risky. If you buy a restaurant that has been trading for 5 years, the chances of you being unsuccessful are significantly reduced.

Why is this? It is to do with location, location, and location.

There are plenty of empty shops and premises as a result of the recession but these will be the locations where previously businesses have failed, other restaurants, takeaways, cafes, pubs etc.

Often it doesn’t matter how good a chef or manager you may be, the most important criteria for being successful is having the right location, so it is better to buy someone out from a primary location than try to establish yourself in a secondary position.

Posted in Buyers | No Comments »

24/04/2009 by info.

Business Owners hardly ever take professional advice before placing their business on the market.

I often ask the question to prospective clients “What does your accountant advise over the sale of your business?” and they look at me blankly. They hadn’t even considered telling their accountant about their proposed sale, because of course it would cost them money to telephone them.

Many of them I am sure complete the transaction, and then find out that they actually have tax to pay on the sale of their business. Now I am sure that Alistair Darling would be very happy about that situation, after all he needs to increase his tax revenues! But for the business seller it is too late, they suddenly find that the net proceeds from their sale isn’t as high as they thought it would be.

If I could give you one bit of advice before placing your business on the market it would be, before you contact a business transfer agent you should be contacting your accountant and consider the amount of Tax payable your in their calculations.

It may change your plans.

Posted in Selling Your Business | No Comments »

20/04/2009 by info.

In the last week I had a client selling their business tell me that they wanted to increase the asking price of their business as a result of investment they had made in the business.

In the same week an interested buyer rejected the business at the old asking price after a viewing because they were not happy that the business had been built on solid foundations.

If the business was really worth more as a result of this investment surely it was a bargain and the buyer should have jumped at the chance of buying it?

You could argue that the seller was not able to convey how strong their business was but I personally think that what happened was that the seller and buyer had different perceptions of the value of the business. Often the seller aware of what effort they have made in building up the business think that the business is worth more. For the buyer this is irrelevant.

The seller has an emotional attachment to that business, in the same way that they have an emotional attachment to a photograph of their own family.

Where you would pay for a photograph of your family, I would not give you a penny for that same photograph. In the same way I as a buyer am not willing to give you extra money for the emotional investment you have made in your business.

However the person who decides how much a business is worth is the buyer. 99% of the time that seller has to detach himself from the emotional effort they placed in their business so that their perception of value matches that of the buyer and are able to recognise themselves the true market value of that business.

If they cannot do that they will not be able to sell their business.

Posted in Selling Your Business, Buyers | No Comments »

09/04/2009 by info.

People are not very good at predicting economic cycles or the depth of those cycles, including supposed expects in their fields.

Sometimes policy makers are the ones who make the misjudgement, the Chancellor of the Exchequer on 24 November 2008 predicted that the growth in the economy in the UK would start in June 2009, now he tells us that he was wrong in that prediction and the depth of the recession was worse than he thought.

A recent report in America suggests that 20% of people think that the economy will improve in the next few months up from 8% last month. Of course the report could have said that 80% of people think that things will stay the same or get worse!

Is this however a good indicator of a recovery? These surveys are good at recognising bandwagon effects nothing more, as if 100% of people think that stocks and shares will increase in price then it will be a self-fulfilling prophecy, as increased demand will mean that prices WILL increase, its simply laws of supply and demand.

Both corporate and personal balance sheets are improving. Evidence suggests that people are repaying debt rather than spending money increasing their net worth, and when they feel confident that the economy has bottomed out they will start to consider spending or investing again.

The majority of us however will miss the boat, as the people who called the bottom of the property and stock market, and dared to invested at that time, will be the ones who benefit from the bandwagon effect not those who waited for indicators to show them that it was the right time to invest.

Posted in The Economy, General | No Comments »

08/04/2009 by info.

It is often useful, now that we have the Internet, to look at how comparable businesses are marketed in another country, as perhaps they have new ideas that could be applied in your country.

In America TV advertising simply delivers a message, where as in the UK advertising agencies seem to want to entertain, often the message is lost. How many times do you watch a TV advert and not remember what product it was supposed to be promoting?

This is perhaps due to cultural reasons, British people do not like “in your face” marketing, or maybe it is because airtime in America costs more. Once again, companies in the UK simply add on the cost of advertising to the consumer, US advertising seems to focus on the cost benefits of the product.

In America business transfer agents are called business brokers, and it seems that generally speaking the way that their portfolio is presented to buyers is generally the same. Brokers in the US however don’t seem to provide photographs of the business, indicating that US buyers are not concerned with how a business looks, the financial information is more important to them.

The finance aspects of a business transfer is the main difference, whereas in the UK agents charge 3% – 5% of the sale price on a successful sale, brokers in the US charge 10% – 12% with minimum commission of $15,000 being quoted.

This is where the difference lies, business transfer agents advertise a business and introduce the parties, the finance for that business is provided by banks and other financial institutions. In the US, seller financing is the norm, where the seller provides the loan to the buyer to buy the business, the broker is involved in brokering the deal, not only the priced agreed but the repayment schedule.

It is the norm for the buyer to put down a deposit say 25 – 30% of the purchase price with the balance being repayable over maybe 5 years.

So why don’t British business owners offer the same deal? Often because they want a clean break, or maybe because they are not certain about the strength of their own business.

However if business owners had more confidence in their own businesses and offered finance to the buyer, they would be more likely to sell and get a higher price.

Maybe this is the area where business owners can learn from our US cousins where selling a business is concerned.

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

03/04/2009 by info.

An inspirational book I love reading is “How to think like a millionaire” by Charles-Albert Poissant and Christian Godefrey, its probably out of print now as it was first published in 1989.

Basically it contains mini biographies of millionaires who make money despite have no money, failing in business etc. For example, Ray Kroc founder of McDonald’s started building the McDonald’s franchise chain at the age of 52 after spending most of his life as a jobbing salesman. He then amassed a $500 million fortune by 1984.

One of the most important messages of the book is that people become successful because they do what successful people do.

The phrase “What would Jesus do?” (often abbreviated to WWJD) became popular in the 1990s as a personal motto for thousands of Christians who used the phrase as a reminder of their belief that Jesus is the example to be followed in daily life.

You can increase the chances that you will be successful by using this approach. Simply think of a successful businessman who inspires you and ask the question “What would Richard Branson Do?” “What would Kroc Do?”

Ray Kroc was not an extraordinary person, he became one because when a great opportunity presented itself to him he did not say no.

So how many times have you looked at buying a business and though perhaps you might fail in it? If you had asked WWBD, you will probably find that Richard Branson would simply get on with it and not have any self doubts that their decision will mean failure.

Posted in Buyers, General | No Comments »