Using a business broker

Selling a business can take a lot of time and effort, so it is a good idea to get professional help. Business brokers are experts in helping their clients to sell and buy businesses. You can find business brokers by searching the internet, Yellow Pages, real estate websites and industry-specific magazines and publications. A business broker will usually charge a percentage of the final sale price as a fee for their work.

You’ll need to weigh the pros and cons of using a business broker, and make the decision that is best for you.

Advantages of business brokers

• They will have experience in marketing and advertising businesses for sale.
• They can save you time by screening buyers and deciding who is and isn’t serious.
• They will usually already have a list of contacts who are looking to buy.
• Business brokers feel confident and comfortable with requesting the disclosure of a buyer’s financials and are well placed to make decisions about them.
• They can remain independent through the process and work efficiently towards selling your business without the emotional attachment that you may have.
• Typically, brokers have strong negotiation skills.

Disadvantages of business brokers

• You have to pay for the services of a business broker.
• You might feel you lack control over the process if you are used to doing everything yourself.
• You might feel some pressure to accept a contract you’re not happy with.
• They may want you to sign a contract at a lower price rather than not selling because their fee is a percentage of the sale price.

Choosing a business broker

If you do use a business broker, assess their experience and expertise before you hire them. Find out:

• how their fees are structured
• if they specialise in a particular type of business
• how many businesses they have bought and sold
• if they have ever owned a business
• if they can provide letters of reference
• how many clients they are currently working with and if they have time to properly represent your business.

Source: http://www.business.qld.gov.au/business/exiting-business/selling-business/using-business-broker

If you plan to buy an existing business, carefully analyse both the advantages and disadvantages. One advantage is that a good business history can increase the likelihood of a successful operation and ensure that finance is easier to obtain. Potential disadvantages can be overestimating the goodwill figure and a poor public image inherited from the previous owner.

As a prospective business owner you should determine the current worth of the business and its future prospects. Some important considerations are:

• Vendor – reason for sale of business
• Sales – patterns, trends, customer base, current suppliers
• Costs – fixed and variable costs, staff costs
• Profits – analyse financial records, future cash flow and profitability
• Assets – identify and check all assets, including intellectual property and leasing arrangements
• Liabilities – outstanding debts, refunds and warranties
• Purchase agreement – review carefully
• Tax – GST, Capital Gains Tax, stamp duty implications
• Legal issues – leases, business structure.

For advice and protection in buying a business we suggest that you seek the services of a solicitor, accountant or business adviser.

Source: http://www.business.gov.au/Howtoguides/Startingabusiness/Pages/Buyinganestablishedbusiness.aspx

Preparing your business for sale

You only sell your business once, so you’ve got one chance to get it right. You don’t want to regret selling your business for less than it’s worth due to poor preparation.

Planning the sale of your business

Ideally, you will begin to prepare your business for sale well before you put it on the market. You want to ensure your business is represented at its best and show prospective buyers the benefits of buying your business. It could be as simple as making sure your shop floor is clean and presentable, or getting your financial statements ready.

Make yourself redundant

Make it easy for a buyer to step into your role. If you have all the knowledge and skills to run the business, the buyer’s greatest fear is that the business will walk out the door when you do.

Document the policies and procedures that exist as unwritten rules. It is advisable to systemise the various functions of your business and create a procedures manual. Any buyer will then be able to operate the business without the need to rely on you.

Each employee should have a documented clearly defined role, and a designated set of tasks and procedures which leads to measurable and desired outcomes.

Business relationships

It also helps to document the relationships which are key to your business. Convert any verbal agreements with suppliers and clients into written agreements wherever possible. Written agreements will make your business look stronger and build confidence in potential buyers. Examine existing contracts with suppliers and customers to ensure they will not expire or require renegotiation just as a new owner steps in.

Business makeover

Similar to selling any other valuable asset such as your home, there are several practical steps you can take to create a good first impression to a potential buyer. You will improve the perception of value to the buyer and may increase the price you can ask for your business.

• Inventory – sell all obsolete or slow moving stock items. This will improve both your sales figures, and eliminate disputes about the value of inventory during the sale.
• Plant and equipment – sell any redundant or obsolete plant and equipment, machinery, spare parts, and scrap that are no longer required.
• Business premises – look at your premises with the eyes of a potential buyer. Clean up, maintain, and paint the premises where necessary. Ensure the premises comply with all regulatory requirements.
• Employee – ask your staff to take their leave and other entitlements prior to the sale, otherwise the sale price may be reduced by the value of their entitlements. Retaining key employees after transition to the new owner may be important for a successful sale, so determine which employees are prepared to stay with the business.
• Commercial premises leases – Review business premises leases and ensure the lease does not expire or require renegotiation during the time when you plan to sell the business.

Business financials

Ensure your financial records are up to date to clearly demonstrate the true profitability of your business to a potential buyer.

• Debtors – collect all payments that are overdue from your clients. Potential buyers may be discouraged about buying a business with clients who take a long time to pay their accounts.
• Creditors – ensure you are not late with payments to your suppliers. This will create a positive impression of the financial strength of your business.
• Produce monthly profit reports to demonstrate to your buyer your ability to monitor and manage the performance of your business.
• Prepare audited financial statements so the potential buyer is confident of the financial performance and value of the business.

Prepare a buyer’s information pack

Buyers will be working through their own due diligence process and will want to know exactly what they are getting for the purchase price. It’s a good idea to prepare information packs for genuine potential buyers.

Download the BIZGuide: Buyer’s information pack template for everything you should include in your pack

When selling a small business, obtain professional financial and legal advice to prepare the required information and documentation and to ensure you comply with the requirements for a valid sale.

Source: http://www.smallbusiness.wa.gov.au/step-2-preparing-your-business-for-sale/

How to Research a Business Opportunity

Protect yourself by learning what a business opportunity really is, how the government regulates them, and the steps you should take to ensure you’ve found the best opportunity available.

Just what is a business opportunity? That question has plagued a great many people trying to decide whether to buy a current independent business, a franchise, or what we’ll refer to in this text as a business opportunity. To allay the confusion, we offer a simple analogy. Think back to elementary school when your teacher was explaining the difference between a rectangle and a square. A square is also a rectangle, but a rectangle isn’t necessarily a square. The same relationship exists between business opportunities, independent businesses for sale and franchises. All franchises and independent businesses for sale are business opportunities, but not all business opportunities meet the requirement of being a franchise nor are they in the strictest sense of the word independent businesses for sale.

Making matters even more confusing is the fact that 26 states have passed laws defining business opportunities and regulating their sales. Often these statutes are drafted so comprehensively that they include franchises as well.

Not every state with a business opportunity law defines the term in the same manner. However, most of them use the following general criteria to define one:

1. A business opportunity involves the sale or lease of any product, service, equipment, etc. that will enable the purchaser-licensee to begin a business.2. The licensor or seller of a business opportunity declares that it will secure or assist the buyer in finding a suitable location or provide the product to the purchaser-licensee.

3. The licensor-seller guarantees an income greater than or equal to the price the licensee-buyer pays for the product when it’s resold and that there is a market present for the product or service.

4. The initial fee paid to the seller in order to start the business opportunity must range between $400 and $1,000.

5. The licensor-seller promises to buy back any product purchased by the licensee-buyer in the event it cannot be sold to the prospective customers of the business.

6. Any products or services developed by the seller-licensor will be purchased by the licensee-buyer.

7. The licensor-seller of the business opportunity will supply a sales or marketing program for the licensee-buyer that many times will include the use of a trade name or trademark.

The laws covering business opportunity ventures usually exclude the sale of an independent business by its owner. Rather, they are meant to cover the multiple sales of distributorships or businesses that do not meet the requirements of a franchise under the Federal Trade Commission (FTC) rule passed in 1979. This act defines business offerings in three formats: package franchises, product franchises and business opportunity ventures.

In order to be a business opportunity venture under the FTC rule, four elements must be present:

1. The individual who buys a business opportunity, often referred to as a licensee or franchisee, must distribute or sell goods or services supplied by the licenser or franchisor.2. The licensor or franchisor must help secure a retail outlet or accounts for the goods and services the licensee is distributing or selling.

3. There must be a cash transaction between the two parties of at least $500 prior to or within six months after the licensee or franchisee starts the business venture.

4. All terms and conditions of the relationship between the licensor and the licensee must be stated in writing.

You can readily see that the sale of business opportunities as defined by the FTC rule is quite different from the sale of an independent business. When you’re dealing with the sale of an independent business, the buyer has no obligations to the seller. Once the sales transaction is completed, the buyer can subscribe to any business operations system he or she prefers. There is no continued relationship required by the seller. Business opportunity ventures, like franchises, are businesses in which the seller makes a commitment of continuing involvement with the buyer.

Source: http://www.entrepreneur.com/article/42940