The Last Post ?

Hi Everyone,

If you are receiving this then you are subscribed to my blog at blogger. Good news! My new web site is up and running (thank you Peter Butler) and all blog posts will appear there from now on! Please (I know it is a pain) go to my web site and register for "ENEWS & UPDATES" of for my "7 Key Steps To Preparing A Business Ready For Sale" - either way it will put you on the list to be notified when I post a blog or add pages to the web site. Cool, eh? You can press the blue letters above "The Last Post" to go there or just go to www.businessreadyforsale.com (not .info).

Here is the latest post which has just appeared on the new site:

Well, come on, honestly, do you treat you business like a farm or a school?

Well known author, stephen Covey, develops an excellent metaphor around "cramming" (school) and "farming" (farm). He says that for long term benefit or to give things longevity then they need to be treated like a farm. For example, business relationships or relationships of any kind, need to be treated like farming if you want them to be successful over time. By farming he means you need to be working on them all the time. Nurturing, developing and looking after them - long term.

On the other end of the scale you have what happens in schools and particular colleges and universities where students often leave everything until the last minute
and then cram for an exam. This gets he student a certificate but NOT an education, according to Covey. To become educated takes time - in otherwords, it's farming.

What does this have to do with business, you ask? No, I'm not geting in to selling farms and schools!

To build a business "ready for sale" requires farming! It is a long term exercise if you want to sell for the best possible price and quickly and easily. Many aspects of a business which affect its value and saleability need to have a track record of consistency over a longish period of time. Usually a minimum of three years. A good track record of growth and profitability over a period of time are paramount - just to mention one aspect.

As I am committed to helping business owners realise their dreams through buying and selling businesses I am running some half day workshops on "The 7 Key Steps To Preparing A Business Ready Sale". If you are interested in attending a workshop, or know someone who would like to attend just CLICK HERE for the details. If there isn't a workshop in your area, just use the CONTACT US tab on the web site to request one! When there is enough demand I'm willing to go anywhere (well almost!).

Until the next time - remember, treat your business like "farming" and not a "school" - and like a well run farm it wil sustain you for a very long time.

Until the next post!

Regards
John

Coming Soon - Integrated Web Site and Blog

Hi All,

I've been quiet this week - only because as well as the normal business work, there is a lot of work going on to launch my revamped web site. It is ok to visit now but much of the old web site content is still be re-uploaded. It is taking some time as I am using the opportunity to review and update as we go. Also, working nights on this means it takes longer. But hang in there - we are very close and soon you will be able to post comments and view everything on the one site! Yeah! And I am adding an eSeries of emails on the topic The 7 Key Steps To Preparing A Business "Ready For Sale."

Some great news this week - my half day workshop "The 7 Key Steps To Preparing Your Business "Ready For Sale" which I am running for the Small Business Centre - Stirling (Western Australia) SOLD OUT in just 24 hours from the email promo by the SBC. Now I am even more committed to running some public workshops on this topic. Maybe even in the UK and USA as well.

Bye for now!
John Denton
Committed To Helping People Realise Their Dreams Through Buying and Selling Businesses!

I'm not really against franchising - it just seems that way!

From previous posts you may get the impression I am against franchising - I'm not.

Buying a franchise can be a great stepping stone from being an employee to becoming an independent business owner. The upsides of buying a franchise
(provided it is a good franchise) should be;

you get a 'turn key business' with systems and processes already done for you

you get a quality product or service 'done for you'

you get training in all aspects of the business, sales & marketing, service and product or service

the franchise should have a track record of success ( check it out first)

in Australia the very strict Code Of Conduct for franchisors protects franchisees

you have a ready made recognisable brand

the franchisor should be doing marketing and lead generation for you

it "should be" a relatively low risk investment

There are other positives too, but you need to do your homework BEFORE committing to the purchase.

Whenever I am asked for advice on buying a franchise business I always say "Find out how you are going to get out of it."

Why would I say that? Because I see so many people 'trapped' in a franchise which is very difficult to sell and unable to be sold at a price that will recover the initial costs of the franchise. As a business broker I get approached by many franchisees who want out and want to sell and when I appraise the business they are horrified at how little it is really worth. A situation often made worse by franchisors who have totally unrealistic ideas on what their franchises are worth when being sold on.

There I go again - being negative!

Seriously, the original concept of a franchise was that it was simply a license to operate a business for a predetermined period of time.

You don't actually own a business. You have to make your money while operating the business - not when you sell it. As an independent business owner, you can do both. Make good money while operating the business AND when you sell it.

Remember, if buying a franchise - virgin or pre-owned - find out how you can get out of it and talk to people who have been there and done that. There are good and bad franchises just as there are good and bad business in any industry.

That's it for this post - let me have your comments, questions etc.

P.S. I was a franchisee for 9 1/2 years and sold at a good price! It can be done.

There's No Accounting For Taste

After my little dummy spit on franchises, I had a client yesterday ask me if I had a fast food franchise for sale as his wife is looking to buy one. Not only that, he mentioned a particular franchise by name. As it happens, I know one of my colleagues has one listed so we may be able to help.

However, after getting more information, I suggested his wife look at another business we have listed which would suit her background very well and in my opinion would be a much better match. They are comparable in price so let's compare;

Fast Food Franchise
7 days a week
Long hours
Low staff loyalty
Low gross profit
Rely on passing trade
Royalties payable

Alternative Business
5 days a week and flexible
Low flexible hours
High staff loyalty
High gross profit
Loyal niche client base
No royalties

And there's more ..........

And so it goes on. But the client is still leaning towards the fast food franchise. Why? Because it is perceived as being 'safe' and the brand is well known. It comes back to that old sales maxim - sell the client what they want NOT what they need!

Just goes to prove that 'any' business will sell at some point - and there's no accounting for taste!

Sleepless In Perth - Franchises

I have been having a sleepless night! Why? Because I know that in the morning I have to deliver some disappointing news to a prospective client. You see, I've been asked to do an appraisal on a business ahead of selling that business for the owners.

So what's the problem?

The problem is that the business is a franchise business in a shopping centre.

So why is that a problem?

Generally in these cases the owners have invested an enormous amount of money to buy the franchise and pay for the fit out of the premises. Often this can be as much as $450,000 or $500,000. Just to get started in the business! Then, every month they are paying royalty fees to the franchisor of typically 7% to 9% and possibly a marketing fee on top of that. Then there are the very high lease costs for the premises to be in a 'quality' shopping centre where there are no options to renew on the lease and very little room for negotiation. Then of course the business needs stock as well. Depending upon the type of business the stock value can be anything up to $250,000 and more. I have seen these levels of stock in such businesses.

So the owners work long hours - often 7 days a week - to scrape together meagre profit of $80,000 to $100,000 per year. Great looking business but a long time to get the investment back. In some cases you are looking at 5 to 7 years just to get your investment back.

So after 4 or 5 years the owners are tired and working long hours and decide to call it a day and cash in their business - sell! They go to their accountant who, in most cases, sets an unrealistically high figure on what the business is worth. You see, the accountant looks at what was put in to the business and says, OK, you have a written down value of $250,000 on the fit out of the premises, plus $20,000 plant and equipment, plus $200,000 of stock and you make $100,000 per year net profit. That makes your business worth - $250,000 plus $20,000 plus $200,000 plus $100,000. A total of $570,000.

Wrong! When selling a business as a 'going concern' the normal valuation method, in the vast majority of cases, is based upon the maintainable net profit after add-backs and adjustments multiplied by an ROI factor. (For detailed explanation of this visit http://www.businessreadyforsale.com/ArticleKey2.html).

So in the case of my current prospective client they have a maintainable net profit in the region of $80,000 and the business type will attract at VERY BEST a maximum of 40% ROI. That is a multiplier of 2 1/2 times. In other words $200,000 tops! And that is inclusive of stock and plant and equipment and everything else. Not a lot of reward for 5 years of effort. And on top of all of that, the franchisor wants the new owner to upgrade the fit-out (cost of $25,000) and there is only two years left on the ease with no guarantees of a renewal. Would YOU buy that business?

So you see why I am sleepless in Perth. By the way, this is a very typical scenario for a retail franchise business in a shopping centre! Remember, franchising is having a license to operate a business - not necessarily owning a business.

Why We Do The Hard Work Upfront

Hi Readers,

Last week I was reminded why at PBS we do all the hard work with the business seller "up front". You see I had a conversation with a young man who came to me as a 'buyer'. I, and some of my colleagues, showed him a number of businesses. Then, as sometimes happens, it all went quiet and no purchase was made.

Some weeks later I received a call from someone wanting me to sell their business for them. It turned out the young man I had been helping had referred this person to me as a reputable broker he should use. When I rang the young man (buyer) to thank him I asked how he had gone with buying a business.

It turns out he had gone to a different business broking firm and had put an offer in on one of their business for sale. After spending time and 'emotion' going through the purchase, it all fell apart in due diligence because of problems in the financials. The young man put in another offer through that same broking company only to have this second deal fall through as well.

What this highlighted for me was the strength of our process at PBS and how it protects both the buyer and seller and minimises the chance of the deal falling through. We get the seller to provide us a lot of information about their business, including finalised accounts, UP FRONT before we do the appraisal. If things don't stack up, we don't take the listing. If we do take the listing, then the next step is the business report and this is such a strict process that all strengths and weaknesses of the business are uncovered and documented.

By doing the hard work upfront we make it a more successful, lower risk and less stressful process for both parties.

I thank that young man for reminding why we do the things we do.
Bye for now!

Things Have Changed

Hi Again,

Boy have things changed since my last post!

Banks and financial institutions have virtually stopped lending money for business purchases. Now if you want a loan, the banks will tell you to get a written valuation on your properties and assets BEFORE putting in your application. Gone are the good old days of finance approval conditional on a valuation of your home or investment property. That has really slowed things up! Also, most finacial institutions will only lend 20 to 30% of the business price - provided there is sufficient "assets" to cover the loan. Business which are 90% plus goodwill may not qualify for a loan. Such businesses include service businesses like training companies, professional services etc.

If you are a buyer, please determine what you will be able to fund in purchasing a business BEFORE going to see a broker. In many cases the amount you can loan will be significantly less than you think! Boy, how times have changed.

John