End Of Year – An Opportunity

It’s almost the end of another financial year – well at least it is in Australia. The end of the year is a good opportunity for reviewing your business performance over the last year as well as setting strategies, goals and plans for the coming year.

One of the opportunities which is often overlooked, is the opportunity to restructure your chart of accounts in your accounting package. Why would you want to do that?

Your management accounts are your ‘instrument panel’ for the business. They should be set up to provide you, the business owner, with the information you need to make informed decisions in your business. Correctly set up, your accounts will tell you; what are your most profitable products and services, who are your most profitable clients, the life time value of your clients, where your cash is going and where you can increase your profits – just to mention a few.

When it comes to selling the business, the profit and loss statements are crucial. Make sure you identify different income streams – not just “Sales” or “Income”. Break it down in to logical product or service lines. Track your cost of sales in the same way. Accounting packages these days allow you to assign product codes and associate costs to ‘project codes’. Make good use of the powerful features of the accounting package. Seek help from a good accountant and if you don’t know one, just give me a call.

When it comes to selling the business, it makes it much easier to put a value on the business if you separate out items which can become add-backs. That is, such things as owner’s wages and super, subscriptions and memberships and anything which is discretionary and not part of the day to day operations. It also makes it much more attractive to a buyer and improves the likelihood of getting through due diligence quickly and painlessly.

I often run half day workshops on preparing businesses ready for sale. You can get the details of upcoming workshops on this topic by CLICKING HERE

All the best

John Denton
“Helping business owners realise their dreams through buying and selling businesses!”.

I Told You So – Shopping Centres & Franchises

Hi All,

I don’t say “I told you so” very often, but I felt the urge to do so after reading a detailed article in the West Australian newspaper. The article is titled “Small retailers feel the squeeze of big shopping centre landlords”. (Unfortunatley, the article is not available on their web site).

The article backs up what I said in my blog post (on this site) on 1st April 2009. The post was titled “Sleepless In Perth”. I quote from the article in The West Australia – Saturday 5th December 2009, Business Section:

“Most (small retailers) mortgage themselves to the hilt to meet fit-out costs that they are barley able to recoup by the time their five year leases expire.

So when the leases come up for renewal, some owners find themselves defenceless against what they view as often ruthless, complicated and unfair leasing practices of the centre operators.”

This is so true. I have appraised businesses where the owner is still carrying debt from their fit-out after five years and facing a hike in rent for a new lease and another fit-out! I am currently working with an owner of a franchise retail business in a major shopping centre. I quote from his email to me:

“Rent and Electricity currently runs at approx $8,400 per month $108,000 per annum this is what we are paying today, when the new lease rate kicks in this will jump to $10,800 per month ($129,600 pa) and then increase by CPI plus 2% per annum each year for next five years.

We have a liability to carry out a shop fit prior to end of July 2010 which we will either undertake ourselves or we would be willing to discount the business sale by $70K to cover the cost of the refit to the new owner.”

I suspect the $70,000 discount will not cover the total cost of the fit-out. The West article quotes of cases like this with even higher increases in rent and higher fit-out costs ($250,000 to $300,000) and business owners closing down, going broke or moving out as a result of the high costs and demands of the centre management. Many Perth business owners are worried about extended shopping hours coming in, as this will mean another major hike in rent to the shopping centres.

It IS possible to make a profit in shopping centres and you do get the advantage of high traffic, car parking, and security. However, if you are considering a franchise business in a shopping centre and paying these high rents as well as franchise fees – make sure you do your maths first and get good legal advice on the terms of the lease! Do your homework thoroughly before you jump in and make sure your chosen business can generate the cashflow to pay the rent and outgoings (now and with the annual increases), pay franchise fees, pay any loans, pay you a good income and still make a profit. If it doesn’t do all these things – don’t get in to it!

Feel free to contact me through the CONTACT US tab at the top of this page if you are thinking of buying a franchise and want to discuss it first. Until next time!

John Denton