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 financial institutions will
only lend 20 to 30% of the business price – provided there is sufficient “assets” to cover the loan.
Businesses which are 90% plus goodwill may not qualify for a loan. Such businesses include service businesses like training companies, professional services, mobile 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 due to property prices having fallen!
Boy, how times have changed.

John

Investor Buyers

There are a lot of people with a lot of money at the moment (in Australia anyway) and they are looking for
low risk high return investments (aren’t we all?). A good small or medium size business can offer what
they are looking for.

Think about it. A business with a track record of turning in a maintainable net profit of $250,000 per annum
for say, 3 years or more – and being offered for $625,000 – will potentially give the purchaser a return on investment (ROI) in 2 1/2 years. After 3 years the buyer has got his money back and can sell the business
for what he paid for it (or more if they have grown the business). They’ve doubled their money in 3 years!
What other kind of investment gets that sort of return.

To attract an investor buyer, your business will need to have a good track record, clean and detailed
financials, and be in a market that is low risk and likely to return the same maintainable net profit. The risk
to the maintainable net profit will affect the price the business will sell for. The lower the risk, the higher the
value. A business running well under management will be even more valuable to an investor buyer.

Would your business be attractive to an investor buyer?

Who Will Buy My Business

I am often ask “How do I find a buyer for my business?” It’s an obvious question that I get when I tell business owners that we build businesses for sale and lifestyle.

Think about what it is that people are buying when they buy a business. There are three types of buyer;

(1) Investor buyer
(2) Lifestyle buyer
(3) Strategic buyer

An investor buyer generally buys a business with a “guaranteed” maintainable profitable cash flow with an opportunity to grow the business and sell later on at a profit.

A lifestyle buyer will buy a business to achieve a “sea change” in lifestyle. In other words they are often buying themselves a job (mowing lawns, cleaning cars, serving coffees, fitness trainer etc). They just want to be their own boss and enjoy what they are doing.

A strategic buyer will buy a business as part of a longer term plan – it’s strategic. It could be to gain market share, remove a competitor, asset strip the business, to get access to a product service or IP.

How you prepare your business for sale will depend upon what type of buyer you are trying to attract. Most business owners never consider the “type” of potential buyer – this is mistake. Who would be attracted to buy your business? Think about it and in future posts we will consider the buying motives of the different types of buyers.

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