BI – Convenience store & daycare
BI – Convenience store & daycare
Find business sales agent
Aim: Resource build up = profit, people
To buy business: what are the staff contract terms. Benefits of bankruptcy, changing business hours, changing contract terms
Business figure approximately 5%-30% leeway
In the run up to a planned sale of the business:
You have spent 5 years making the business as saleable as possible, simple, profitable, low risk, with superb systems.
• You have built up a management team, who have interest in buying in.
• You have built up a file of people who have expressed interest in the business.
• You have seen off high pressure salesmen who have tried to tie you in to inappropriate sole agency agreements.
(http://hornbeam-accountancy.webalistic.co.uk/sites/10053/files/the_hornbeam_guide_to_successfully_selling_your_business.pdf)
• Loss making products and activities should be ceased ruthlessly (or prices raised if possible, but fear of losing the customer or sales should not come into the equation).
• Prices should be pushed up tentatively to the limit of market resistance.
• Wherever possible higher priced, higher margin options should be introduced (in parallel with conventionally priced offerings).
Even more effective is systematic review of demand for cost items – the first question to ask is “can the business manage without this cost entirely?”
Look out for;
Formalise sales contracts
Ensure there is a strong management structure, and document it.
Make sure all employment contracts up to date
Make sure software contracts are up to date
Make sure that compliance with legislation and best practice (health and safety, employment, environmental, consumer credit, money laundering, data protection, public liability) is taken seriously and that compliance is properly documented.
•Make sure that assessment of business risk is taken seriously and properly documented and that appropriate insurance cover exists.
However business systems are much more than this, you should record how you:
• Identify desirable customers
• Obtain leads
• Reject undesirable customers
• Prepare quotations
• Chase and secure sales
• Document sales contract terms
• Programme service delivery
• Order from suppliers
• Record time or other costs
• Control quality and efficiency of production operations
• Control stock levels
• Monitor supplier compliance and control payment
• Trigger and prepare sales invoices
• Chase and collect debts
• Maintain accounting records
Keep it Simple
Buyers do not want to buy problems, complexity, or risk. So you should aim to keep things as simple as possible for them.
Buyers will not be impressed by a history of none or late payment of taxes. Make sure that VAT, PAYE, Corporation tax, are all filed and paid on time.
If the business is a company make sure all statutory filings are up to date.
Settle any disputes as quickly, amicably, and informally as you can – buyers will not like disputes, past or ongoing.
That Certain Something
Some businesses seem to be able to create a demand for their products that far exceeds that of their rivals.
A happy highly skilled and highly motivated workforce (and especially second tier management)
That is okay as long as building values and rents are rising not falling and (most critically) interest rates do not go up. I am not against buying property, I just caution clients to properly evaluate the risks.
Like best those assets that are created by the business from scratch. These are particularly
Lists of customers where there is repeat business (accountancy, copier maintenance).
Physical assets such as moulds or dies, paintshops.
Intellectual property, such as copyright for books, training manuals, software, but it will really start to gain value once potential buyers can see customers starting to pay royalties or licence fees.
Brands (although not often held by small businesses).
Ask your customers if they would like to go on your mailing list for future promotions (record name and address, email, date added to list/last responded). This will be a useful marketing tool for you and will be valued highly by many buyers.
When to Sell - your planned retirement age is unlikely to be the best time to sell your business.
Most businesses are quite difficult to sell
Taxation may be a consideration. You may wish to take advantage of the annual exemption. You may consider that Capital Gains Tax rates for small scale business sales are very low and never likely to be lower.
To sell a business for a good price is rarely easy, so consider your options rationally and keep a look out for opportunities
Taxation is also important, tax reliefs may be lost if a building is stripped out of the business, and tax charges may be triggered. Take advice.
It is the “goodwill” that makes a business sale
Most business people when they acquire a business look upon the purchase as an investment valued on the basis of the income and capital growth it can generate in the future.
An established local reputation – BUY FIRST BUSINESS IN AREA YOU KNOW
People are the main asset of any firm.
Systems must always be created that enable a business to repeat error free, profitable ways of working. These systems must be documented, but most of all they must be reinforced by training, and by the culture of the business.
These systems will earn the business the reputation for reliability, punctuality, courtesy, that underpin the value of the goodwill. These systems give the business the ability to earn profits consistently from year to year. These systems ensure that the strength of the business will continue after the owner sells it and leaves.
If you have these documented systems in place, and you monitor and record internal compliance, then your business will be more easily saleable, and more valuable.
For the owners of many small businesses it is realising a decent value for the stock that a business sale is all about.
Potential bad debts
Unrecorded liabilities
Disputes with the HMRC or other authorities.
Remember that the buyer doesn’t know anything like as much about the business as you do,
if you can take the debtors and liabilities out of the equation, and handle them yourself.
Buyers will generally seek to buy the equipment and goodwill, and perhaps the stock and/or freehold, but leave you with the debtors and the liabilities.
Sometimes buyers will seek to buy just “the trade” even out of a limited company.
Avoiding cost and hassle of due diligence and negotiation over the debtors and liabilities.
Against
The hassle of collecting the debtors and paying off the liabilities yourself.
If you are the owner of a limited company you may well have to pay 25% higher rate tax if you strip cash out of a business. If on the other hand the value of that cash is added to the sale value of the shares, you are likely to pay only 10% capital gains tax after entrepreneur’s relief (per the rules in the UK in 2010).
Limited Companies
There are two alternative routes which are used in well advised deals:
In the first route Jo sells the shares to a brand new holding company owned by thebuyer. The buyer transfers the trade and net assets of the business up to the holding company (this transaction should be free of tax) pretty much straight away, and either closes down or holds dormant the original company. Jo gets his £450,000 and the buyer gets the business pretty much free of any historical baggage.
By the second route Jo applies for clearance under ESC C16 and sells the business to himself. He has to pay 10% Capital Gains Tax on the value of the business (the value is not in dispute as he makes an arms length disposal a few days later). There will be no further gain as Jo has established a base cost equivalent to the sales tax. This is a bit more difficult to organise but could conceivably result in Jo having £468,000 (£520,000 less 10%) to spend if the higher price can be secured!
business valuations are subject to wild fluctuations as current value is always a function (the discounted value) of expected future earnings, then quite small changes in expectations cause massive fluctuations in value.
Accountants are taught how to calculate the current value of a business by discounting future cash flow. However, I am profoundly sceptical of this pseudo scientific approach, precisely because business growth more than a few years ahead is simply not known, and the discount rate is both arbitrary and subject to unpredictable fluctuations over the life of the project.
The Conventional Business Valuation Technique
Businesses that are seen to be in mature, high risk or declining industries can be difficult to sell for multiples of much more than one.
On the other hand, good systems, a well trained workforce, and a proven, committed, and incentivised management will increase the multiple (because of the perception of reduced risk).
Many sellers and their agents will try to establish a value for goodwill, then add stock as a separate item. This can be a clever negotiating ploy and you should certainly consider using it to maximise the value you get for your business sale.
If you have to prepare a discounted cash flow, or if your buyer has prepared a discounted cash flow remember that as seller, the higher the growth rate, and the lower the discount rate built into the model, the higher the current value that the model will produce. So this is what you and your advisers should be arguing for!
As the military say “a plan rarely survives first contact with reality”.
highlight future opportunities, anticipate how problems are to be overcome, maximise value.
Open Market Value is thus an informed guess, and really can only be ascertained by putting the business on the market and skilfully negotiating the price.
Only choose an agent that is recommended by someone you know. Your accountant, your (commercial) solicitor, or your professional association, may be able to recommend someone.
As set out below a good sales agent will help you:
• Organise your sales campaign
• Find those “other buyers” that are so elusive to us ordinary mortals
• Value your business
• Prepare your sales prospectus
• Obtain confidentiality agreements
• Choose the right “preferred bidder(s)”
• Negotiate the deal
• Document the “Heads of Agreement”
• Deal with solicitors
• Secure the deal.
And in return he will probably charge you quite a high percentage of the sales proceeds for doing so.
Besides knowledge of the market and the technical processes of a business sale, a sales agent also needs to be a salesman. He needs to know how to counter all the negotiating ploys that skilled buyers will use to drive down the sales price of your business. Like all salesmen he needs to be thick skinned and persistent. He needs to be diplomatic and a support to you, his customer, because the sales process is almost always stressful.
So what do you do next? How is a sale conducted?
In practice what happens next is almost always messy, but I would suggest that you will probably need to carry out the following:
• Set yourself some price objectives.
• Advertise the business for sale.
• Obtain the prospective purchaser’s agreement to maintain confidentiality of information supplied.
• Supply outline information to interested parties – the Prospectus.
• Screen interested parties – Evidence of Financial Capability.
• Control of the sales process and the timetable.
• Supply more detailed information.
• Sell the business
• Negotiate terms
• Strike a deal and document the deal.
Find business sales agent
Aim: Resource build up = profit, people
To buy business: what are the staff contract terms. Benefits of bankruptcy, changing business hours, changing contract terms
Business figure approximately 5%-30% leeway
In the run up to a planned sale of the business:
You have spent 5 years making the business as saleable as possible, simple, profitable, low risk, with superb systems.
• You have built up a management team, who have interest in buying in.
• You have built up a file of people who have expressed interest in the business.
• You have seen off high pressure salesmen who have tried to tie you in to inappropriate sole agency agreements.
(http://hornbeam-accountancy.webalistic.co.uk/sites/10053/files/the_hornbeam_guide_to_successfully_selling_your_business.pdf)
• Loss making products and activities should be ceased ruthlessly (or prices raised if possible, but fear of losing the customer or sales should not come into the equation).
• Prices should be pushed up tentatively to the limit of market resistance.
• Wherever possible higher priced, higher margin options should be introduced (in parallel with conventionally priced offerings).
Even more effective is systematic review of demand for cost items – the first question to ask is “can the business manage without this cost entirely?”
Look out for;
Formalise sales contracts
Ensure there is a strong management structure, and document it.
Make sure all employment contracts up to date
Make sure software contracts are up to date
Make sure that compliance with legislation and best practice (health and safety, employment, environmental, consumer credit, money laundering, data protection, public liability) is taken seriously and that compliance is properly documented.
•Make sure that assessment of business risk is taken seriously and properly documented and that appropriate insurance cover exists.
However business systems are much more than this, you should record how you:
• Identify desirable customers
• Obtain leads
• Reject undesirable customers
• Prepare quotations
• Chase and secure sales
• Document sales contract terms
• Programme service delivery
• Order from suppliers
• Record time or other costs
• Control quality and efficiency of production operations
• Control stock levels
• Monitor supplier compliance and control payment
• Trigger and prepare sales invoices
• Chase and collect debts
• Maintain accounting records
Keep it Simple
Buyers do not want to buy problems, complexity, or risk. So you should aim to keep things as simple as possible for them.
Buyers will not be impressed by a history of none or late payment of taxes. Make sure that VAT, PAYE, Corporation tax, are all filed and paid on time.
If the business is a company make sure all statutory filings are up to date.
Settle any disputes as quickly, amicably, and informally as you can – buyers will not like disputes, past or ongoing.
That Certain Something
Some businesses seem to be able to create a demand for their products that far exceeds that of their rivals.
A happy highly skilled and highly motivated workforce (and especially second tier management)
That is okay as long as building values and rents are rising not falling and (most critically) interest rates do not go up. I am not against buying property, I just caution clients to properly evaluate the risks.
Like best those assets that are created by the business from scratch. These are particularly
Lists of customers where there is repeat business (accountancy, copier maintenance).
Physical assets such as moulds or dies, paintshops.
Intellectual property, such as copyright for books, training manuals, software, but it will really start to gain value once potential buyers can see customers starting to pay royalties or licence fees.
Brands (although not often held by small businesses).
Ask your customers if they would like to go on your mailing list for future promotions (record name and address, email, date added to list/last responded). This will be a useful marketing tool for you and will be valued highly by many buyers.
When to Sell - your planned retirement age is unlikely to be the best time to sell your business.
Most businesses are quite difficult to sell
Taxation may be a consideration. You may wish to take advantage of the annual exemption. You may consider that Capital Gains Tax rates for small scale business sales are very low and never likely to be lower.
To sell a business for a good price is rarely easy, so consider your options rationally and keep a look out for opportunities
Taxation is also important, tax reliefs may be lost if a building is stripped out of the business, and tax charges may be triggered. Take advice.
It is the “goodwill” that makes a business sale
Most business people when they acquire a business look upon the purchase as an investment valued on the basis of the income and capital growth it can generate in the future.
An established local reputation – BUY FIRST BUSINESS IN AREA YOU KNOW
People are the main asset of any firm.
Systems must always be created that enable a business to repeat error free, profitable ways of working. These systems must be documented, but most of all they must be reinforced by training, and by the culture of the business.
These systems will earn the business the reputation for reliability, punctuality, courtesy, that underpin the value of the goodwill. These systems give the business the ability to earn profits consistently from year to year. These systems ensure that the strength of the business will continue after the owner sells it and leaves.
If you have these documented systems in place, and you monitor and record internal compliance, then your business will be more easily saleable, and more valuable.
For the owners of many small businesses it is realising a decent value for the stock that a business sale is all about.
Potential bad debts
Unrecorded liabilities
Disputes with the HMRC or other authorities.
Remember that the buyer doesn’t know anything like as much about the business as you do,
if you can take the debtors and liabilities out of the equation, and handle them yourself.
Buyers will generally seek to buy the equipment and goodwill, and perhaps the stock and/or freehold, but leave you with the debtors and the liabilities.
Sometimes buyers will seek to buy just “the trade” even out of a limited company.
Avoiding cost and hassle of due diligence and negotiation over the debtors and liabilities.
Against
The hassle of collecting the debtors and paying off the liabilities yourself.
If you are the owner of a limited company you may well have to pay 25% higher rate tax if you strip cash out of a business. If on the other hand the value of that cash is added to the sale value of the shares, you are likely to pay only 10% capital gains tax after entrepreneur’s relief (per the rules in the UK in 2010).
Limited Companies
There are two alternative routes which are used in well advised deals:
In the first route Jo sells the shares to a brand new holding company owned by thebuyer. The buyer transfers the trade and net assets of the business up to the holding company (this transaction should be free of tax) pretty much straight away, and either closes down or holds dormant the original company. Jo gets his £450,000 and the buyer gets the business pretty much free of any historical baggage.
By the second route Jo applies for clearance under ESC C16 and sells the business to himself. He has to pay 10% Capital Gains Tax on the value of the business (the value is not in dispute as he makes an arms length disposal a few days later). There will be no further gain as Jo has established a base cost equivalent to the sales tax. This is a bit more difficult to organise but could conceivably result in Jo having £468,000 (£520,000 less 10%) to spend if the higher price can be secured!
business valuations are subject to wild fluctuations as current value is always a function (the discounted value) of expected future earnings, then quite small changes in expectations cause massive fluctuations in value.
Accountants are taught how to calculate the current value of a business by discounting future cash flow. However, I am profoundly sceptical of this pseudo scientific approach, precisely because business growth more than a few years ahead is simply not known, and the discount rate is both arbitrary and subject to unpredictable fluctuations over the life of the project.
The Conventional Business Valuation Technique
Businesses that are seen to be in mature, high risk or declining industries can be difficult to sell for multiples of much more than one.
On the other hand, good systems, a well trained workforce, and a proven, committed, and incentivised management will increase the multiple (because of the perception of reduced risk).
Many sellers and their agents will try to establish a value for goodwill, then add stock as a separate item. This can be a clever negotiating ploy and you should certainly consider using it to maximise the value you get for your business sale.
If you have to prepare a discounted cash flow, or if your buyer has prepared a discounted cash flow remember that as seller, the higher the growth rate, and the lower the discount rate built into the model, the higher the current value that the model will produce. So this is what you and your advisers should be arguing for!
As the military say “a plan rarely survives first contact with reality”.
highlight future opportunities, anticipate how problems are to be overcome, maximise value.
Open Market Value is thus an informed guess, and really can only be ascertained by putting the business on the market and skilfully negotiating the price.
Only choose an agent that is recommended by someone you know. Your accountant, your (commercial) solicitor, or your professional association, may be able to recommend someone.
As set out below a good sales agent will help you:
• Organise your sales campaign
• Find those “other buyers” that are so elusive to us ordinary mortals
• Value your business
• Prepare your sales prospectus
• Obtain confidentiality agreements
• Choose the right “preferred bidder(s)”
• Negotiate the deal
• Document the “Heads of Agreement”
• Deal with solicitors
• Secure the deal.
And in return he will probably charge you quite a high percentage of the sales proceeds for doing so.
Besides knowledge of the market and the technical processes of a business sale, a sales agent also needs to be a salesman. He needs to know how to counter all the negotiating ploys that skilled buyers will use to drive down the sales price of your business. Like all salesmen he needs to be thick skinned and persistent. He needs to be diplomatic and a support to you, his customer, because the sales process is almost always stressful.
So what do you do next? How is a sale conducted?
In practice what happens next is almost always messy, but I would suggest that you will probably need to carry out the following:
• Set yourself some price objectives.
• Advertise the business for sale.
• Obtain the prospective purchaser’s agreement to maintain confidentiality of information supplied.
• Supply outline information to interested parties – the Prospectus.
• Screen interested parties – Evidence of Financial Capability.
• Control of the sales process and the timetable.
• Supply more detailed information.
• Sell the business
• Negotiate terms
• Strike a deal and document the deal.
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