Whether you want to sell, buy or just improve a business, here are answers and advices that will help and protect you.

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Business Broker Auckland - FAQ

FAQ – Selling a business

Business broker Auckland FAQ and answers

Real market value of your business is usually significantly different than accounting value. If you want to establish the price of your business by yourself, follow this manual on WikiHow “How to value and assess your business”. Also, New Zealand Government has helpful article “Selling your business”.

Being a Business Broker with more than two decades of sale experience, I strongly recommend not to sell without professional help. Only an expert knows both the science and the art required to do a dependable Business Appraisal. The art part can’t be learned from a book or blog, it comes from real word experience and expertise.

You can calculate all the assets and subtract debts and liabilities (that is the science part). But, that is just the beginning. Current market trends, value of know-how, goodwill, future trends, risks related to the particular industry, etc. are some of the factors that determine the value of your business. Yes, it is very complicated. The good news is that I will do it for you, with no obligation, and free of charge. Book your free Business Appraisal, and avoid the costly mistake of starting the sale with a business price that is too low or too high.

Yes, absolutely you do. However, even if you don’t hire a Business Broker, you should engage your Lawyer and Accountant. In the article “How to sell your small business without a broker” you can find valuable advices. But, have in mind, that a Lawyer and an Accountant can’t find a good buyer for you. Also, many buyers expect you to have a Business Broker.

Lastly, it is much cheaper to hire a Business Broker than not. Because a good broker will assess your business, but will not jump into the sale immediately. You will get applicable advices to ensure for no cost to you how you can create more value in your business. After you follow the improvement steps, your business will more valuable than before. After paying the Business Broker fee, you will still have more money than if you have sold your business without improvements and a Business broker. Only experienced Business Broker can help because its their job to know what the market and potential buyers want.

Despite the fact that most business owners rush into the sale, the average time to sell a business is 6 months. Some sell much quicker, and others take much, much longer. You can make it much faster if you run your business as if you were to sell it tomorrow. That means:

  • always have documentation in order,
  • optimize all processes,
  • standardize work,
  • make long-term contracts with your employees, suppliers and key buyers,
  • develop and document operational and strategic business plans and
  • never abandon the mind set that you should act as if the sale is tomorrow.

Unfortunately, most people leave it too long before they put their business on the market to sell. My advice is if you are already thinking about selling there is probably already a reason we call them the D’s Death in the family, Divorce, Disputes, Debt, etc and all these can lead to the other D ie Disillusionment.

Often when business owners are thinking of selling, they take the eye of the ball, and the business can quickly deteriorate. That is why we say the best time to sell is always when you start thinking about it in other words don’t delay. 

Having said the above, its also better to make any low-cost high value adjustments to your business as soon as possible to ensure it can be marketed and sold for the best price.

  1. Introduction meeting to ensure our personality, style etc is compatible, initial review of the business, and to collect pertinent information to prepare the Business Appraisal
  2. Appraisal prepared by the Business Broker based on information provided in (1) above, public information and other research about your business, industry, and current market.
  3. Appraisal presented to you and discussion about the band of values that we believe it could sell for in the open market.
  4. Agreement on listing price and commission, provided in a signed Agency Agreement, along with signed permission to get the required AML verification
  5. AML Verification received triggers the Agency Agreement
  6. Marketing and Advertising resources designed by Brokerage along with a comprehensive Information Memorandum ready for both to be signed off by the business owner
  7. Once (6) signed off marketing begins
  8. Review interested parties enquiries and send the NDA to sign
  9. Signed NDA providers are then qualified further and a Information Memorandum sent to these
  10. Further discussions, answering of queries etc takes place before introduction to the business owner
  11. Prospective purchaser encouraged to make an offer as soon as possible
  12. Broker prepares the Sale and Purchase Agreement for purchaser
  13. Broker facilitates negotiations
  14. Sales and purchase Agreement is counter signed to provide a conditional contract subject to due diligence
  15. Due Diligence completed – Agreement goes unconditional and the business sale is settled and possession is taken by new owner.

Good Business Broker knows that their clients will pay on results, that is why good Business Broker generally does not take an up-front fee and only get paid once the business is sold and gone unconditional

The only costs prior to this is a very small contribution to the initial AML verification and marketing this is normally well under $1000+GST

What should I do before announcing the sale

The most important thing is confidentiality, so you should ensure all steps are taken to secure this including with employees and professional advisors

Its important to ensure your business is in the best possible shape to sell, so all those little tweaks and ideas you had for improvement perhaps its time to do those as quickly as possible now.

The net proceeds of the sale are normally paid after the Due diligence period at the time of settlement and possession, depending on the size of the business this may be two or three weeks after the sales and Purchase Agreement is signed

Some businesses are sold with a future pay out of some of the total price agreed based on other terms and conditions that need to be met, i.e. the vendor stays in the business for a longer period of time or future turnover/profit results must be achieved. While we actively discourage these type of arrangement. Sometimes this is the only way the purchaser will agree a sale where a degree of risk can be mitigated.

In New Zealand Business Brokers are administrated by the REA of New Zealand, this means that to act as a Business Broker, one simply needs to have completed the Real Estate Authority Exams and orientation requirements to become certified.

Unfortunately, simply getting certified to sell Real Estate is a far cry from what is required to understand business, the complexities of doing a professional Business Appraisal and the significant additional requirements required to complete a sale.

That is why when selecting a Business Broker it’s important to know how many sales the Business Broker has been engaged in does he know business well, and what other real world business experience has he had as well as excellent selling and negotiation skills.

A simple surf of the Web will bring up many Business Brokers, but do your homework research the individuals carefully and the firm they work for and choose wisely.

Since the most often asked question is “What is the value of my business?” I can give you no-obligation, free assessment of your business. Furthermore, you will also get recommendation how to increase the value of your business with few quick fixes.

Business Broker Auckland NZ Richard Jacobs

Business Broker Auckland - FAQ

FAQ – Buying a business

Business broker Auckland questions and answers

Acquiring a business is major decision, that often is life changing so it’s important to take your time and do it right, talk to experienced people, get professional advice, and get second opinions.

Important things to check include:

  1. Is the business sun rise or sunset – does it have future growth potential
  2. Are there barriers to entry i.e., how easy is it to copy your business?
  3. Does it require significant working capital beyond the purchase price?
  4. Does it have a good brand and reputation?
  5. Does the current owner hold a lot of personal IPS?
  6. How is it to get access to additional human and other resources
  7. Are the business processes effective and efficient?
  8. Is this business tracking along or above the average ROI for this industry?
  9. Are good supplier or customer contracts in place
  10. How many hours are the owners working?

These are the top ten initial things to check, however there are many more questions to be asked.

Ask me for a complimentary Due Diligence List.

The generic way to value a business is normally to assess the likely future maintainable earnings of the business and how much you are willing to pay for this. Typically, this is done by averaging the last three years Earning before Shareholders Salaries, Interest payments tax payments, deprecations allowance and any other extraordinary items. This is called the EBPITD.

A capitalisation rate is then applied to the EBPITD normally based on statistics of other similar businesses that have been sold in New Zealand previously. the capitalisation rate is typically known as the multiplier

However other than the pure financials other assessments of the pros and cons of the business need to be established to adjust the likely Future Maintainable earnings and of course the buyer also has personal preferences of lifestyle, personality, expertise, and access to funds

Are you looking for a small business lifestyle to provide you a salary, or something to complement a business you already own? Do you want majority or minority ownership, or perhaps a partnership? Do you want to be actively involved in the business or participate as a silent investor are also important questions to ask yourself and will affect the value of the business to you?

All the above will determine what value you will place on the price you are happy to pay.

This depends entirely on your need for access to immediate return on investment, the type of business you want to go into and your initial business funds from yourself our lender.

The benefit of starting your own business is from the outset you can create your own brand, processes and procedures, marketing etc, and you don’t have to pay someone else goodwill for their previous efforts

The downside is it typically takes months, often years to truly establish a business and get it to the place it is providing adequate income to you.

An established business that is tired and tested, with opportunity for adjustment and growth can often be a better approach.

There are significant resources available on the Internet that can help you with this important decision, or please feel welcome to get in touch we me for advice.

There are many documents that you might reasonably ask for to settle your mind that the business is the right one for you. Below is a list of the more important ones this is not an exhausted list. Hence it is important you engage professionals to assist you with a business purchase

  • financial statements for three years,
  • The most recent management statements,
  • The business credit report, if available.
  • Any projections, capital budgets, and strategic plans.
  • A schedule of inventory
  • A schedule of accounts receivable
  • A schedule of accounts payable
  • A schedule of fixed assets and the locations thereof
  • All leases of equipment
  • A schedule of sales & purchases of major capital equipment during the last three years
  • real estate leases, variances or use permits.
  • If applicable a schedule of patents, patent applications, trademark and trade names, copyrights, and important technical know-how
  • A description of methods used to protect trade secrets and know-how
  • A schedule of any claims or threatened claims by or against the business
  • A list of employees including positions, current salaries, salaries, and bonuses paid during the last three years, and years of service.
  • All employment agreements
  • Resumés of key employees
  • schedule of all employee benefits and holiday, vacation, and sick leave policies.
  • Copies of any governmental licenses, permits or consents.
  • Environmental audits, if any, for each property leased by the business.
  • Copies of and business contracts
  • A summary of all complaints or warranty claims.
  • A schedule of the business twelve largest customers in terms of sales thereto and a description of sales thereto over a period of two years.
  • A description or copy of the businesses purchasing policies.
  • A description or copy of the businesses credit policy.
  • A schedule of unfilled orders.
  • A list and explanation for any major customers lost over the last two years.
  • The businesses current, marketing plans and budgets, and printed marketing materials.
  • A description of the business’s major competitors.
  • A schedule of all pending litigation.
  • A schedule and copies of the business’s general liability, personal and real property, product liability, errors and omissions, key-man, directors and officers, worker’s compensation, and other insurance.
  • A schedule of the Company’s insurance claims history for the past three-years.

Do your due diligence and when you have finished doing it do more!! Due Diligence is your responsibility, and it involves digging deep into a business’s financials, operational and legal position, its can be stressful, time consuming and disappointing at times, but it’s better to have these then lose your life saving because you failed to take adequate care of the Due diligence process.

The standard ALSC Business Sales and Purchase Agreement, has a very important due diligence clause in it entirely for the purchaser, which means that once a conditional purchase agreement is in place, you have a certain period agreed to satisfy yourself that the business is right for you.

As I say to my clients if you even decide you don’t like the way the owner “blows his nose” and want to pull out so long as you provide notice in writing before the due Diligence period ends then you can do so, and you don’t even have to provide the reason why.

 

We also recommend that you use a team of experts you have assembled to assist you including your Accountant, Lawyer, Insurance Broker and Business Broker.

However, be aware most professional work on an all care no responsibility basis in other words they will advise you, but it’s your responsibility to ensure you make the right decision

Let me know if I can help you, having sold many businesses I am in a unique position to assist you with the Due diligence process.

Firstly, base your decision on your own knowledge and interest, gather other people’s advice, recommendations, and opinions, but be unemotional about it, process this information and make the right decision for you.

 

Determine how much you want to spend and/or need/want to earn and do your homework on how you will fund this. I.e., banks can be quite risk adverse and often want to see a sizable Tangible Asset element to secure any lending.

 

Determine the type of business you would like to own and understand the fundamentals of that industry or sector.

 

Follow your resume, if you already have years of experience in a particular field, being in business in a field of your expertise makes sense, use your skills, training, network of contacts, and knowledge of the industry to your advantage. Funding your new business, is also much easier when the bank can see you have a proven track record, mitigating their risk.

 

If you have several interests quite apart for your resume and would like to align your business with one, consider your strongest skills and background to help you determine which interest you are best suited to pursue.

Research the marketplace and determine which types of business are presently needed in your area.

Test your business idea whether you have tons of experience with your chosen business or absolutely none, you should do everything you can to test whether you and your business are a good match.

 

If possible, take the opportunity to try it out. Before you purchase a business get some experience in the business that’s of interest to you, even if you work for free.

Talk to other business owners in the same field.  Small business owners are often quite willing to share their knowledge once they are sure you will not compete with them.

Judge your ability and desire to handle every aspect of the business. If you don’t want to or can’t pitch in wherever and whenever something needs to be done—whether it involves manufacturing a product, dealing with customers, or keeping the books—you should think twice about buying a business.

Evaluate the risk some businesses have higher-than-average failure rates. It doesn’t mean you should automatically abandon it. However, you’ll need to be more critical and careful with the numbers when preparing your business purchase .

At the end of the day, the businesses that always do best are the ones owned by someone who lives, breathes, and loves what they do.

You wouldn’t go to a Doctor for Dental work or a Dental for general sickness. While both have training in medicine both are specialists in their respective Fields

The same is with your Solicitor, Accountant, Insurance Broker and Business Broker, all can do aspects of the others work and must be trained as such, but all also specialise in their areas of expertise.

A Business Broker often will draft legal documents, to save a lot of time and money, but should also always recommend that any document that once signed which could bind parties contractually should be finally reviewed by a Solicitor before signing. 

Yes, there is likely to be additional costs associated with buying a business that a purchaser ought to make allowances for. These costs may be entirely the purchasers cost or may be pro/rata between the buyer and the seller.

There are a wide variety of items, such as leases for the premises and/or equipment, insurance policies, and outstanding financial obligations. It is important to understand whose responsibility it is to pay these costs, sometimes these items are pro-rated between the buyer and seller.

When a buyer assumes a seller’s obligations, such as a lease, the seller may have a deposit with the lessor. In these situations, it is customary for the buyer to pay the seller for the deposit at closing and, upon the termination of the lease, the deposit will belong to the buyer, which can impact the total cost of buying an existing business.

When buying an existing business, the buyer and seller are each responsible for their respective professional fees, or costs. For the buyer, this would usually include a Solicitor and Accountant fees.

The buyer will typically have to also accept lending fees, which may require appraisals and business plans to be prepared and provided to the lending institution. The amount of these fees can vary significantly.

Purchaser Agent, occasionally the Purchaser, engages the Business Broker on a retainer or advisory fee to cover the cost of finding a business for the Purchaser or will be paid a success fee (percentages vary depending on the size and complexity of the transaction).  To be clear, a Business Broker cannot act directly as a Purchaser and Sellers agent for the same business and can never take a double commission.

When buying an existing business, it is prudent to conduct and obtain certain assurances that there are no outstanding liens against the business assets. This may require a fee to be paid.

In addition to the foregoing, it is appropriate for the buyer to maintain an adequate cash reserve to meet those miscellaneous expenses that invariably occur in the realm of day-to-day business operations. The amount of the reserve, or working capital, will depend on the circumstances of each transaction.

Why is the vendor selling?

It’s often useful to know this as ensuring a vendor has a genuine reason for selling, rather than just testing the market, can save everyone a lot of time and money. Also understanding whether a vendor just wants to sell or NEEDS to sell can determine how quickly they will sell and for what price

How has the business been valued?

It’s important that the vendor has been  realistic with his valuation, so he hasn’t got unrealistic expectations.  Often a vendor will want far more than a business is worth if he has not received professional advice, Business Brokers provide realistic values backed by comprehensive knowledge of the market, find out if he has engaged a Business Broker.

What are you purchasing?

We recommend a purchase of a business as a going concern, its simpler, quicker and far less risky than sale of shares, where the liability and legal implications to a new owner can be significant.

It’s also important to understand the apportionment of the total price for Tangible, Intangible and Stock value, this can have significant taxation implications, and if it also has Land and buildings involved can have further tax and legal implications. 

Look out for obsolete stock or over investment in stock in trade, these can have a significant impact on the sale price and working capital.

Financial Records

We recommend you review at the very least the last three years end of year financial records and any YTD management reports of revenue and expenses. You should do a deep dive on the revenue and expenses of the business especially those that depart from established trends in the business or seem extraordinarily high or low.

The Asset list with any assets that have been purchased or sold since the last end of year financials and any Assets the owner wishes to keep all clearly indicated. You should physically inspect the assets during the sale process and record the valuation of the assets.

Typically the GST Returns also provide a good source if verifiable information as do tax returns  

Existing Employees 

Check the employees, who are there, and how essential they are to the business, will they stay? what entitlements will transfer to you as the new owner? This can be a complex issue and needs professional support.

What Do other Stakeholders feel about the business

Staff, suppliers, customers – will all have an opinion on the business you should take the opportunity if possible to speak with them and ask questions about the business.

Prepare a Business Plan and Financial Forecast 

Take the time to develop a business plan and forecast, not only does this force you to drill down into the businesses financial heath it will also force you to understand the drivers of the business. The plan is likely to also be required as a key reference document when looking for loan finance to purchase or support the business.

Does the Business Require Any Permits or Licences?

Its vital you request copies of all relevant permits and licences i.e. liquor licences, food permit, Health or hazardous chemical licences etc. Speak directly with the regulatory bodies to ensure that the permits are in good standing and can be transferred upon sale.

What is the Handover Period? 

The owner of a business can often carries with them a substantial amount of personal goodwill. During their time as the business owner, they would have built relationships with their clients, and this can disappear if the owner disappears. To mitigate this a longer hand over period will provide an opportunity for you to be introduced to the existing clients as well as have the owner on hand to answer any questions you might have about the business.

If you have more questions, contact me.

Business Broker Auckland NZ Richard Jacobs

Business Broker Auckland Richard Jacobs - 5 advices

Business Broker Auckland NZ Richard Jacobs

I recommend the article “7 Reasons to Hire a Business Broker to Sell a Business” or some similar on the same topic. Also, check what other people say on Quora: “Should you use a business broker when purchasing a small business?”.

Finally, before you make a decision,
SCEDULE FREE BUSINESS ASSESSMENT

and take your time to decide.

Business Broker Auckland NZ Richard Jacobs