There are a number of ways the worth of a business can be determined. Every business needs to be looked at in the context of its individual make up, location and operation. The main reason for a business to exist is to generate income. Profitability is a key factor in determining the price for which it can be sold. However, as usual it is not always as clear-cut as this. We start with reviewing the business financial documentation, having a discussion with the owner and analyse the risk factors of the business to determine the likelihood of future income and profitability. From this we can suggest a range that is a likely price point for the business and the business owner makes the decision on the asking price. Business value should be as precise as possible. If the business is over-priced it will never sell and a lot of time will be wasted. A good first guide to pricing your business, is to ask yourself honestly, ‘Would I pay this for my business’. The Value of a business can also be affected by the current market, business perception, desirability and any other number of factors, but more importantly the value and understanding of the business by the Buyer. In the end it is a price that the Buyer is willing to pay and the Seller is willing to accept, with neither under pressure to do so. Essentially, working out what a business is worth, you must understand its functions and activities. It is critical to also understand how the business makes its money. Only then can you determine the worth of the business. Getting the best price for your business, is all about providing the Buyer with all the vital financial information the Buyer needs to decide to buy your business and their Lenders having the right information to determine if they will give the Buyer the loan, to purchase your business. In today’s market, this is very important. We are transparent in our determination as everything starts by you completing and submitting our Business Sales Request Questionnaire below. Please complete it in detail and we will contact you to discuss a selling price estimate and the available marketing and advertising options for your type of business. 

To assist you in providing the information we need to promote your business to potential buyers, the following suggestions have been provided. Please remember, the more information a buyer has the sooner a decision to buy will be made! 

1. Financial Statements
   • Profit & loss as many years as possible. (3 previous years is accepted)
   • Latest figures (Year to date), notes on all financials.
   • An Add-back sheet of non-recurring, extraordinary or personal expenses. 
   • Aged debtors and creditors.
   • Depreciation schedule
2. BAS Statements
   • Business activity statement (copies of last 12 months monthly or quarterly BAS statements)
3. Lease Documentation
   • Provide a copy of a fully stamped executed lease, signed by all parties.(Not an unsigned draft copy)
4. Deed of Assignment
   • Please provide Deed of Assignment fully executed by all parties. (A Deed of Assignment is where you have bought a business, and the lease has then been assigned to you it consists of between 3 to 8 pages)
5. Current Rent Invoice
   • Please provide a copy of your latest rent invoice from your landlord. (This will show the difference between your rent, outgoings and what you are being charged for)
6. Plant & Equipment Owned
   • List of all plant & equipment owned by you. (include everything that is used in the normal operation of the business that is to be included in the sale of the business)
7. Plant & Equipment on Lease
   • Leased which is not to be paid out at settlement and a copy of the lease agreement. (A copy of the lease payment slip or monthly payment advice or invoice)
8. Plant & Equipment on Rental / Loan
   • List of rental and or loan equipment including cost per month and details of the loan. (This equipment is not owned by the business and can be sent back to its owner)
9. Business Name 
   • We need to know the full business trading name (s) and the ABN Number (s). (Transfer of which to be included in the sale)
   • A copy of the business registration certificate
   • The name of the entity or full names of the owners of the business name.
10. Licenses & Permits
    • Trademarks. (A copy of the Trademark Registration to be transferred in the sale)
    • Work place registration.
    • All licenses needed for the business to trade. E.g. Café license, environmental license, B.S.A license. Etc…
11. Staffing/Roster
    • Details of management and staff (permanent, casual, apprentice, trainee).
    • Working hours.
    • Years of service.(Details of any long service leave, holidays or entitlements required to be paid)
    • Working hours by owner (s) or family if applicable.
    • Include Job Descriptions and pay rates. (Required for all owners and employees – if applicable)

To assist you in providing the information we need to promote your Franchise Business to potential buyers, the following suggestions have been provided. Please remember, the more information a buyer has the sooner a decision to buy will be made! 

11. Franchise
    • Please provide a fully signed Franchise Agreement,
    • Disclosure Statement (Including any requirements of the Franchisor in the sale / transfer of the Franchise)
12. Business Phone, Fax and Email Addresses
    • Current business phone, fax and mobile numbers. (All numbers essential to the running of the business)
    • Email Addresses used by the business
13. Website & Domain Names
    • Website name, e.g.: www.your-business.com.au
    • Further registered domain names e.g.: www.your-business.com or www.your-business.net (You need to ensure your business name and contact details are allocated to your domain name. Contact your host and ask for a written statement indicating this)
14. Business History
    • How long has the business been operating in its present location. Has the business operated elsewhere,
    • What are the main aims/objectives of this business?  Reputation of the business.
    • Describe the nature of the business (i.e. retail, manufacturing).
    • Give a breakdown of the products, services provided.  Details about your product and or service.  Price lists.
    • What are the major achievements of the business?
    • What are the trading times? What trading areas are covered?
    • Provide a copy of any advertising (i.e. Press adverts, sales or marketing brochures, flyers etc)
    • What/who do you cater for?  What kind of customers do you attract?
    • Complementary operations – room for expansion.  Growth or area – population of business.
    • Increased advertising/promotion.  Expanding range of products and or services
    • Franchising and or licensing possibilities
15. Customer Base
    • Please provide the number of customers you regularly service.
    • How many major customers make up 50% of your business? Any statistics would be appreciated.
16. Competition
    • Local (information on the competition businesses within the area).
    • Do these businesses have any effect on your business?
    • Potential new businesses.
17. Directors
    • Full names of the Directors of the business.
    • Addresses & phone numbers for after hours contact.
18. Reason for sale
    • Reason for the sale of the business.
19. Advertising Commitment
    • Have you signed an agreement with any marketing or Advertising Company that you require the purchaser to take over?
    • How many advertisements / exposures have you signed a contract for?
    • How many payments are still required to be made ?
    • Please provide any contracts or details if the purchaser is required to take over these payments and copies of any paperwork.
20. Staffing/Roster
    • Details of management and staff (permanent, casual, apprentice, trainee).
    • Working hours.
    • Years of service.(Details of any long service leave, holidays or entitlements required to be paid)
    • Working hours by owner (s) or family if applicable.
    • Include Job Descriptions and pay rates. (Required for all owners and employees – if applicable)

Please see below for the standard Listing and Selling process of a typical Business:

Did you know that only around 30% of the businesses on the market get sold? The reason for such poor results is that the business:

• Comes to the market unprepared, no figures or documentation 
• The business simply does not make a decent profit
• The Business isn’t transferrable or saleable
• Owner is asking too much

Some Businesses have been sold in as little as 5 weeks, from listing to Settlement. Why? These business were well presented with excellent documentation, good systems, great staff and the Owner priced the business to the market.  

Some owners only consider selling the business when things start to go downhill, they are run down or have an illness. This is not a time when you can get a premium on the business, if you have to sell, you can still set up your business to sell and get the best price, in the circumstances. Ask yourself, “If my business was making the money I wanted, would I still sell the business”? If the answer is “YES” or “NO”, the following may assist. You should run your business as if it was always ready to be sold. There are things that you should have in place in the operation of your business that underpin everything that you do. Contact us for more information.

The financial statements, what to have available:

Nothing frustrates a prospective purchaser more than asking for current financial statements and tax returns and being told that they are not available. Worse yet is being told that a date cannot be provided for when they will become available. Talk about red flags. As a business owner, you must anticipate the purchaser’s questions regarding all financial matters and have current statements to support your answers. Remember that most purchasers will need to borrow from a lender and a lender will always request the business financial documents. This is a compliance and mandatory requirement under credit policies. Basically, financial statements, refers to a profit and loss statement (also called the income statement.) However, the balance sheet is equally as important. The combination of these statements tells you whether a business is losing money and gives you a picture of the company’s financial health. Buyers also look to BAS statements to check on the verification of business sales. Make sure you tax returns and BAS statements are up to date. While we are on the subject of taxes, you need to have a heart to heart talk with your accountant regarding capital gains tax when you sell your business, there are certain conditions that can minimise this tax.

The Buyer will generally require verification of all that you provide: 

This is due diligence and how do you prepare for it? Due diligence is the process where the buyer looks to validate everything you have represented both verbally and in writing. The buyer will scrutinise your financial records, your legal records, your employment records, etc. With financial records the process starts with the tax returns, goes backwards to the financial statements, goes backwards to the general ledger, goes backwards to all source documents that include bank statements, deposit slips, check stubs, cancelled checks, vendor invoices, client/customer statements, etc.

To prepare for the financial side of due diligence you should assemble tax returns, financial statements, general ledgers, bank statements, deposit slips, check stubs, cancelled checks, vendor invoices, client/customer statements, etc. for the last 3 years. Tax returns, financial statements and related items should be in date order from the most current to the oldest. Vendor invoices and client/customer statements should be in alphabetical order first and then in date order for each vendor or client/customer.

There is a legal side to the due diligence process as well. Are you a valid legal entity such as a sole trader, partnership, company or trust? Do you have outstanding liens for debts that have been paid off? If so, you need to contact the creditor and ask them to remove them. If this is not done, the purchasers solicitor will have to withhold funds in escrow or postpone the settlement until the actual status can be determined. Is there any outstanding litigation that affects you as either a plaintiff or a defendant? Are all your employees legal, and do you have proof? Are there any patents, trademarks or service marks that need to be protected? Do you have any contracts with vendors or clients/customers? Supporting documentation on all of these items should be provided. We can help in gathering these documents with you.

There are generally two main sales type of agreements:

1. An Asset purchase (You buy the assets and goodwill of the business) This is the main type of sale in Australia

2. A Share purchase (You buy the shares of the company that owns the business, assets and goodwill)

An Asset Purchase (The main type of contract for micro, small and medium businesses)

An asset purchase involves the purchase of all of the assets owned by an entity and used in carrying on the business. Assets may include fixed assets, land, buildings, machinery, trading stock and intangible assets such as goodwill and intellectual property. Usually, the assets are specifically identified in the sale and purchase agreement. Sometimes employee liabilities such as accrued annual and long service leave are deducted from the asset price or paid out for tax reasons.

In an Asset purchase, the business may be owned by a company or trust. However you will not be buying the company or the trust, you will just buy the business assets. Therefore you will not be liable for any debts or liabilities that the previous owner, company or trust may have acquired. You will buy a business that is unencumbered. Unless of course you agree to take over any or part of the debts, this would then be stipulated and clarified in the contract of sale.

A Share Purchase

A share purchase is slightly more complex than a purchase of business assets, because with the shares comes a range of potential liabilities, many of which may not be identified on the balance sheet of the entity. Share sales may involve the sale of the shares in a trading entity, related entities and occasionally units of a unit trust. In some instances the share value may be determined on the basis of the expected future earnings of the business and may not take into account the underlying market value of the assets or liabilities being acquired. Where a purchaser acquires 100% of the shares in an entity, the purchaser takes control of the entity and all of the assets and liabilities and past history of that company. Generally this is done with the Sellers guarantees and warranties, which may include some security from the Seller.

At Biz Sales Ready we are very transparent about our selling fees and commissions. Our rates are competitive and flexible in terms of % or a flat fee on the negotiated sale price of your business. We will discuss a cost that best suits your marketed sale price. Our broker team will review the costs. All agency sales commissions attract the statutory GST.