By Harvey Weyman-Jones, Weyman Jones Business Brokers and Valuers

We are currently in a window of opportunity where demand is exceeding supply for reliably performing businesses.  This demand will diminish when interest rates start to rise, which could be early next year.  At the moment the outlook for the Australian economy is optimistic and whether it is your business or your investment property the advice is sell now.  Don’t wait 6-12 months or you will miss out on a reasonably quick sale at full value.

Sellers need to supply the last three years accounts (07, 08 and 09) and also a profit and loss statement for the recent quarter July - September 2009.  Up to date accounts are a “must” to be able to provide an accurate valuation.

It is estimated that up to 70% of businesses in Australia have been affected in a negative way by the Global Financial Crisis.  We had a similar experience in 2001 when the GST was introduced.  In time we totally disregarded the 2001 financial year as not being normal, but it took until well into the 2002 year for it to become accepted.

At present buyers will accept a downturn in sales and profits as long as the current performance is not continuing to slide.  

The baby boomer retirees will also start to become more numerous over the next 12 months which will affect the supply/demand ratio.  We are now looking at a combination of rising interest rates next year and increased supply of businesses on the market.  We therefore strongly recommend sellers embrace the current market and not wait until next year.


AVOID THE DEAL KILLERS

A sale can fall over for many different reasons and many are the fault of the seller.  Experienced brokers should be able to recognise weak spots prior to listing and advise the seller to fix the problem.  It is better to wait a while and fix the problem before going to market.  Common deal killers are:-

Seller’s over expectation of value - The seller should have an experienced business broker/valuer advise them on the current market price.  If you obtain several agents’ valuations, be wary of the highest as it is common practise, by the cowboys, to over value to get the listing.

Irregularities in accounts - This may occur by accident or on purpose from an unscrupulous seller.  Avoid undeclared wages or other cash purchases.  Owners with two businesses and with only one for sale, may find that both businesses will be audited as part of due diligence.

Length of lease - We recommend that at least seven years is remaining on the current term including options.  Ideally ten plus years will suit the banks for a ten year business loan.  It has been accepted that leases in shopping centres are only for five or six years but we are now seeing a few centres agreeing to an option for a further period.

Staff Wages - Make sure you are paying your staff correctly as full time, casual or subcontractors.  There are still some businesses treating “full time” staff as subcontractors to get away from paying superannuation and holidays.  Cash or part cash wages cause concern with all but the most experienced buyers.  If sellers are not paying their staff in the correct legal manner, buyers may become nervous about retaining those staff.  Buyers will also adjust the wages to take into account the correct expenses.