Buying a Business

Why should we be the first brokers you contact when considering the purchase of a business?

Firstly you are a client to us, not a buyer. You as a buyer are the reason our business exist, to help you find a business and buy one through us. From the moment you make first contact with us you will experience a level of service and professionalism that will immediately make it obvious that you are a valued and respected part of the process.

We live, work and play in the South West. My children have all attended school in Bunbury, and two still do. We have been involved in Junior Football, Soccer, Hockey and Basketball, school busy bees, even Bunnings Sausage Sizzles! Our ethics, honesty and integrity is your guarantee of being able to trust us with your decision to buy a business.

We have been established in the South West since 2005 and are the ‘go to’ office for so many of the accountants in the South West. As a past partner of an accountant practice for 13 years , and a Chartered Accountant for over 25 years you, as a buyer, can take comfort from the fact that we have filtered out the businesses that we will sell and only sell the best quality. There are  so many examples of businesses we have sold to buyers who come back to us to sell their business later. A great endorsement of trust in us.

We are based in the South West and as Adrian Seale is the licencee and owner of the business there is no need to deal with representatives who may in a lot of cases be based in Perth, but live full time or even part time in our area.

Buying a business is one of the major decisions in life, it is a process that when handled correctly is a pleasurable and fulfilling experience, that will also be financially rewarding. Done right it will set you and your family up for life.

There are three stages of purchase, finding a suitable business, entering into a contract to secure the purchase and then taking over the business following settlement.

The three stages of buying a business are:

STAGE 1: FINDING A SUITABLE BUSINESS

Using the services of Seale and Associates you will contact us because you have seen an advertisement on our web site, in the press or on another web site we use to market our clients business for sale. We only market businesses that we hold written authorities to do so from the owners. As licensed real estate and business agents under the Real Estate and Business Agents Act of WA we are governed by the WA Department of Commerce to ensure we comply with the law. This is your protection.

Non Disclosure Deed. Confidentiality is the most important matter for a seller, they have built up a business using processes developed over perhaps 20 years, their profitability and management style together with their suppliers, employees and customers are very valuable. For our buyers we believe that they want to know that if they are the ultimate buyer then the business information has not disseminated without controls on its usage. Thus all buyers are required to sign a non disclosure deed for each business they review.
Request a confidentiality deed which is located at the top of each business listing.

 

The Business Information Pack (B.I.P) you receive from Seale & Associates for each business is a key document in the buyer process. It is designed to give you and your advisors everything you need to determine the suitability of the business for you. Not only providing financial data it will include details on tenure of location, staffing and a detailed summary of the business itself. The B.I.P may be provided to your advisors’ such as accountant, solicitor and your bank manager or finance broker.

Our role is to listen to your requirements and to match your requirements to what we have for sale. Our knowledge of the local area helps us to know what the local market is all about the general business economy. The old saying of “not what we know but who we know” comes to mind for our buyer clients.

It is worth noting that we and our seller clients make every effort to present full and accurate information. Our clients declare the information to be correct and the Agreement to purchase has the seller again declares in writing the information provided is correct to the best of their knowledge.

Setting the selling price. It is commonly accepted that a business selling price be set by reference to profitability and the risk factors of the business. Unlike real estate there are no public records that set out past sales histories of businesses. Whilst there are many different ways to assess value, the most commonly accepted method for small business is the Return on Investment method commonly referred to as R.O.I.

The R O I method seeks to reflect a value of a business based on what it will earn a new owner in the future. This future maintainable profit is usually reflective of the last years’ result though can be based on past years averages as well, particularly if the current year is abnormally high.

Return on invest seeks to reflect the risk of the business category, this will take into account the industry, number of customers, size of profit, number of staff, geographic location and overall operations of the business. There are accepted generic ROI’s for industries , but the specific return model may be very different based on the facts of the case.

Some Examples below help to explain this concept:

Example 1

An investor deposits $100,000 in a term deposit with a bank at 6% for 12 months
The ROI is 6% so the return is 6% of $100,000 = $6,000.
If the investor had told us the rate of interest and how much he had earned we would have worked out the sum invested as follows:
$6,000/.06 = $100,000.

Example 2

So if a business nets $234,000 and has a ROI of 43% the businesses total value of $234000/.43 = $ 544,000.

So if this business had trading stock of $44,000 and plant and equipment of $100,000 then the resultant balancing figure is the goodwill represented by $400,000.You will note that goodwill is not calculated separately but is the excess of value over and above the tangible assets of the business.

If trading stock was $244,000 and plant and equipment $200,000 then goodwill would be $100,000.

Sometimes the ROI’s are reflected as multipliers of profit thus

  • 331/3% is 3X profit
  • 40% is 2.5X profit
  • 50% is 2X profit
  • 100% is 1X profit

These multipliers represent the TOTAL VALUE of the business not just the goodwill.

The selection process of a buyer will include reviewing the B.I.P, discussing the content with advisors’ and with Seale and Associates and meeting the owners of the business. In my opinion a lot of buyers choose to meet the owners last, our recommendation is to meet the owners early in the process as no B.I.P is ever going to give a buyer the full picture of the business and it allows the opportunity to ask specific questions direct to the owner. Full financial review of the detailed records is not made available until an offer is made, this detailed review is called “due diligence”.

STAGE 2: CONTRACT TO PURCHASE

It is Seale and Associates responsibility to prepare an Agreement to Purchase.It is a document tailored to the business being purchased and the buyers’ specific instructions. There is no cost to the buyer, though the buyer will be responsible for the ancillary costs that could include lease assignment fees, vehicle inspection costs as well as stamp duty. We use the standard contract of the Real Estate Institute of Western Australia, a very fair agreement for both the buyer and seller, where special conditions may be added for specific matters pertaining to the sale.

A buyer will need to have the following information ready prior to making an offer:

  • Name of Buyer…. This can not be decided after the offer is accepted.
  • Deposit… a minimum amount of 5 to 10% of the purchase price.
  • Settlement Date…the day of change of ownership,
  • Finance …….Is it needed? How much and how long to have approval?
  • Who is going to represent you at settlement? We have a list of these professionals if required.
  • It is usual that a business buyer will have an accountant to advise them on GST, income tax and the structuring of the transaction for Tax purposes.

Other clauses that are very common include:

  • Due Diligence…..your accountant will need to advise you as to the time needed to complete the required review.
  • Relocation of a home based business at settlement
  • Particular references to specific contract transfers

The agreement is described as a conditional contract as it is not binding until all the conditions of the agreement are to the satisfaction of the buyer. The buyer will have ample time to clear the conditions as satisfied. Eventually, once the buyer is satisfied with say finance, due diligence and vehicle inspection report the buyer will clear the conditions and eventually “convert” the agreement to an unconditional and binding agreement, enforceable by law.

An offer to purchase is far too complex to be conveyed verbally, as the price is one of so many variables. For example a lower offer, with no handover and for cash, may be very desirable to a seller. All these features need to be fully conveyed. Conversely a long settlement date may suit a buyer. Putting your offer in writing and allowing Seale & Assoc to present it is the only way to ensure your offer is correctly presented.

Seale & Associates will guide through every step of the way…..be assured our expertise will take the stress out of the process.
There will be some matters that the settlement agent will not usually handle. These include:

  • Getting the telephone and web sites transferred to the buyers’ name.
  • Arranging for gas and electricity to be put into the buyers’ name.
  • Having your insurances in place.
  • Setting up your bank account/s.
  • Setting up the EFTPOS and creditcard services.
  • Establishing credit facilities with suppliers.
  • Establishing accounts with all debtor customers.

Your settlement agent will handle the change of business name ownership and the allocation of rates taxes and rent of leasehold premises. Plus submit your final agreement to the State Government for Assessing of stamp duty.

STAGE 3: DAY OF PURCHASE AND AFTERWARDS

The day of settlement belongs to the seller and it is usual to have the buyer and seller deal with keys and security codes at this time. The next day the new owner will open up the business, if a shop or office or workshop. Most agreements provide for a handover by the sellers. It is not to work in the business but to make sure the new owner has every matter relating to the business explained to them. This might include meeting customers, staff and suppliers.

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