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A tip on how to help a buyer fill your shoes

Maximising the sale value of a small business requires good planning. Doing the preparation well will also give you the confidence to negotiate the price well.

There is rarely a lack of interest in new businesses coming on the market. Businesses such as independent shops, personal services and the restaurant trade are typically bought by people who want to be in control their own work-life balance, even if that means they are likely to have to work much harder in the early years. They usually have a vision, and are not put off by the idea they are likely to have a lot of hard work ahead of them.

An owner-operator is usually be looking at the purchase as a lifestyle choice, not just a dry financial proposition.

You’ll want the new owner to do well, and that means showing them how you have managed things.

We cover the financial details they will want to see elsewhere. But besides clearly presenting the facts and figures, you have a wealth of information that will be valuable, often essential, that will never appear in financial reports.

The peculiarities of your day-to-day operation are best passed on to a new owner by writing them all down, rather than relying on a verbal hand-over.  A well-organised  file will make the transition of owners much easier.  Areas to cover would include:

  • Your usual schedule
  • Phone numbers and contact details of all suppliers, and customers
  • Notes about key suppliers and customers
  • What promotion you usually do, and details of anything that has worked well
  • Files and Manuals for equipment that is part of the business
  • All they will need to know about staff and sub-contractors
  • The small details and peculiarities it may have taken you years to learn

The small details that you have learned over the years are an invaluable resource for your buyer. And the more you can do to give a buyer reassurance they can make a success of the business, the better.

Sometimes as business transfer agents we see sellers who suddenly seem reluctant to sell, and very often it’s really about their wanting to make sure their creation will be properly looked after by a new owner. Writing it all up ahead of time is an excellent way to make this happen, and for you to let go with a clear conscience.

 

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EPC Guidance

EPC Guidance

What is an EPC?

An EPC (Energy Performance Certificate) is intended to inform potential buyers or tenants about the energy performance of a building, so they can consider energy efficiency as part of their investment or business decision to buy or occupy that building. The EPC looks broadly similar to the energy labels now provided with vehicles and many household appliances. Its purpose is to indicate how energy efficient a building is. The certificate will provide an energy rating of the building from A to G, where A is very efficient and G is the least efficient. The better the rating, the more energy efficient the building is, and the lower the fuel bills are likely to be.

Why do I need an EPC?

As from October 2008 the landlord or seller of a property have a legal obligation to provide an EPC regardless of whether an agent acts on their behalf or not. Residential and commercial buildings - whether shops, offices, factories or workshops will need one.

As soon as you think you might sell or let your property you need to arrange an energy assessment by a property accredited assessor. The certificate should be given to the prospective tenant or buyer at the earliest opportunity and no later than when a viewing is carried out., when written information is provided about the building, or in any event before entering into a contract to sell or let. This is a legal requirement.

What are the penalties for not having an EPC?

If a trading standards officer requests an EPC for a building constructed, sold or let and the responsible person does not provide it within seven days then they will be liable for a penalty charge notice. Failure to provide an EPC to a tenant or buyer will usually result in a penalty of 12.5% of rateable value between minimum and maximum figures of £500 and £750. A default of £750 applies where the formula cannot be applied.

Who can produce an EPC?

An EPC must be prepared by an energy assessor who is a member of a Government approved accreditation scheme.

How long is an EPC valid for?

An EPC is valid for up to 10 years - unless a refurbishment of the buildings fabric or services has been undertaken in which case a new EPC can be commissioned to provide a more up-to-date EPC for the relevant building.

Where can I find out more about EPC’s?

Further information on EPC’s can be found by clicking on the link below

A Guide to Energy Performance Certificates

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Accounts appraisal methodology

business transfer agent

Accounts appraisal methodology

This is a brief explanation of the approach we would normally adopt in appraising the accounts as a first step in determining a valuation.

While there are numerous methods for the assessment of a set of accounts, the predominant methods we would encounter are: Discounted Cash Flow, Investment, Development, Depreciated Replacement Cost, Profits & Comparables.

In the case of the the Profits method, the process we will follow is illustrated below:

 

  1. Verify Figures and FMT(Fair Maintainable Turnover) – We clarify the content of each figure within the accounts, including in the appraisal only those relevant to the business to be sold. Where a business is well established, the current level of sales is often a good reflection of FMT (Fair Maintainable Turnover) assuming the business is managed by an REO (Reasonably Efficient Operator).
  2. Normalise - Adjust the figures, up or down, to reflect ‘normal’ operating of the business. We have considered in our appraisal only those figures relevant to the business to be sold.
  3. Identify FMOP(Fair Maintainable Operating Profit). After making adjustments to the accounts where necessary - generating the correct trading figures for the business, under ‘normalised’ operating circumstances – we will identify the FMOP  This is similar to EBITDA (Earnings Before Interest Tax Depreciation and Amortisation), though the figures may be different.
  4. Capitalise – Whether you use the term ‘capitalise’ or simply apply a multiple, the essence of the process is the same – you are assessing ‘risk’. There are recognized levels of ‘risk’ multiples, for almost all business sectors, employed by companies like Adams & Co, and Valuers such as Pinders, who are employed by the High Street Banks. After applying the current, correct, multiple for the business we will have an Estimate of the Likely Sale Price based upon the trading figures.
  5. Comparables – While it is important to have a meaningful assessment of the accounts, we also need to view the ‘commercial sensibility’ of our mathematical estimate. Any business on the market for sale is competing with other, probably similar, opportunities for a Buyers interest. As such, we will also need to ‘compare’ the merits and values a business offers, when compared with other similar opportunities either currently on market, or recently sold.

NB: Throughout the process we are assuming a Reasonably Efficient Operator and our appraisal discounts a ‘special purchaser’ who may be willing to pay more than market value to secure a specific property. The possibility of a Special Purchaser would be examined separately.

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When should I sell my business?

business valuation agent

The obvious answer to the question is the most important – when you feel you want to move on, sell up, retire or just get out.

Having said that, business sales are affected by the seasons in the same way as house sales – even though it will usually take several months – at least – to complete either type of transaction.

Putting the house properly in order will always make a sale easier and quicker. If you have the general administration in the kind of order you would like to find it, others will feel the same.

Specifically it will help if you have all the key documents in order and easy to find. These might include:

  • Leases
  • Finance agreements
  • Banking records
  • Payroll records
  • Equipment warranties
  • Service agreements
  • Supplier contacts
  • Customer contracts
  • Supplier contracts
  • Insurance documents
  • Staff contracts
  • Accounts for at least three years
  • Profit and Loss statements

These will also help a valuer, such as Adams and Co., and a potential buyers bank, to accurately assess a fair market value