Types of Business Acquisitions

There are two main ways for a company to grow. One is via increasing sales and the general size of a company’s operations over time – a strategy often referred to as “organic” or “internal growth.” The other is via acquiring another company or a number of companies.

Organic growth can take time, in some cases many years. In the interim, your competitors can gain a strong foothold in the market.

Choosing to grow via an Acquisition can speed the process dramatically. Growth via Merger or Acquisition can provide an instant platform for a company to expand overnight, to fill a gap in the market, or to gain significant competitive advantages by unlocking synergies and economies of scale.

Growth by Acquisition can enable companies to expand into new markets far more rapidly. Your target may have spent many years developing a network of strong contacts or supply channels. By choosing to Acquire you immediately fast-track the process, enabling your business to gain traction in new markets instantly.

Horizontal vs Vertical Acquisitions

There are two main ways to grow your business via Acquisitions. Horizontal Acquisitions occur when you target operations similar to your own business (often competitors) to fast-track growth. 

Vertical Acquisitions occur when you choose to acquire a business that sits in your current supply chain. For example, a manufacturer may choose to acquire one of their key suppliers to ensure supply of raw materials or key components. Conversely, a manufacturer may also choose to acquire retail chain to ensure consistent distribution of its products. Vertical acquisitions are very common in larger businesses. Companies such as Apple and IBM have used a vertical acquisition strategy consistently over the years to accelerate their growth and to sure up supply chains.

It is important to consider the cost analysis going forward of growth by acquisition versus organic growth.  Factors such as time, human resources, research and development costs,  and marketing expenses all need to be closely evaluated to ensure you are making the correct choice.

Other Key Considerations

– What is the Return on Investment (ROI) over time?

– What key challenges will you face merging the new business into your existing operation?

– What changes will you need to make to the new business you are acquiring, ie, rebranding or upskilling of staff? What are the costs?

– How is the best way to grow your acquisition?

– To what level will the new business be integrated with your existing business?

Challenges – Staff Culture

One important consideration when you choose to grow via acquisition is staff culture. Whilst a deal can stack up financially, often cultural aspects are overlooked. The importance of staff culture and happiness is critical to the ongoing success of any business. Staff who may have been high up the chain in a smaller operation can often find themselves becoming a smaller part of a much larger wheel. Therefore, it is important to ensure you consider this as part of your due diligence process.

How many potential targets should I consider?

Typically once we have finished our initial interview and engagement with you we will target up to 100 hand-selected “appropriate” business targets. Each of these will then be confidentially approached by us. It is important to remember that at any one time only a small selection of these will be in a position to consider selling their business. Quite often they are also unprepared for sale. This is where our specialist team of Brokers steps in to collate each potential acquisition’s information for you in an organised manner so that you can make an informed decision on the next step. Through our many years of experience, we know exactly what questions to ask. We will collate all of the information for you including tax returns, staff profiles, equipment lists, current market share, and other key data points.

​The collective experience of our Brokerage Team is second to none. From large corporate mergers and acquisitions to small local business sales, our trusted brokers have had years of transaction experience. We fully understand and appreciate the high importance of confidentiality and will always take due care to ensure all transactions are completed with minimal disruption to your business and staff.

Common Mistakes While Selling A Business

If you’re looking at selling your business, there are several traps sellers frequently fall into. The process is complex, and there can be many variables that arise during the course of the sale. Here are just a few of the common mistakes to avoid when you are selling your business.

Going to market with the wrong sales price

You only get one chance to make a first impression. There are always plenty of qualified cashed-up buyers looking to purchase quality businesses, but the opportunity to attract the attention of these buyers only comes once. It is important that the first impression you create is of a well-priced business which offers the buyers a great opportunity to be part of something that they can improve and enjoy into the future.

Sellers often ask, “Can we price the business high and then simply reduce it as time goes on?” The answer is, of course, yes, but in the process, you lose the opportunity to create that great first impression you were looking for with the buyers who may have been very interested.

Engaging with the first buyer who comes along

If you have a solid business, there will be many potential buyers who will look at it. Don’t be too eager to enter into the first offer or contract which presents itself. Quite often business owners get very excited at the prospect of a sale and their excitement costs them dearly. In order to ensure you achieve the best price for your business, it is important to make sure you market the business for sufficient time to a broad spectrum of potential buyers.

Quite often a business may sell in two weeks, or after just one inspection. Usually, all that this means is that the owner didn’t fully explore any other potential offers.

A business sale should never be a race. It should be a calculated, well-organized procurement of every possible lead to ensure you achieve the best result.

Ensuring you hold the buyers’ hand throughout the process

If you think you’re nervous when you’re selling a business, think about the buyer! Whilst you are about to receive a great payday, buyers are commonly entering into large loans and taking on a huge amount of new information which can very easily lead to frustration, and quite often to nervousness and contracts collapsing.

It is essential to communicate with buyers regularly throughout the process. A call to say “I just thought I’d touch base to see how everything is progressing and to see if there’s anything at all you need advice or assistance with” can be the difference between success and disaster. 9 times out of ten the buyers are fine, but it is critical that they are looked after throughout the process.

It is just as important to stay in touch after the sales has completed. Buyers really appreciate your ongoing support and in what can be a huge life change for them. Let them know you are still ready to assist with potential questions or problemsWe’re here for your business sale, and if you’d like further information, get in touch with us here.

It’s All About Planning Your Sell

For many business owners, the sale of their business represents the sale of their last big asset pre-retirement. The business is quite often the main retirement asset for business owners who have failed to make regular superannuation contributions and have instead chosen to reinvest every cent they have back into their business.

The task of maximising the value of the business sale now becomes more important than ever. Planning to sell your business should ideally start up to two years out, particularly if there are important issues that need to be addressed to ensure your business will attract maximum interest from buyers.

For example, you may be working 7 days per week. Regardless of a high profit, many buyers will turn away from your business due to the large commitment required. In this instance you may need to look at employing a manager and sacrificing some profit to ensure you have a more saleable asset.

Premises leases can also be a critical issue to address. Without the security of a long-term agreement in place, many buyers will not be able to borrow the necessary funds. Lenders need long term security in place, or they simply will not lend the money. If your current landlord will not offer a long-term lease perhaps it’s time to move elsewhere.

Likewise, franchise agreements, licence agreements, supply agreements and or distribution agreements also need to be secured well ahead of time. To ensure you maximise your business sale long term planning is essential. For a confidential planning meeting, contact us today.

Selling: What Happens to…

You’re ready to sell your business and move on to something new. All that you need to do is find a willing buyer, and you’re good to go. Right? Not so fast!

Selling a business isn’t as easy as selling a coffee table online. While money will change hands and you’ll eventually hand it over to someone else, the process to get there isn’t as simple as it seems. As a very experienced business broker, it’s evident there are many legal, tax and financial obligations you’ll need to consider before you take the plunge. Skipping these could result in a failed sale – or worse, significant penalties that will change your life forever. Here are two of the most commonly overlooked elements of selling a business that many people forget about.

1. What Happens to My Employees?

Did you assume that when you’re selling your business that the new owner will keep things precisely as they are – including keeping your current staff on board? You should know that it might not work out this way. If your employees are transferred as part of your business, you’ll need to finalise all their records and any obligations the employer will have for them going forward. At this point, you’ll need to pay out any outstanding wages and accrued leave. If your employees leave, you may need to pay out an employment termination payment and deal with tax issues relating to fringe benefits, pay as you go and superannuation.

2. What Happens to Insurance Obligations?

Selling your business means that it in effect ceases to operate – even if the new owner will be undertaking the same work for the same clients. Should any customer come back with complaints about work you had previously done, the new owner of the business won’t be responsible – but you still will, even if you aren’t working in the same field or working at all. For this reason, it’s recommended that you factor in the cost of run-off cover insurance that will commence when your business is sold and continue for a set amount of years afterwards. This will protect you against claims made after you’ve sold your business, so you don’t have to worry about unexpected costs bogging you down in the future.

These are just two of the many elements you need to consider when selling your business. Contact us today if you’re thinking of selling your business, or if you simply need some advice on the right steps to take to sell your business in the future.

Selling a Business? Make it Buyer Friendly

Building a business can take years. It can be a lifetime’s work. You might make mistakes, but they can be fixed along the way. When it comes to selling however, you only get one chance – that’s it!

There comes a time when an owner of retail, wholesale or service provider business wants to sell.

It may be that you have had the caravan parked in the driveway for three years and just can’t find the time to take off, or a voucher for a glamorous hotel stay hiding in a drawer. Some of us may be looking for a change of profession or have our eye on a bigger and better opportunity. In any case, the business must be sold.

All these conversations have one question in common. How do you sell your business, and what do you have to do to get full price?

Selling Options

There are many options available to the business owner when it comes to selling a business.

An owner can:

1. Advertise or introduce buyers to the business and have their accountant and solicitor draw up the contracts of sale and sell, which is very difficult when you’re trying to run your business.

2. List the business for sale with a real estate agent and have them advertise the business for sale and introduce interested buyers. There are very few real estate agents that have the skill to manage a business sale transaction if they find a buyer.

3. Engage a business broker to prepare the necessary paperwork often found in a business profile, that the buyer can appraise, advertise the business for sale and introduce interested buyers, advise the owners solicitor and sell.

4. Engage a specialist business broker that has sold businesses just like yours to produce a business profile, advertise, market to known industry buyers, investors looking to buy into your industry, qualify genuine buyers, produce contracts, manage the solicitors and accountants for the landlord, buyer, sellers and sell.

Up front information

Make it easy for the buyer. Present your business to the market in the best possible way you can. Provide all the necessary information for the buyer to make a decision up-front.

Most buyers have a short attention span when it comes to buying a business. If they don’t have enough information to make a decision to buy within ten days of introduction, they tend to walk away.

Let’s give an example. If you were at an open inspection for a new home, and the owner showed you the front yard, backyard and living room, but the rest of the house could only be seen next week. Not exactly giving you confidence, is it? Business is exactly the same.

Buyers don’t just want to see the front of the shop, office, website or warehouse.

To make a decision to buy, they will need operational detail that includes:

–   Sales

–   Cost of goods

–   Profit and loss statements

–   Rosters

–   Weekly wages

–   Rent

–   BAS statements

The list goes on. The good news is that experienced business brokers know how to do this and will work with you to produce what is needed to best present your business.

If you are worried about confidentiality, have the buyer sign a confidentiality agreement. Buyers know that when you sign this document you are bound by law to only use this information only for investigating a purchase. These forms are readily available from brokers and solicitors.

The truth is that there are too many buyers in the marketplace. They are looking for businesses to buy, and to some degree will pay top dollar if they find it easy to purchase. If it’s too hard and they have to wait too long to provide their solicitor and accountant full details, they will walk away.

Golden Rules for Sellers

1. Don’t ask too much.

Buyers will look at many businesses. To make a sale, your business has to be good value for money. Return on investment – of money and the time needed to run the business – is everything.

2. Have a good reason for selling.

After buyers ask what the price is, they may ask why you are selling. If you answer “I have been working 100 hours per week, my lease is about to end, and I can’t make any money” then you should be looking at selling the equipment not the business.

3. You need to provide proof of income.

Full tax figures should be readily available with BAS statements to match. In the unlikely event that you’re in love with the ATO, you should be prepared to discuss how the business runs so your broker can explain the best way to handle difficult questions from a buyer.

4. You should be willing to train.

Most buyers will need some assistance in the first few weeks of their ownership. Keep in mind that the higher prices paid for businesses come from buyers new to your type of business. They have to pay for the business’ goodwill as they don’t have the expertise to start one themselves.

5. You will not compete.

Any new owner wants to be sure that you, the seller, will not be competing for market share with them. You can’t sell the business and then start another in the same area.

6. You need to provide a complete list of unencumbered plants and equipment sold with the business.

All buyers want to know what they are purchasing in the way of plant and equipment, and most often the fair market value of the equipment. If there are rental agreements in place for security cameras or leased items, they need to know about them.

7. You will need to provide a full copy of the lease or freehold details to buyers.

Keep in mind that secure tenancy is very important to a buyer’s financiers and banks if money is to be borrowed to purchase the business.

8. You will avoid surprises.

Smoke and mirrors will destroy the buyer’s trust and will send them running not walking to another opportunity.

9. You will ask agents, brokers, and solicitors: how many businesses like mine have you sold?

It’s important when engaging professionals that they have experience in what is needed to complete your sale.

Get in touch with us for more information about making your business buyer friendly. With our experience, knowledge and insight these steps will be as easy as A, B, C!

When Is The Best Time To Sell My Business?

A business is more than just an asset, it’s a vehicle for your lifestyle. It’s likely that your business has helped put your children through school, paid off your mortgage, or helped you buy an investment property. It is the catalyst for staff you’ve formed relationships with, the contacts in your network and your day to day lifestyle – so with all this in mind, when is the right time to sell?

It all comes down to two factors you should consider: you should sell when your business is doing well and sell when you are no longer enjoying it. Simple as that!

If your business is doing well with a steady history of profits, it is an ideal time to take it to market. Buyers, buyers’ accountants and advisors are most interested in businesses that are performing strongly. Businesses in decline or with softening sales can prove very difficult to sell and have a dramatic effect on the value.

If you are no longer enjoying what you’re doing, it’s the perfect time to consider your options. If you’re dreading every work day or just growing tired of the daily grind, your businesses and, at times, your health will suffer. Businesses thrive with happy, healthy owners, so if it isn’t fun anymore it might be time to look into selling, regrouping, and launching into something new.

Timing is important, but it’s not the be all and end all of selling a business. Check out our other resources for the big decision here, and if you’ve got your mind made up, get in touch with us for more information about our services.

A Quick Look At How To Prepare Your Business For Sale

With all the hard work that you’ve put into running your business during the time that you’ve owned it, it’s important that you sell for the right price and get a fair reward for all your blood, sweat and tears.

Whichever way you decide to proceed with the sale, investigate how you can best prepare beforehand. Even if you went through the process, increased your value by 10-20% – imagine the difference that money could make to you.

Planning is the key to success in a business sale, and during this part of the process you will consider many different tips to really make sure that this is the right choice.

Is now the best time to sell the business?

Only you can know the answer to this question but try to make the decision with your business brain and not your emotional brain. If you feel that there is an opportunity to improve your situation (and, in turn, the business’ performance) then you should seriously consider the steps to making it happen.

The early days are a fantastic time to sit down with your legal advisor and make them aware of your plans to sell. It’s also a great idea to check your current lease, and make sure are good terms remaining – or at least the option to renew. Getting these basic steps underway may take longer than you think, so it’s important to get a head start as soon as possible.

Do you know what the business is worth in the current market?

This is where a broker comes in. Many factors go into valuing a business, and a professional broker will have access to industry information including recent sales in similar markets, price ranges and location. Accurate advice is invaluable in the preparation phase, and – bonus! It is also the part where value you didn’t know you had can be added for a quicker sale down the line.

Imagine a buyer deciding between your business and another – with roughly the same profit, turnover and location. If you’re able to present all the information that the buyer needs, you are sending a clear message of systematic structure and organisation. This leads to buyer confidence in the continued successful performance after you’re gone, reducing risk in their minds.

Have you talked to your accountant?

If you’ve spoken with your accountant during the planning phase, then hopefully they’ve given you the next steps for bookkeeping while selling. If there is one area that will stall or damage a sale, it’s a buyer’s accountant finding something unappealing. The more work you can do in the front end to ensure the books are straight and all the figures add up to reflect the valuation – the better.

Up-to-date profit and loss statements, balance sheets and tax returns are all suggested as helpful assets to include in the Information Memorandums that your broker will send out to potential buyers.

What will happen to your information?

One of the things that we do at Nikki Katz is prepare confidentiality agreements that can be sent out in the early stages, to help filter out any time wasters and keep your financial information private. These documents also cover you legally in the event any confidential information be disclosed. Once you have a buyer interested in the business with documents in hand (provided by your broker of course), it will be easy to share the required information to allow the buyer to carry out their due diligence.

What are the final steps?

After receiving an offer on the business, you will need to draft a Heads of Agreement document, instructing legal representation for each side of the transaction. As the deal progresses you will need to coordinate with your lawyer, as well as potentially the managing agent for your landlord.

Importantly, this is just an overview of the business sale process. Every sale is different, but with Nikki Katz she consistently strive to provide you every detail to ensure this time of your life is stress-free and seamless. For further information, please get in touch with her – she would love to help.