Business Value – 3 Guaranteed Ways to Know If You Have a Job or a Business to Sell

Business Value lead

and what that means to your business value.

When it comes to selling, one of the most common misunderstandings a vendor has about their business is that they even have a business to start with. 

Too often, vendors go to market without proper guidance from their broker, and they try to sell the job thinking it’s a business. So the business gets listed, stays on the market like a bad smell then eventually comes off the market. 

Either the owner continues working in the business, or they close it down completely.

My name is Mick Godwin, and over the years, I’ve heard every type of interpretation of what a business means. 

In this article, I’ll explain the top 3 ways to identify if you have a job or a business to sell and what that means to your business value and sale price.

Reason #1 What’s Your Involvement in the Business?

There are two approaches to earnings when it comes time to determine the business value; either PEBITDA or EBITDA. 

I’ll cover what they mean in a moment, but first, let’s use a fictional business owner called Kevin as an example. 

Kevin wants to sell his chandlery business, ‘Kevin’s Chandlery’. Kevin’s Chandlery has afforded Kevin a decent living over the past ten years. 

He’s been able to pay his bills, take four weeks’ holidays per year, earn $150,000 and is at the point where he only works Tuesday – Saturday. He’s got a team of 10 employees who help him keep the business running. 

In this instance, Kevin has a job, and the value of Kevin’s business, i.e his business value, will be approached on a PEBITDA basis (proprietors’ earnings before interest tax depreciation, amortisation). 

Rarely and I mean rarely, does a listed business assessed on a PEBITDA basis achieve higher than a capitalisation rate of 50%. 

In other words, a multiple of 2. 

With this in mind and ignoring many other factors that drive value, Kevin’s Chandlery may sell for a maximum of $300,000. But realistically, the settled price would be a more modest result, around the $250,000 mark.

Reason #2 Who’s Hiring, Firing and Reporting?

Now, let’s look at Kevin’s competitor George. George runs an identical business selling the same products and even earns the same amount as Kevin. But George spends his days fishing and only has a meeting each week or month with his general manager. 

Usually, the meeting consists of his general manager informing him what employees are hitting their KPIs, any roles that need to be filled and what stock should be promoted and sold. 

George hasn’t needed to hire or fire anyone in years. His general manager does that with the support of the systems George implemented into the business. 

The G.M. has all the data he needs at his fingertips to allow for precise analysis that helps both George and his manager make sound decisions when required.

And he has integrated his CRM with marketing to ensure old customers come back and new customers are satisfied. George has a business. Thus, George’s business value will be determined on an EBITDA (earnings before interest tax depreciation, amortisation) basis.

So even assuming he brings in a little less profit than Kevin, he’ll achieve more on the market.

Reason #3 Hands-On Training or Business Systems?

If you are responsible for training new staff, then you hold all the operational I.P. in your head.  

As soon as you leave, the new owner will be at the mercy of trying to figure out everything you have learned in a very short period of time. 

Hence another reason no one wants to pay too much.

Operational handbooks are about as helpful as fax machines in today’s world. Innovative businesses have video training throughout the business, and employee skills overlap to minimise disruptions when onboarding new staff, regardless of whether the owner is there.

In other words, Kevin hires staff to help him do his job successfully; George has a business with systems that allows his employees to do their job successfully. 

George’s systems-based business will usually achieve at least a three multiple despite its profits. 

In this case, a full $150,000 or more than Kevin.

Transforming your job into a business has no drawbacks. However, more time, better profits, and a higher business value result from owning a business rather than a job. 

If you want to know more about what’s involved with selling your business or increasing your business value, book an appointment here or email me directly at the details below. 

I’ll tell you exactly what information you need to understand where your business sits in the market so you can make better business decisions when it comes to selling your business.

I’ll be happy to help you become clear on your next step to exit your business successfully.

Mick Godwin

0416638154

Email mick@mickgodwin.com.au

The Best Business Brokers for Small Business

Best Business Brokers for Small Business

There are thousands of business brokers for small businesses across Australia that all claim to do the same thing better than the others. 

That is; to sell your small business.  

The good ones will tell you what it’s worth, the other ones will tell you what you want to hear in order to sign you up.  

So, as a small business owner, how do you find the right business broker for your small business?  If you have a small business and are thinking it’s time to sell, then this article is for you.  

In this article, I discuss the different categories that business brokers can specialise in, and how to be confident when assigning a business broker to sell your small business.

My name is Mick Godwin and I am a professional business broker that specialises in small to medium-sized businesses that have a market cap value, ranging from $500,000 – $5,000,000.  

I’ll tell you why specialising in a market bracket is important a little further on in this article, but for now, it’s important to realise there are two types of business brokers.  

Those that specialise and those that don’t.  

The Best Business Brokers for Small Business

The term small business can mean many things to many people and is also defined differently by different regulatory bodies in Australia.  ​​ 

However, the Australian Securities and  Investment Commission (ASIC) defines a small business if it satisfies at least 2 of the following:

  • the consolidated revenue for the financial year of the company and the entities it controls (if any) is less than $50 million;
  • the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls (if any) is less than $25 million; and/or
  • the company and the entities it controls (if any) have fewer than 100 employees at the end of the financial year.

Now, when I come across a ‘small business’ that has 80 employees and is doing $45 million dollars in revenue annually, I pass that straight to the mergers and acquisition team as it simply is not a small business in my industry.  

But it gives you an idea of how broad the term ‘small business’ is.  

To help me help my clients, I have my own definition of business categories.

Regardless of entity structure, for example, company, trust, partnership or sole trader, a micro business has less than 3 employees including the owner, less than $250,000 in annual revenue and a market valuation of less than $250,000.  

If this is you, then don’t fret, you probably have a very sellable asset.  

Whereas I define a small business as a business that has four or more employees (non-family), has revenue between $500,000 and $10,000,000 and a market value cap between $250,000 and $5,000,000.

Why a Business Broker Should Specialise

Think of someone who’s interviewing for 4 roles at the same company; one role is in marketing, another is in finance, the third is for human resources and the fourth interview is for operations.  

Assuming the company has the slightest bit of competence, they would reject this generalist applicant for all four roles as there would be better applicants who specialise in each role.  

Our keen job hunter could probably do all four roles, but he or she wouldn’t know the role innately enough to be anyone’s trusted advisor and would likely lack the strategic agility that comes with years of learning a specific niche role of industry.

Now, take that mindset and apply it to the sale of your small business. This analogy should help you identify the best business brokers for small businesses.

Remember, business brokers don’t have an all telling platform that we can log into and enter an address that will advise on an acceptable selling price like real estate agents do.  

Along with learning the art of deal making which usually involves keeping a sale on track for at least six months, we need to read financial statements, understand cashflow challenges and how the debtors and creditors affect the business.  

We need to talk the language of accounting, finance, strategy and be humble advisors to both the buyer and seller for sustained periods of time.  

On top of all this, each industry has different important factors to discuss that are specific to the industry, with those elements changing again as the size of the business increases.  

The buyer looking to buy a job for $100,000 speaks a different language from an individual or group that is investing $5,000,000.  

Those guys aren’t buying a job, they’re focusing on strategy and opportunity so to maximise the purchase of your business.  A good business broker needs to be able to have that discussion.

Finding the Right Business Broker for Your Small Business

Despite the importance of specialisation, it’s not the be all end all when it comes to choosing a broker.  Some brokers will do exceptionally well when faced with a new industry that is in the same market cap value range they’re used to.  

For businesses that are under $1,000,000, you should look to other qualities as well as specialisation.  

In this article, I discuss other ways to know if the business broker is right for you.  I believe an important attribute when identifying if the business broker is right for you is if they are advising you on the information you need to hear, instead of what you want to hear.  

If your business is a two man operation, affords you a comfortable lifestyle and makes you $150,000, then it’s good in many ways, but it simply isn’t worth $700,000.  Regardless of what the other guy said.

If you want to know more about what’s involved with selling your business, book an appointment here or email me directly at the details below. 

In this call, I’ll tell you exactly what information you need to understand where your business sits in the market so you can make better business decisions when it comes to selling your business.

I’ll be happy to help you become clear on your next step to exit your business successfully.

Mick Godwin

0416638154

Email mick@mickgodwin.com.au

5 Top Business Brokers On The Gold Coast

Finding The Right Business Broker

This article has been written to help you find the best business broker on the Gold Coast so they can sell your business at the highest price.

I have provided an overview of some of the top business brokers on the Gold Coast. Some of the reviews are more detailed than others as some of this information is hard to find, but by reading through the review you will have a better understanding of the industry on the Gold Coast.

Regarding fees, the industry standard is 8% for businesses under one million dollars and reduces in percentage the higher the business value.

Fees are an important factor in choosing a business broker because my experience tells me that the lower the fees the lower the chance you will sell your business at the highest price, with the least hassle in the shortest time.

ABS

ABS Business Sales

According to their website, the team at ABS focuses on the South East QLD area with offices in Brisbane and the Gold Coast.

This means they should have good local knowledge and contacts but usually means their network coverage and connections are limited as they are not collecting buyer and seller details from brokers all over the country.

The firm also works in the commercial leasing space and commercial real estate, giving them a broad range of services around the commercial categories of selling and buying.

One weakness would be the website, it seems a bit out of date.

Regarding commission fees, my understanding is they work off industry standards which start at 8% and reduce in size as explained above. This demonstrates confidence in what they do.

Website: https://absbusinesssales.com.au/

Benchmark Business Sales

Benchmark Business Sales & Valuation

Established in 1999, it shouldn’t be news to those who already follow me, but Benchmark is the firm I have the most experience with and work very closely with.

Like all firms, they have their strengths and weaknesses. However, I can say that overall, the brokers I’ve worked with at Benchmark seem to have a very high level of knowledge when it comes to understanding the mechanics of business, as opposed to just trying to sell a product.

This is critical and sometimes overlooked by vendors as usually, a buyer becomes far more engaged when the broker is knowledgeable about the business they are selling and can address any concerns from the buyer.

Fees are reasonable, and they do have three categories in order to assist each vendor with the required level of service. The firm’s coverage is national and many of the brokers are involved with the Australian Institute of Business Brokers.

Website: https://benchmarkbusiness.com.au/

The Finn Group.

The Finn Group

The Finn Group has been established for nearly 20 years and according to its website is Australia’s number one brokerage. Though, I would expect every firm to have that on their website.

I have spent some time with The Finn Group so I do know some particulars first-hand. For example, the listing and marketing fee can be around $2500 plus a weekly direct debit payment for advertising.

When I was involved, this was usually around $150 – $300 per week. So, although the listing fee was slightly less than ABS and Benchmark, your overall cost can add up if the business is on the market for some time.

Be careful when signing up for ongoing costs.

Website: https://thefinngroup.com.au/

Smart Business Sales

Smart Business Sales

Although I have had no experience or interaction with this company it seems they are more an online firm than a traditional broker firm.

Although not interacting with this company, I definitely have had a lot of experience with software valuation tools like the one shown on their website. Unfortunately for the unsuspecting seller, these valuation tools usually end up producing a report that’s not worth the paper they are printed on.

A quick look at the businesses they have for sale and it seems they have signed a deal with a couple of head franchisors so almost all the businesses they have listed are not actual businesses, but franchise opportunities for someone to buy.

The website looks like it puts a great effort into capturing your data for marketing purposes but not promoting itself or its brokers.

Website: https://www.smartbusinesssales.com.au/

Link Busines Sales

Link

Link is one of the better-known brokerage firms. They are a foreign-owned firm with both national and international based brokers. The website is better geared to the business seller and buyer as you can see three options straight away on their website; buying, selling and valuations.

I like this approach as it’s clear and simple, with no long-winded sales copy and buzz words that don’t really mean much. They do have an appraisal calculator on their website, these are fine for curiosity purposes but as I said previously, any type of value software is not worth the time.

I would be wary if this was their approach to understanding the value of your business. I have dealt with one of the brokers from this firm and he was nothing but helpful. We were working on bringing his seller and my buyer together. The deal never happened but that particular broker was helpful.

Website: https://linkbusiness.com.au/

Next Steps

Whichever firm you go with will depend on a few things that are unique to your circumstances. The main thing to remember is it’s not just the firm’s, or the broker’s reputation you can rely on. The level of success you and your broker achieve in the sale of your business will be largely dependent on a combination of the broker, the brokerage firm and how accepting you are of their advice or opinion.

No point going through the entire process butting heads and questioning everything they do. If they seem they are not the right fit for you and your business, find a broker who is.

If you would like to know more about what’s involved with selling your business, then call or email me directly on the details below. I’ll be happy to help you become clear on what your next step is to successfully exit your business.

Mick Godwin

Business Sales Strategist

0416 638 154

Email – mick@mickgodwin.com.au

Book a 15 minute chat

Benchmark Business Sales and Valuations

1300 366 521

https://benchmarkbusiness.com.au/