NOVEMBER 2019 MARKET UPDATE



If you are anything like the rest of us, you’re probably wondering … where has this year gone?! The silly season is fast approaching and it seems like there’s still so much to do before the end of year.  Don’t worry, you’ll get there!

Whether you’re looking forward to a hard-earned break or leading into the busiest time of year, don’t forget to find some time for yourself and to unwind with family and/or friends.  

With a new year comes new opportunities! Buying, selling or just keeping an eye on what’s going on in the business world, the next month or two is a great time to reflect on the past and consider what the future holds for you in 2020.  

For us, it’s growth-growth-growth, and the official launch of our new addition to the VBA family.

Last month we gave you the inside scoop (well more of a teaser) about an exciting new sales platform we’re introducing to the market, now, you get to know even more…



INTRODUCING:


MYBIZSALE is the perfect complement to VBA, offering sellers of businesses where their business is valued at $500k or less, the chance to sell their business with the full expertise of a business broker yet without the hefty commissions. MYBIZSALE is designed to connect buyers with sellers far earlier on in the process. MYBIZSALE also allows us to position VBA’s focus purely on mid-market businesses valued between $500k to $10m+.

Early market testing of MYBIZSALE listings has been going extremely well, we have two listings which are temporarily on our VBA website and marketing platforms, but managed by the Vendor with our on-going support. Both are priced extremely competitively in the market because the sellers do not have to pay commission out of their sale price to the Broker, both have been extremely happy with the results.

MANUFACTURING CAKES FOR CAFES

The first is a cake manufacturing business supplying to the café industry. It has net profit of $100k, along with a $75k salary plus wage to the working owner.




5-DAY SYDNEY CITY FRINGE CAFE BISTRO FOR SALE

The second is a French restaurant in the inner-west with discretionary earnings to the owner of $200k last financial year, the asking price is just $120,000.



To find out more about listing your business with MYBIZSALE, contact us today. The official launch will take effect in the new working year and we will be sure to share the website with you then.



We also have two new businesses coming to the market over the next week with VBA, so now is the perfect time to get in early. If you want to enquire, click on the enquire now buttons below.



CONSTRUCTION MATERIAL WHOLESALER

Established over 30 years ago, the Vendor is now looking to retire and pass the reigns on to the next generation. This business has grown into the largest supplier of a unique range of building materials in Australia. It is the primary wholesaler and importer of this material and has a team that stretches from the east to the west coast. Consistent turnover of $3,000,000+ per annum with secure clients, distributors and re-sellers. This will be the perfect opportunity for an industry professional or an established wholesaler/construction business to add to their portfolio. 

Price guide between $1,000,000 - $1,500,000 inclusive of Stock.



SUSTAINABLE ECO-FRIENDLY PRODUCTS

– INVESTMENT OPPORTUNITY

This young business has grown significantly in just a short 3 years since they entered the market.Offering a range of sustainable consumer products that are ethically made from premium quality materials, the business is well placed in an on-trend and growing market.

Recently launched into Europe and NZ, the owner is now looking for a savvy investor to help them take the business to the next level. Projections for this business are astounding, they are also in the early stages of expanding further into Asia and America. This investment opportunity will give the investor minority equity share in the company, in return for mentorship and capital investment.  

Investment guide between $1,000,000 - $2,000,000 inclusive of equity, stock and further capital investment. 



It can be the most common mistake that buyers make - underestimating the roles and market wages of the staff, especially for the key people and owner/s.

Firstly, it is really important to recognise that a sale of business is a trigger event for change. Successfully transitioning the business to a new owner is defined by how carefully and thoughtfully change is managed by both the new owner and outgoing owner.

That being said, let’s take a look at some common examples of why careful assessment and planning is critical when it comes to calculating roles of employees and market wages.

Let’s start by looking at the owner’s role. For the purpose of this exercise, we will assume that the buyer is prepared to pay 2 x net profit to purchase the entire business assets. We will also assume the owner’s role is that of a general manager, where most general managers in the industry work 40 hours per week and earn a salary of $110,000 plus super. I.E. this would be the cost to the business to replace the owner. 

The following table demonstrates the difference in fair market value of the business when contemplating the market replacement wage of the owner who is the general manager.



As you can see, the difference in fair market value of the business is substantial. With the correct adjustment, the business is valued at $690,500 instead of $800,000.

Now let’s take the same example, however, assume that the owner works 60 hours a week instead of 40. This would effectively mean that the owner is doing the role of 1 and ½ general managers. It is extremely common that owners in businesses work greater than a standard 40-hour week. When assessing the fair market value of a business, you will of course want to understand the reason why. Even though the owner may choose to be there for this extended period of time due to the love of their work, it is still reasonable to make the necessary adjustments to account for the market replacement wage. 

The difference in fair market value of the business is a whopping $230,000.



We mentioned earlier that the sale of business can be a trigger event for change. Let’s think about the employees. One of the first things a prudent buyer should do when investigating a business is to make enquiries as to the market wages that are currently being paid to each employee, make sure that they are being paid the correct rates. What if there were 10 employees working in the business 40 hours per week who were being paid $5 per hour less than the market rate for their positions.

This could mean that adjustments will need to be made to ensure that the business can sustain the increases to their wages, as well as determine the fair market value of the business assets.

$5 per hour x 10 employees x 40 hours per week = $2000 per week = $104,000 per year plus super.

Using the multiple of 2 x this would mean the fair market value of the business should be $227,760 lower.

All too often, we see brokers and owners value their businesses by the owner’s discretionary earnings, there is no wonder these types of businesses don’t sell – simply, they are over valued.

Follow this simple rule:

You can’t apply a multiple to the owners wage unless

the owner does NOT work in the business.





Click on the read more button below to access this blog on our website.





Our mission is to transcend the standards of the business broker industry, and this means so much more than just selling businesses.


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From all of us at Vision Broker and Advisors, we really look forward to working with you.

Good luck, and make sure you have a look at our business for sale.

https://www.vbaaustralia.com.au/businesses-for-sale-vision-brokers


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30 + years experience 

in operating, selling and buying

businesses

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