Latest Biz Assist Newsletter

 Welcome to your BizAssist(nzbizbuysell.co.nz) newsletter 79. 

There are a number of factors that will influence the value of any business. Key characteristics that add value are; strong cash flow, good history and reputation, growth industry, competitive advantage, niche business with room for growth, along with good plant, location, systems and staff. When selling a business buyers will be weighing up these factors when assessing the price. It is important that the price is realistic as being out of touch with the market will only kill interest and lose potential buyers... plan your exit well in advance and have a strategy that will sell your business.

In this issue:
• What's a Business Worth? - Guy Crozier (BizStats) 
• Business Opportunity & Franchise Expo (Auckland) 
• 10 Things you must know before you buy a business - nzbiz
• Quotes to Inspire 
• This months feature Businesses for Sale

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WHAT'S A BUSINESS WORTH?
When you are planning to buy or sell a business how can you work out how much it is worth?

There are many different ways of calculating the value of a business. Many of these methods have been devised for large businesses, especially those listed on share markets.  Smaller businesses (i.e. those that have less than 20 employees, - and 96% of all New Zealand businesses are in that size range) need a different approach.

Sales contracts for small businesses normally define the value as the sum total of the inventory (stock), plus plant & fittings, plus goodwill. (Debtors and creditors are not normally part of the sale contract.)

The value of a business is largely influenced by profit.  A person who buys a business is purchasing a future cash flow.  The higher the anticipated cash flow, the higher the value of the business. 

Past profits may be a good indication of future cashflow, but there is no guarantee that profits will continue at the same rate.  In some cases there will be signs that profit is increasing, in others a downward trend may indicate lower expectations.  Other factors such as impending rent increases, new competitors or the loss of a major contract may also raise concerns about the level of profits that can be expected in the future. Each party to a sale must form their own ideas about the future cash flow.

Defining Profits for Valuation:
There are many different measures of profit. (e.g. profit before tax or profit after tax etc.)  When valuing small businesses the most useful measure of profit is known as EBPIDT – Earnings Before Proprietors Income (wages or drawings) Interest and Depreciation. (This is sometimes called the Sellers Discretionary Cashflow.) This determines the basic earning capability of the businesses before any other variables.

Valuation Method:
One method of valuing a business is to use an Earnings Multiplier. For example, a business which has a profit of $60,000 may sell for $90,000.  The Earnings Multiplier in this case is 1.5 ($60,000 X 1.5 = $90,000)  

Earnings Multiples:
How do you work out what earnings multiple to use?  Avoid “Rules of Thumb.” Most of these are likely to be out of date at best, and downright misleading at the worst. 

There are several ways of finding an appropriate Earnings Multiplier. 
1. Ask acquaintances who have recent sold/bought similar businesses to the  one you are interested in.
2. Ask your accountant. They may have had clients who have been involved in sales of similar businesses.
3. Your business broker can share his/her experience. 
4. Use a commercial data base which lists sales by business brokers throughout NZ "BizStats". This will tell you what earnings multiples have been used in recent sales. It will cost you $125 + GST but may provide useful guidelines.

Buying or selling a business is a major investment decision. Careful research and professional advice can help you to get the right value.
This article has been provided by Guy Crozier (GM of BizStats Limited) www.bizstats.co.nz 

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BUSINESS OPPORTUNITIES & FRANCHISE EXPO AUCKLAND - 15, 16, 17 AUGUST.
FINDING THE RIGHT BUSINESS FOR YOU!

Something for everyone considering buying their own business - whether they are in the serious stages of investing large capital or just exploring the idea of a life style change, like working from home.  Meet with experts and talk to business owners face to face, all in one place.  Information that could take days to collect can be researched in a matter of hours:1. Franchising and business growth tips are offered at “no-cost seminars”, run daily.
2. Business systems and ideas to suit your lifestyle and budget - from under $50,000 to over $500,000.
3. Franchise Clinic - advisors on how to franchise your business and how to grow your opportunity.  

LOOKING TO EXIBIT?
Find out more contact: Jo and Brett Rodger, Ph 0800 439 776, email: contact@expro.co.nz or visit  www.expro.co.nz

DATES and VENUE
Auckland (ASB Showgrounds) - 15, 16, 17 AUGUST. Doors open at 10am to 4pm. Seminars start at 10.30 and run daily every half hour.  

AND NZBIZBUYSELL...  we'll be there in Auckland, so come and introduce yourself, and say Hi. We are happy to help and answer any questions you may have on the buying or selling of businesses... We are also doing a Seminar at 1:00pm daily on "Buy and Create a Business that will SELL for more..."

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10 THINGS YOU MUST KNOW BEFORE YOU BUY A BUSINESS
Before taking the plunge into business ownership it pays to get your thinking right, because the quality of your choices will play a large part in determining your success: for more on this check out...

QUOTES TO INSPIRE
"Everyone should carefully observe which way his heart draws him, and then choose that way with all his strength."
Hasidic Saying

"The only true happiness comes from squandering ourselves for a purpose."
William Cowper

"It's not what has happened, it's what you do about it once you know it has happened that's important."
Sir Wallace Rowling

"Don't let what you cannot do; get in the way of what you can do."
Tim Wallis

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FEATURED BUSINESSES FOR SALE
1. Post Shop & Lotto - Auckland - $160,000.
Currently run under management. Good Auckland location servicing the local area. Requires hands on operator and would suit a family. This is a solid business foundation on which to expand. Vendor is motivated to sell.
For more...  http://www.nzbizbuysell.co.nz/13671

2. Burger Wisconsin franchise - Napier - $185,000. 
Fantastic location. A well established business providing a good lifestyle and good income from low hours. Open only 25 hours a week. Excellent product in an active growth market. Easy to operate and manage.
For more...  http://www.nzbizbuysell.co.nz/13645

3. Scenic Cruises - Abel Tasman National Park - $360,000.
Abel Tasman - famous for its pristine bays, inlets, and golden sandy beaches. Specialising in top end of the market tour packages for discerning travelers - Kaiteriteri Boat Charters have been operating since 1996. Full Transfers, Tours and Excursions with land and air tour packages to complement the marine cruises. A well established tourism business complete with forward bookings and immediate cash flow.
For more...  http://www.nzbizbuysell.co.nz/13610    

4. Sub Sandwich Franchise - Dunedin - 440,000. 
Existing Sub Sandwich Franchise operation for sale, a great opportunity to be part of the world's largest sub sandwich chains. A well established and supported Franchise.
For more...  http://www.nzbizbuysell.co.nz/13718

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"... and let your friends know what we do."  

all the best - Richard