EndVision

FAQ

Got question?

We are always keen to talk (confidentially).
Below are answers to some of the most common questions we get asked.

There are many traditional methods for selling a business.

Broker

The most common way to sell a small business is through a business broker.

There are many brokers available, from international companies to owner operators. All specialise in slightly different areas.

Generally brokers charges are commission based — once a sale has been completed. Commissions are typically around 8%. Brokers are essentially “real estate agents” for businesses — and are generally governed by real estate law. A recent trend has seen real estate companies branch out into business broking.

EndVision is fully licenced under the Real Estate Act 2008. Licence number: 20091588

Accountant

Often corporate sales are managed by the big accounting firms (think Deloitte, PWC or KPMG). They usually charge a higher retainer — and a lower percentage – than brokers.

Private

The two common scenarios here are selling to a friend or selling to staff. We have nothing against doing this — but you must make sure you are getting market value.

If you want to be generous, sell the business on the open market and give the staff 50k!

It is also worth remembering that many a fine friendship has been ruined by a well-intentioned business deal.

Door knock

Getting the door knock from a prospective buyer is one of the most exciting things that can happen to a business owner. However, these opportunities are rarely capitalised on. By the time the door knocker gets the information they want — they have lost confidence and essentially gone cold.

Make sure you read our information on the Justification Dossier.

Self advertised

Think nzbizbuysell, or Trade Me. We have nothing against you doing this — but you do need to understand there is a lot of legal work involved, due diligence, contract, etc.

“Reverse door knock”

If you have a likely strategic buyer in mind, we recommend making a direct approach. It is a quick way to sound out the prospect, and it is very low risk — you don’t have to tell them much — not even who you are.

Make sure you have a look at EndVision’s offering in this space – see Strategic Connections.

SUMMARY

There are many options available when you want to exit your business. All of them work in different ways and all of them are successful in different scenarios.

Selling a business is not something most people do very often — so it is imperative you get good advice ahead of deciding which way to go.

Ultimately your business is worth what someone will pay for it.  It is common to get a business valued by registered business valuers – but often this does not reflect what someone is prepared to pay.

The most common way of valuing a business is to “multiply” its EBITPDA (cash profit) by a multiplier. This multiplier varies from industry to industry.  

EndVision exists to help people achieve higher multipliers. It is a very niche and specialised field that is little understood. Be careful not to put your business in the hands of someone who is after a fast sale – and has no interest in getting you a high price.

Make sure you have a look at EndVision offering in this space – see Strategic Connections.

The multiplier is a number we apply to profits to arrive at a value for the business. It is how many “times profit” the market is prepared to pay.

If you want to look at it another way – the multiplier is a measure of Return On Investment.  A three multiplier means it will take three years for a buyer to get their money back.  A four multiplier means four years.  Reverse engineered a three multiplier means a 33% ROI.  (100/3)   A four multiplier means a 25% ROI.  (100/4).   A ten multiplier means a 10% ROI (100/10).

Businesses always have inherent risk.  They are a great revenue stream when successful and an awful noose around your neck when they fail.   

A lot of the “consulting” world is geared towards turning your business into a “managed” business – i.e. one that is run by middle management.   If you can successfully achieve this it both increases your likely multiplier and gives you a semi-passive income in the meantime.

However! Unfortunately we see this fail a lot more than it succeeds. Middle Management are unlikely to have the drive that you have.  They add a whole layer of cost – and when it goes wrong it is very hard to undo. All too often the owner has to suddenly jump back in, and try and get back to “the good old days”.

So unless you have a proven management team running the business – and you are comfortable with the risk – it often makes more sense to get out – and liquify your asset.

There are two main tax considerations when you sell your business.

Firstly  – you are still responsible for profits and losses up until the time it is no longer yours.  These continue to get taxed in the usual way.

Secondly  – when you sell you will technically have made either a capital gain or a capital loss.  These may be taxed depending on the capital gains tax laws in your country.

It is imperative you seek legal and financial advice on these aspects.

For many businesses the buyer most likely to pay the best price is a strategic buyer – and these often include overseas companies.

We believe the best way to sell to overseas buyers is to approach them directly.  Click here to see EndVision’s Strategic Connections product.

There are many regulations that need to be considered – i.e. The Overseas Investment Act, etc., and we strongly recommend you have expert legal advise during this phase.

We meet many people who are in the conundrum of not knowing whether to get out or not. It is a difficult decision – and people often procrastinate because they “don’t know what to do if they don’t have a business”. 

We often see scenarios where people are suddenly “over it” and want to get out. Sometimes the business has started to go downhill so they have decided to sell it. These scenarios often deliver very poor results.

It is not an easy decision to make – and not one to rush. Our recommendation is to get “Sale ready” regardless. This then gives you security – and also helps with the decision making process. 

Click here to see EndVision’s Justification Dossier Program.

There are many ways to segment the business buyers in today’s market. The key thing is to understand that there are lots of them, and some will pay more for your business than others. To maximise your exit, find a strategic buyer rather than someone who is looking to buy themselves a job. 

 Click here to download our article  “Who are the Buyers”.

Why do some companies that are losing money sell for a lot of money? Think 42 Below Vodka.

Why do some companies trade shares at a value that represents a very low ROI?   Think Dominos.

Why do some companies “make it” simply by listing on the stock exchange?

The simple answer is that people are prepared to buy “future profits”.  They are paying for what is likely to happen in the future. In fact with public companies, this is true to such an extent, that we say the market has already costed in the forecast – and any deviation will cause the share price to move.

The interesting thing is that very few SME’s ever sell on future profits.  

Why? What is it about public companies that make people more comfortable about “future profits”? 

There are a few answers to this – and not many of them make a lot of sense!

  1. Scale means profit. In theory if you have a large turnover you can make money one way or another. You can remodel whatever the circumstances. But…scale didn’t save Kodak.
  2. Scale means good governance. It is true that public companies are legally subject to much higher financial reporting standards. And in theory they are run by higher caliber people. But…almost every week we hear of insider trading, or incompetence.
  3. You can have just a little bit. This is true – and it allows you to have a diverse portfolio – but it still doesn’t mean that you should invest even “a little bit” unwisely.
  4. This is the silliest of all. But tradition plays a part in share-market pricing. Or put it another way – what is already available impacts the value of a new entrant. 

We are passionate about helping SME’s to sell / be valued – based on future profits.

We are strong believers that most NZ SME’s sell for too little. A lot of this is to do with a lack of realization of future profits. Certainly in an “earn out” scenario – there is some weighting given towards them. But earnout’s are rare in SME’s. And often not applicable.

Shifting your business value to a “future profits” based valuation scenario will have a huge impact on it’s worth.

Is it doable? Absolutely. Is it hard? Yes.   

The sooner you start the better – let’s talk.