buying a business

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From: Fernando Loprete


When buying a 300K business, what is the likely brokerage amount a business broker might receive. Thanks in advance.
 
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Reply: 1
From: Kristine .


Fernando

It will depend on the type of business.

Different industries have different 'going rates' for the degree of difficulty, plus don't forget that agency fees are subject to negotiation.

Generally speaking (and never rely on general rules) most business brokerages look for a minimum amount say, $6000, although some specialist brokers have a minimum of $15,000 regardless of the value of the business. After that, the % may be eg 3 - 5%, falling to a lower % as the value of the business rises.

The vendor, as with residential, is responsible for advertising expense and this is usually paid in full at the time of the listing.

You don't mention if the '$300,000' relates to gross turnover, the asking price, or the net worth of the business.

I assume you mean $300,000 asking price, and the brokerage may be around $15,000. Much the same as a residential sale.

Value of a business also depends on industry averages, as the benchmarks for the expense of running the type of business may be well documented. Grocery / supermarket businesses for example, run on very slim margins (not the same as mark-up) and may have phenominal turnover but not a lot of profit. Rent expressed as a % of income is critical and the lease of a business is something which should be very carefully considered. If you are taking over an existing lease it may have climbed above actual market value and now be representing an unacceptably high rent to income ratio.

Some industries are valued at .5% of net profit, others 3% of net profit. Just to give you an idea, a real estate agency dealing mainly in sales has almost no resale vale, but an agency with a large rent roll in an inner suburb could sell for up to 3 times the value of the annual gross management commission earned.


To research industry benchmarks, go to
www.ebc.com.au as a handy reference.

The Real Estate Institute of Victoria www.reiv.com.au can help with information on buying a business which is just as relevant to selling a business. To become an accredited REIV Business Broker the licensed agent must have completed the appropriate REIV course and had at least two years specialising in business sales, and been assessed by an REIV sub-committee as to the extent of their knowledge.

However, there are some excellent agents who have / chosen not to seek accreditation and there are also some accountants which offer a business assessment service for vendors or purchasers to establish commercial value of a business.

The classified ads in The Age will also give you a good idea of the specialities of the various brokerages and also the monetary value of the businesses which they manage.

Good luck, business can be very exciting. I went to an auction on Friday in my local main street, expecting to see a 7.5% yield against rental, and was astounded as the bids kept coming and the hot bread shop freehold was sold for $693,000 showing a 6% return ($42,000 net per annum).

Yes, I know it's a national tenant, but Golly! Miss Molly!

cheers

Kristine

PS The degree of difficulty might in itself require a degree. Imagine if someone asked you to sell a medical research facility, or a rocket fuel licence, or an epoxy resin manufacturing plant. For the local fish 'n' chips shop the agent still has to have a good grasp on basic accounting, be able to read and explain a Form 19, know what's in a lease, have a working knowledge of the value of plant & equipment, be up with current tax rates on depreciation, know what health licences are required to be able to advise the incoming owners of their ability to hold a 'public kitchen' registration etc, plus be an expert negotiator, speak three languages and still be alert and coherant at 10 o'clock at night!
 
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Reply: 1.1
From: Dianne Ferrara


Hi,

My friend would like to sell his business and I have suggested that he go
through agents who specialize in this area. As I don't know who they are, I
haven't been of much help to him.

Does anyone know who these agents might be???

Thank you in anticipation,

Di
 
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Reply: 1.1.1
From: Paul Zagoridis


Go to a newsagent and get the biz 4 sale magazines they're $3-$7 each.

The web sites for the two biggest are
http://www.businessforsale.com.au/
http://www.apa.com.au/fourstar/

Although most of those businesses are regional.

There is also
http://www.macquarie.org/
http://www.natbus.com.au/
http://www.australianbusinessnet.com.au/index.html

Talk to the brokers and the vendors - see what they hae to say.

Also look for businesses for sale in the SMH or your capital city paper. Call the brokers and get a feel.

PaulZag
Dreamspinner
WealthEsteem :: Psychology of the Deal
http://www.wealthesteem.org/
 
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Reply: 1.1.2
From: Kristine .


Hi Dianne

Can you say what type of business your friend has (milk bar, plastics extrusion factory, restaurant)

and what area (Werribee, Coburg, Bairnsdale)?

I know / know of a variety of business specialists, but without these basic details I can't offer any suggestions.

Or email me if you like.

One of my businesses was sold by an expert, who achieved a remarkable result for me, but my other business had no resale value and no agent was interested in listing it, as it would have just sat on the books annoying everybody.

As in my previous post on the subject, a lot will depend on the type of business, whether it is worth trying to sell it or not.

Gosh! That sounds pessimistic! Looking forward to your reply

Cheers

Kristine
 
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Reply: 1.1.2.1
From: Dianne Ferrara


Hi Kristine,

My friend owns a coffee & nuts import business and it is located in
Thomastown and Dandenong. Hope this helps.

Thanks to all who replied!

Di
 
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