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!