BUSINESS SECTORS – WHICH ONES TO WATCH IN 2020

Thinking of buying a business? Or maybe starting one from scratch? Either way, understanding the industry is key to growth, profitability and success. So we sat down and dived into the latest IBIS World report on industry growth in 2019 and 2020. The results? Very interesting.

When it comes to business sectors, there’s a definite trend in which ones are growing in 2020. There is no hiding the fact that Australians are leaning toward a more sustainable way of living. Younger generations are caring more about our planet than the baby boomers, and business is not exempt from their standards for a sustainable future.

According to the IBIS World ‘Fastest Growing Industries in Australia by Revenue Growth (%) in2020‘, the top growing business sectors are those that aligned with these sustainable living practices. However, not all sectors were following this trend. Other clear factors were convenience, such as rideshares and online food ordering. Sitting at the top were sectors such as:

  1. Cryptocurrency Exchanges in Australia
  2. Litigation Funding in Australia
  3. Online Food Ordering and Delivery Platforms in Australia
  4. Car Sharing Providers in Australia
  5. Ridesharing Services in Australia
  6. Organic Crop Farming in Australia
  7. Solar Electricity Generation in Australia
  8. IT Security Consulting in Australia
  9. Digital Advertising Agencies in Australia
  10. Petroleum Exploration in Australia

Out of the above list, at least three of these sectors are sustainable trends, while another three prove convenient for the consumer. It makes you think, as a potential business buyer or a current business owner… How will my business appeal to the current market? Do they need me? Do they want me? If so, for how long?

It is important to note that trends in sector growth and profitability are variable, so this list – although current at present, will change in the future. The vital takeaway is to do your research. Understand what consumers in your industry are expecting and what they are yearning for. Can your business deliver this? If you can service a growing market, there is no limit to your business growth.

At Core Business Brokers, we are more than happy to discuss industry trends and past sales data that we have experienced firsthand. Contact Core Business Brokers today, on (02) 9413 2977, or email Roy on [email protected]. We’re always to schedule an appointment and to chat through your options.

Grow Or Be Left Behind – Is Your Business Keeping Up With The Trends?

Times are changing. We are well into an era that has a strong online presence, which means that businesses that previously survived quite well with nothing but a brick and mortar store, face the reality that they need to adapt and grow, or simply be left behind.

For those business owners that have put off the creation of a website, social media and the thought of online advertising, the process can seem daunting. Therefore, it may be wise to consult a professional marketer to gain insight into the current trends and the components they believe you should implement to stay relevant in the ever-evolving world of business.

So, what are the basic changes I need to make?

There is no right answer that suits every business. Each business is unique and staying relevant in your industry is going to be a different process to your neighbour. However, let’s take a look at some important changes that may need to be undertaken to stay current in 2020:

  1. Website: Is your website outdated? Do all the links function properly? Does it take a while to load? A crisp, modern website that reflects your brand, is easy to navigate as a viewer and has concise information about your product and/or service is an asset to your business. Gone are the days of the majority of your customers using the yellow pages to find you. If your website isn’t up to scratch, your customers will most likely find a competitor that looks better from the outside.
  2. Social Media: Statistics show that younger demographics are searching for businesses using social media more than they search via Google. That surprised you, didn’t it? Not on Facebook or Instagram? You should be! These free platforms are just another advertising tool that allow you to connect with your target market. It’s not enough simply to ‘have them’, you also must use them. Post relevant facts about your service or product, the industry, FAQ’s, fun facts. The list is endless. Use these platforms to build professional relationships and advertise to your target market.
  3. SEO: Otherwise known as ‘Search engine optimisation’, SEO works on keywords and allows your business to be shown more prominently on search engines, such as Google. Using SEO correctly means more people visiting your website, finding out about your business and hopefully converting into customers.
  4. Online Advertising: With the increase in popularity of social media platforms such as LinkedIn, Facebook and Instagram, comes the ability to advertise via these platforms to reach your customers. Gone are the days where you’d put an ad in the paper and hope that people see it. Nowadays, the internet collects information about your behaviour online and then social media platforms and search engines (such as Facebook and Google) use this information to display ads that appeal directly to the viewer. Long story short, online advertising is targeted and much more precise than it used to be – meaning it can be a valuable tool for modern businesses.
  5. A customer-first approach: As time goes by, more and more competition arises in the market. More products and services are available in more areas, making it harder for businesses to secure customers. People value a deal, but they also value the experience. Emphasise your customers’ needs and desires, putting them first and making them feel important and special. Creating customers that return to your business time and time again is invaluable.
  6. Monitor your competitors: Stay up to date with what your competitors are doing in the industry. Are they a part of events? Where are they advertising? Are they hosting a customer function? Producing a publication? Whatever they are doing, keep your finger on the pulse and find a way to go one step further (if what they’re doing is successful, of course!)

Before you make any changes to your business model and plans, it’s always wise to do a risk analysis – building a moat around your business so that a potential buyer does not see too many risks associated with your business when it comes time to sell.

At Core Business Brokers, we advise that you chat to a Business Consultant to grow your business into its most productive, profitable state. Make sure to conduct due diligence before making changes and always view your business from the eyes of a potential buyer. If you’d like to chat through ways to stay up to date in your industry, in preparation for a potential sale. Contact Core Business Brokers, on (02) 9413 2977, or email Roy on [email protected]. We’re always happy to lend a hand, offer advice and assist with your business needs.

What is ‘Goodwill’?

According to the Oxford Dictionary, Goodwill is:

“The established reputation of a business regarded as a quantifiable asset and calculated as part of its value when it is sold.”

What does that mean when we talk about business? A business’ goodwill can be viewed somewhat as their reputation. Goodwill isn’t a tangible asset. Although it is an intangible asset, it can be incredibly valuable. A business with a higher amount of goodwill will reflect this in the sale price, as goodwill generally takes time to build and can strongly affect profitability.

The easiest way to explain how goodwill works is through an example. Here are three different businesses and how each of them has a different goodwill value – and more importantly, why that is the case:

  • A bottle shop: You may have a favourite bottle shop. But think of why you frequent this one over others. The price and the staff come into play, but more often than not – it’s the location that is convenient. It’s nearby for a quick run to get another bottle of wine if needed, therefore their goodwill lies in their location. If the owner sells their bottle shop and a new owner begins, would you change shops? Probably not. That is why this is referred to as ‘locational goodwill’
  • A hair salon: A hairdressing salon may also fall somewhat into the locational goodwill category, but unlike a bottle shop – there is one big difference… It’s a service business. In particular, a personal service business. The hair cut and colour you receive from your hairdresser may not be the same quality you receive elsewhere, therefore this is a business you may follow elsewhere if the owner decides to sell. This is referred to as ‘personal goodwill’
  • A TV network: Whether you watch the news on one station or another, the likelihood of you changing each week is slim. They essentially report on the same news, however, you’ve always watched Channel 9, so why change now? This is defined as ‘brand goodwill’

When you’re buying a business, it is important to assess the type of goodwill attached to the business in question and ask yourself these questions:

  1. Is this goodwill associated with the business or the owner?
  2. If associated with the owner, how can it be transferred to me?

Goodwill is one of many variables that is assessed during the early stages of a business purchase. Here at Core Business Brokers, we are happy to break down the components that form the business sale price and explain why the goodwill is valued the way it is. 

If you are looking to sell your business and wonder how valuable your goodwill component is, contact us today on (02) 9413 2977, or by email at [email protected]. Our experienced team of Business Brokers have years of experience both appraising and valuing businesses and would be more than happy to explain any questions you may have regarding goodwill.

The Importance of Intangible Assets

According to business sales data (BIZSTATSTM) approximately 60% of a business sale price is allocated to intangible assets. This figure varies greatly from business to business, however, the value of intangible assets in a modern age is increasing. Let us explain.

What are ‘intangible assets’?

Intangible assets are assets that don’t physically exist. I.e. They cannot be seen or touched but still form part of the business. They cannot be transferred physically from one party to another but can be transferred via legal documentation. Examples of intangible assets include, but are not limited to:

  • Goodwill
  • Intellectual property
  • Franchise agreements
  • Copyrights, trademarks & patents
  • Symbols & logos
  • Software
  • Domain names and websites

Tangible assets, on the other hand, are the exact opposite. Physical in nature, these include assets such as plant and equipment, land, vehicles and other inventory.

Why are intangible assets important?

The importance of intangible assets increases depending on the type of business and what intangible assets they own but typically are valued according to the profitability of the company. As we near 2020, many businesses have a large online presence or operate solely on e-commerce. Large corporations such as Facebook may not have many tangible assets, but their intangible assets are plentiful. These increase the value of the business, and if it were to be sold would directly affect the sale price.

How do you put a price on intangible assets?

With intangible assets forming such a large part of the overall business value, it is important to assess all assets owned by the business you’re looking to buy and check the following:

  1. How do these intangible/tangible assets relate to the operation and overall profitability of the business?
  2. Can these assets be secured with contracts or registration and be legally transferred?
  3. How are these assets transferred to me, the buyer if the business sale goes ahead? As legal transfer of ownership is critical.

The assessment of a business’ assets, whether tangible or intangible forms part of your due diligence when considering a business purchase. For assistance navigating your way through the business sale process, contact Core Business Brokers today on (02) 9413 2977. There are many areas to consider when embarking on your journey. Let us guide the way.

Why Buy a Business?

There are many reasons to purchase a business and depending on who you ask, those reasons rank differently because your motivation behind buying a business ultimately comes down to what you want in life. Is it profits? Freedom? Alongside the potential risk and the hard work involved in owning your own business, owning your own business also comes with its fair share of positives when considering the pros and cons list. Let us highlight some of the top reasons why buying a business could be a great option for you.

Profits: Unlike previous jobs where you’ve been an employee, owning your own business comes with the opportunity for uncapped earning potential. If your business continues to grow and become profitable, you will reap the rewards at the end of the day. Of course, there is always the risk/reward issue to consider as well.

Employment: Owning your own business removes any possibility for you to be made redundant or your contract be terminated by another party. If your business remains profitable, your job will be safe. For this reason, you feel more in control over your career than ever before. 

Independence: Your business means your decisions. If you’d like to steer your business in a certain direction, you now have the power to do this. There is nothing more satisfying than making strategic plans for your business and watching them come to fruition and prove successful. Your business is your time to make your mark and captain the ship!

Lifestyle: Being a business owner can be a very busy job. More often than not, the owner of the business is the person who works the most hours, as they have the most at stake. However, once the business proves successful, you may be able to take a step backwards and begin to live the lifestyle you’ve always dreamt of. Whether it’s weekends off, or an extended holiday once a year, there’s no reason why you can’t work this into future plans. The proviso here is that you have learnt along the way to employ competent staff and thus become a competent “manager” who is able to delegate tasks to staff and employ controls to maintain standards.

Opportunity: Last but not least, owning your own business comes with countless opportunities. The opportunity to make a positive change in your community, be a voice to the masses, accomplish financial growth, create an empire, the ability to franchise in the future, the options are limitless. A word of caution, always seek independent advise from a competent professional advisor who will have an unemotional appraisal of the business you are looking to purchase.

All the above points are important considerations when looking to buy a business. However, no two businesses are the same, just as no two buyers are the same. It is important to consider both sides of the coin when venturing down the business ownership path.

If you’d like to discuss the process with an expert, contact Core Business Brokers today, on (02) 9413 2977, or email Roy on [email protected]. We know business sales like the back of our hand and will be more than happy to chat with you about our experience and your future.

Adding Value to Your Business Before it’s Time to Sell

A successful business could change hands many times during its life, whether to family members or unrelated parties who are passionate about continuing what you started. When it comes time to sell your business, it is important to present it to potential buyers in the best possible light. This doesn’t mean just looking good on the outside, your business should be profitable and functioning well to appeal to prospective buyers. Importantly, has the business “divorced” itself from you (the owner) so that the Goodwill vests in the business itself and is not seen to be part of you.

We’ve discussed the importance of exit planning here, but to recap – exit planning is essential for the survival of your business, for the sole fact that not all sales are gradual processes. Some occur due to sudden events, such as ill-health or family issues. Having an exit strategy in place ensures a smoother transition when it comes time to sell your business.

A great way to prepare your business for sale is to view your business through the eyes of a prospective buyer. Would you want to buy your business if you viewed it with fresh eyes? If the answer isn’t a concrete ‘YES’ then you have work to do. Here are some ways you can add value to your business when preparing to sell:

  • Make sure all financials are up to date
  • Show proof of profitability (even with certain adjustments)
  • Ensure all necessary contracts are in place, up to date and transferrable
  • Tidy up processes, manuals and other key operational documents
  • Make sure your lease is secure
  • Sell off plant and equipment as well as other assets that no longer contribute to the business so that they do not represent any weaknesses and become a distraction in the sale process. The same applies with any redundant or old stock.
  • Do a general ‘tidy’ of the premises. Although we don’t like to judge a book by its cover, the tattered book stays on the shelf
  • Organisational structure – are there key staff in place and how critical are your functions to the business?

By doing the above, you are adding value to your business – which ultimately looks attractive to potential buyers. For more information on what you can do to add value to your business, contact Core Business Brokers today, on (02) 9413 2977, or email Roy on [email protected]. Our experience in business sales is second-to-none, which allows us to provide honest advice to our clients.

Valuation vs. Appraisal – Which One Do I Need?

When you approach the end of your business ownership journey and are preparing to sell, you need to determine the market price of your business. A business’ market price is dependent on current market conditions, it’s history of success & profitability, future profit forecasts, goodwill, stock, assets and much more. Determining the ‘value’ of your business during this process leads to many business owners thinking they require a ‘valuation’ – however, this may not be the case. Let us explain the difference between a business valuation and a business appraisal, so you can determine which suits your situation best and what to ask for when consulting with your business broker.

What is a business appraisal?

A business appraisal is a service that all business brokers should provide. It involves their calculated appraisal of your business, taking into account several important factors and using their wealth of industry experience to lead the way. Due to this being an educated opinion, you may find that you receive different values with different brokers. Keep in mind, that a good broker will be honest and set realistic expectations – even if this means disappointing you in the short term. After all, there is no point in raising expectations and listing your business for double the realistic market price and then have it remaining on the market for years without any serious interest. That being said, you want to make sure you engage a trustworthy, experienced business broker who will take into account all necessary information to appraise your business properly and provide you with an honest and realistic value range whilst being able to explain the rationale in arriving at this conclusion.

If you are concerned with your appraised market price, discuss this result with your broker. At Core Business Brokers, we are happy to sit down and explain how we’ve come to the market price presented, as we believe honesty and transparency throughout the business sale process are key. In addition, having one of the Principals as a qualified accountant means that they can engage professionally with your accountant in making the assessment.

What is a business valuation?

 A business valuation is performed by an accredited business valuer. Unlike an appraisal, not all business brokers can conduct a valuation. There are a couple of big differences between a business valuation and an appraisal. Firstly, most business brokers do not charge for a business appraisal – it is performed in the hope that the seller will list their business with them if they decide to go to market. A valuation, however, costs between $3,000 and $4,000 on average. Why do Valuers charge for this service? Because a valuation is much more in-depth than an appraisal. Commonly used for court proceedings, taxation or insurance requirements, banks and the ATO require a high level of detail and accuracy when a business broker conducts a valuation. A valuation is a handy tool for potential buyers, as it is a more accurate depiction of the business.

If you are still unsure as to which service you require in your unique situation, contact Core Business Brokers today on (02) 9413 2977, or email Roy on [email protected]. One of our professional and knowledgeable team will be more than happy to discuss your options and answer any questions you may have.

Building a Business Worth Selling

Building your own business takes years of sacrifice, hard work and often delayed earnings. Selling your business for the right price, is a chance to reap the substantial rewards for your years of hard work and associated risks.

Key things to think about when starting your business

  1. Structure – Getting the business structure right could make a huge difference to capital gains tax when it comes time to sell. If it is a small business as defined by the Australian Tax Office (generally one with assets valued at less than $6 million or turnover of less than $2 million), any capital gain on the sale may be free of tax and used as a retirement nest egg. In some instances, structures require changing prior to sale in order to achieve the desired outcome. This is a common path for businesses run through a family or discretionary trust, as this could prove problematic for a buyer and may need to be restructured prior to sale.
  2. Organisational Structure – It is important to create good business habits from the word go. Keeping your financials organised, creating a clear organisational structure and ongoing maintenance of business policy will ensure that your business is an efficiently run, attractive option for prospective buyers when the time comes to sell. It is also important to work on separating the goodwill of the business from the owner himself. This allows for a more seamless transition when the business is sold.
  3. Results – Is your business performing well? Is there anything you can do to increase sales during the last few financial years of operation prior to sale? Prospective buyers will pay a higher price for a business that is performing well and showing signs of growth — therefore, positive trends with future growth potential is a key element in securing a higher multiple for the business.
  4. Forecasting – As a business owner, put on a buyer’s hat to confirm all aspects have been thought through and addressed prior to sale. For instance, do you own all intellectual property and have all licenses been renewed? Is your business registration current? What are the terms of your lease to ensure continuity? Common speed bumps during the due diligence process are due to oversights by the seller. Imagine you are buying your business and ask yourself what you would look for. In particular, ask yourself what risks could be associated with the business and then work towards eliminating or reducing these risks before selling. By doing this, there will be fewer surprises during the sale process, as all speed bumps will have been discovered and addressed in advance.
  5. Exit strategy – It may seem pointless to create an exit strategy when creating your business, but it’s this next level of planning that allow for the smoothest transition possible when it comes time to sell your business. Instead of tackling this task when you’ve decided you’re going to sell, create it at the beginning and modify it annually to keep it relevant and up to date.

Your business goals will no doubt change drastically from day one through to the final day of ownership. You may have poured all your financial resources into your business, which puts pressure on achieving the maximum sale price in order to reap the rewards of your hard labour. However, it is important to note that the sale price is always relative to the current market, trends, economy and the performance of the business. All these variables come together to determine the final sale price of your business, but the ability to demonstrate good profits throughout different cycles in the economy is paramount.

In order to plan for the best possible outcome, it is important to ensure you are doing all that you can from the word GO.

For assistance with your sale preparation, contact Core Business Brokers today, on (02) 9413 2977, or email Roy on [email protected]. One of our professional and knowledgeable team will be more than happy to discuss your options and answer any questions you may have.

Family Business – Is Your Succession Plan in Place?

Succession planning, otherwise known as creating an ‘exit strategy’ is both an important and beneficial planning tool for anyone owning their own business. However, for a family-owned and operated business, there are even more considerations than normal; as instead of setting your business up for a new owner to take over, the plan may be to gradually pass on your business to a family member(s), hand the reigns over entirely or enter into another agreement which sees you still play an active, although reduced role in the day-to-day operations. Add the fact that you’re working with family – and I’m sure you can understand that the process can become quite complicated and often emotional.

Family Business

Regardless of the type of succession plan created, it is vital that the new owner can assume ownership of the business, with all main functions and responsibilities covered. Operations should continue as normal, with little to no disruption of the business activities during the transition process. 

When creating a succession plan for your family business, some questions to consider include:

  • Have you developed a strategic plan for the business which incorporates succession planning? Where is the business headed? How can it continue along this growth path?
  • Have you visualised what the ‘end’ looks like for your family business? E.g. succession by the next generation, to sell your business to an unrelated third-party or an initial public offer?
  • Have you considered a strategy for ‘professionalised’ management of your family business?
  • Have you established procedures to determine issues relating to the family and the family business?
  • Have you established policies relative to the employment of family members?
  • Have you established policies regarding the remuneration to be paid to family members?
  • Have you benchmarked the family business’ performance against other similar businesses?
  • Have you established policies and procedures that would enable the family business to employ external executives, including an external CEO if necessary?
  • Have you established policies and procedures for the family to appoint both an internal and possible external board of directors?

A strategic plan includes strategies to assist in the development of family businesses and protocols

related to a family constitution, succession plan and the appointment of a Family Council (if any).

The size of your business will dictate which of the above elements may be required and whether you should consider how you sell your business on the open market, if that is your goal.

Whether you wish the business to remain in the hands of the next family generation or prepare for the sale of your business sometime in the future, a comprehensive succession plan will strengthen the business for either possibility.

When it comes to mixing business and family, the process can sometimes become complicated. It is more important than ever to determine clear, concise strategies for achieving your business goals prior to, during and after the succession plan takes effect.

For more information on what you should include in your family business succession plan, or to speak to an experienced family business Broker, contact Core Business Brokers today, on (02) 9413 2977. When it comes to your business sale, we know what we’re doing, right to the core!

Tax Implications When Selling a Business

When selling a business there are many considerations that need to be taken into account. The sale of arguably your largest asset can be an emotional roller coaster, hence being well prepared will assist you through the entire process.

Prior to listing your business for sale, it is vital that all tax implications are understood when conducting the business valuation. This is a crucial step to take before the business is sold, as there can be unintended tax consequences which only emerge at contract stage. These consequences could have a potentially adverse outcome for the Seller – or could prevent the Buyer from settling the deal.

 Examples of possible tax issues could include:

  • Value of fixed assets included in the sale – It is important that during the asset valuation, that the depreciated value of the fixed assets be considered. This will both impact the Seller and the Buyer and therefore, it is important to accurately value the included assets at their written down value. If the assets are valued higher than the balance sheet values, there may be a depreciation write back with tax implications for the Seller.
  • GST requirements – GST may apply to your business sale, depending on the structure of the agreement. If GST applies, then the purchase price will be impacted by an additional 10% at time of settlement, however this can be claimed at the Buyer’s next BAS report so it’s really a cash flow implication.
  • Capital Gains requirements – There is the possibility for capital gains taxes to be paid depending on the circumstances of the business and the individual shareholders. There may be ways for capital gains tax to be minimised prior to sale, however it is important to discuss any capital gains requirements with your accountant prior to listing your business on the market.

Alongside the above points, there are further things to consider that we urge you to discuss in detail with your accountant prior to listing your business for sale. Core Business Brokers are also able to provide a detailed guide as to how the entire process will work so that the Seller has a proper understanding of the process and timing which will reduce the potential for error and thus allow all parties to have a clearer understanding of the process. Our goal is to facilitate a smooth, efficient and successful business sale process from start to finish.

If you are thinking about listing your business for sale and would like to discuss the process with a professional, contact Core Business Brokers today on (02) 9413 2977 / [email protected] Our skilled team of Business Brokers have years of knowledge and business sale experience to draw from and a team of professional connections to put you in touch with to make your business sale process as successful as possible.

Core Business Brokers   Suite1A, Level 2, 802 Pacific Highway, Gordon 2072. 
P: (02) 9413 2977   F: (02) 9413 3818   E: [email protected]