The Australian Government has a broad range of Business migration visas that require newly arrived migrants to start or purchase a business in Australia.

Unfortunately, the newly arrived migrants are limited in the type of business that they can start or purchase as this will be dependent on their migration conditions. It is very hard to match a business to a newly arrived migrant as the purchaser is not just looking at the viability of the business but also the Department’s requirement. Further, migration requirements change on a regular basis, so a business that can satisfy the requirements one day might not the next; as a consequence, the “thousands of Chinese and foreign buyers wanting to buy business to gain residency” can be seen as a myth or lottery where chances of winning are very low.’

With previous sales, we have facilitated observation periods. This is when a buyer comes and examines the business for a longer period, commonly 5-10 days.

In retail and hospitality businesses, the observation period usually involves the buyer watching the operations for the whole day to try and ascertain the sales volume and business processes.

Most business sellers are apprehensive about allowing a buyer to use an observation period. Nevertheless, handled correctly and with certain conditions in place an observation period can be a beneficial process for buyer and seller alike.

We recommend that the buyer and seller agree and or resolve the following before commencing with an observation period:

• a clear understanding of why the observation period is required
• broad agreement on the sales terms and conditions is reached
• what will happen in the during the observation period
• a holding deposit into the brokers trust account is provided
• a confidentiality agreement is entered into

What we often find is that a buyer initially requests a two week period and after several days they have confirmed what they wanted to know.

PEBITDA is acronym commonly used by business brokers and at Capital Commercial Business Sales it's frequently used.

The reasons that we use PEBITDA is to try and help buyers fully understand the owners profit and benefits generated from the business.  This helps buyers compare opportunities using a consistent profit value.

PEBITDA is an extension and slight variation of an accounting terminology - EBITDA; Earnings before interest, taxes, depreciation and amortisation.

The reasons buyers and investors use EBITDA to try and understand a more accurate operating profit result of a business/investment opportunity.

Interest expense varies from business to business and doesn't relate to operations of the business; this also applies to depreciation and amortisation expenses.

A better way of understanding PEBITDA would be to call it owners profit, which includes:

• wages, salaries and super paid to the owners
• interest expense (paying loans)
• depreciation expense
• adjustments - this relates to expenses that are not operational and relate to the proprietor.

So PEBITDA would be all the wages paid to the owners, plus these costs added back.

So if two owners work 90 hours between them and the PEBITDA is $250,000 you have a clearer idea of what the profit result is for your effort.

In using the above example of the $250k PEBITDA, some buyers who are looking to operate the business under management might factor replacement wages for staff to perform the 90 hours at $120,000 and then determine the EBITDA (with adjustments) to be $130k.

An add back is an expense that is added back to the profit/loss of the business for the purpose of showing a more accurate reflection of the earnings that the owner has generated from the business.

The theory behind these add backs is that these expenses are purported not to relate to the operations of the business, one-time, and/or specific "owner's" expenses

What types of add backs are commonly applied?

• Adjustments to owner’s compensation: some owners pay themselves above market value this can also include, superannuation and bonuses. A buyer may not necessarily spend that rate of pay to themselves or a replacement employee.
• Personal expenses: Running personal expenses through the company is a frequent occurrence in closely held businesses. Personal expenses may include the following          - Owner's vehicle expenses (monthly payment, insurance, fuel, registration)
            - Owner's telephone or internet expenses
            - Family members or associated persons on the payroll.
            - Travel, meals, entertainment for personal use, not business purposes.
            - Any other expense that is personal in nature and not a business-related expense
• Lawsuit settlements and other legal fees: These payments can be another example of a legitimate add back, assuming these sorts of payments are truly rare and extraneous for the company.
• Rent of Facilities at Prices Above or Below Fair Market Value: Many businesses pay rent for the space they occupy. It is often the case that rent is arbitrarily set above the going market rent. PEBITDA would be adjusted upwards by adding back the arbitrary, non-arms-length rent and subtracting the true market rent.
• Depreciation: This is a non-cash expense incurred by a business.
• Interest: This is a non-operating expense incurred by a business and is added back to better reflect earnings.

One common strategy used by business to reduce the reported profit is to claim non-operational expenses. Some owners might claim phones, vehicles, home office expenses and related expenses like travel. 

No, there is no stamp duty payable on the purchase of a business in the ACT.

GST is payable if the sale is not ‘the sale of a going concern’, examples would be, if you purchased a fit-out located in a leased premises rather than the business, or where you purchased the assets of a business that is not operational.

The sellers solicitor in almost all circumstances prepares the contract for sale.

Please note that we wouldn't be party to a transaction that didn't involve independent and professional legal representation for both buyer and seller.

Once we have agreed on all the sales terms and conditions, we will prepare a sales advice; alternatively, described as heads of agreement.

The sales advice covers things like the amount paid for the business, asset values, handover and trading restrictions. The sales advice will be sent to both lawyers and will prompt the sellers solicitor to prepare the contract.

Essentially there are four different structures you can choose when establishing your business. These are:

• Company
• Trust
• Partnership
• Sole Trader

Each structure type has its benefits, costs, and strengths. We recommend that you speak with a business accountant about determining what structure is best for you.

Some things to consider when working with your accountant to select the best structure:

• What is the big picture for the business?
• Do you plan to grow the business? Franchise it? Open more outlets?
• Who will control the business?
• Will you need to raise additional capital in the future?
• Will the business be asset rich, and if so what is the best way to protect those assets?
• When you decide to get out of the business how will that happen and who will take over?
• What are current income arrangements within the family?
• If the business is to be controlled by one person what are the contingencies in the case of death or incapacitation?
• What are the most tax productive solutions while maintaining the strategic objectives of the business.

We highly recommend that you seek advice from a suitable qualified legal and finance advisor about the best entity for your business. 

We are happy to provide a list of accountants that other buyers and sellers have recommended in the past. We accept no accountability or responsibility for the reliability or accuracy of the advice provided. 

The below table is a list of lawyers that previous clients have used. Capital Commercial Business Sales is not accountable for the service and advice provided. 

Yes. As business sale agents we have a legal duty and a fiduciary responsibility to disclose the names and dealings with all buyers. We will not provide your contact phone and email address to the seller without first disclosing to you the buyer that we intend to do this. 

In the vast majority (95%+) of business sales, buyers buy the business assets but not the entity that owns the business.  The best example of this is that of a company or trust that owns and or controls the business. As a buyer, you are not buying shares in the company; rather you are entering into an agreement to purchase the business assets.

So when a buyer purchases the assets of the business, the liabilities should not be transferred or carried over to the buyer.

Many buyers read the balance sheet in the financial statements and see loans and obligations and are concerned that they will inherit those debts and commitments when they buy the business. This should never happen in a conventional business sale process.

The buyers solicitor should search the assets that are being transferred/purchased with the business sale to ensure that they are unencumbered and can be freely assigned from seller to buyer through the business sale process.

Some sales require the assignment of works in progress or agreements with clients, which can require the consent of parties.

Some sales require the sale of shares in a company (5% of sales) his type of sale process is different to the traditional business sales process and commonly requires the directors (selling) to provide undertakings and warranties relating to the history and activities of the company being purchased.

A guide to completing your asset list with Capital Commercial Business Sales.

What is an asset list?

An asset list is a detailed written list of all the assets with dollar values. The list should include both tangible and intangible assets (explained in greater detail below) that will be transferred to the buyer when they purchase your business.

By omission, the asset list also indicates items not included in the sale.

The asset list is not an accounting document; it is a sale tool and is primarily used to demonstrate and defend value to buyers.

Save time and money having by having your asset list prepared before you go to market.

In almost all cases a business sale is achieved by both seller and buyer executing a business for sale contract. The contract is in most cases drafted by the seller's solicitor.

All the assets to be transferred should be written in the contract. It saves time and money to have that list ready to go and available for your solicitor as soon as you reach the agreement with the buyer.

When drafting the sale contract, your solicitor may need to make adjustments and changes to the assets in the contract as items may have been replaced or added during the marketing campaign.

Different types of assets.

Essentially there are two types of assets, tangible or intangible assets.

Our goals when marketing and selling your business are to present as many assets as possible, with accurate values which can be justified to a buyer.

Some examples of tangible assets:

Helping you set the values of tangible assets.

Tangible assets are probably the easiest items to set a value for, because you should be able to provide evidence of similar items that are for sale.  

In many cases, both buyers and sellers can even find comparable items for sale through equipment distributors, equipment websites, suppliers and other used-equipment outlets, which can help establish current market values.

If you cannot find a comparable item and or value, then we ask you to estimate the value of those assets. This process should take into account what the fair market value to replace that item is, and values that we can defend when working with a buyer.

Some examples of intangible assets:

Helping you set the values of intangible assets.

Intangible assets can be harder to set values for because many of these items are proprietary and unique to your business.

Having a considered rationale about how you determined the value of these assets is important. 

Measuring the businesses benefits from owning the asset is also a good way of arriving at a value for individual items.

A good example of measuring an economic benefit could be the sales or leads converted from your website or generated through your Facebook page. These leads are measurable, have value and assuming all remains constant should generate revenue for the incoming owner.

If you are struggling to determine values for your intangible assets talk to your business broker, or accountant for guidance.

How to complete the asset list.

Your business broker or business information writer will email you a blank copy of the of the excel spreadsheet template. All you need to do is simply type in the item description in the asset column and the replacement value in the corresponding column.

Frequently Asked Questions:

Q: Can we just use the deprecation schedule in the financial statements? 

A: Commonly, the deprecation schedule will not accurately reflect all the assets and the replacement or market values of the assets that are being offered for sale. 

Q: What do we do if we cannot determine the value of assets?

A: In most instances you will be able to determine a fair market value using open sources like price lists and third party websites. If you are struggling to determine value, then ranking is one option. Ranking the values against other similar assets.  You can also call your broker to discuss it.

Q: How detailed should the list be?

A: Well that depends on the business and the total scope of the assets being offered with the sale. If you’re a restaurant its advised not to list every type of cutlery being sold e.g 45 knives and 64 spoons, but rather group certain types of assets like cutlery.

The main principle to observe is that this lists purpose is to defend the value of the business. Therefore, the more comprehensive and reflective of true value, the better. We have had some Asset Lists go over 3 pages.  

Q: How should works in progress, accounts receivable or work contracted but not invoiced yet be managed?

A: In most conventional business sales in Australia (95%+) the entity that owns the business and its assets is not being sold. In the case that we are selling the company then please speak directly to your broker about how to approach this.

We do not include work in progress or work contracted in the asset list, we deal with this in separate section of the business information package. These assets have different values based on the stage and cycle of production and delivery of the product or service, and we negotiate the sale, transfer or how we manage these items separately from the asset sale.

Q: What about items that are leased or financed?  

A: If the item that is leased or financed is going to be paid out and is fully unencumbered then include its market/replacement value in the asset list.

If you are aiming to assign the lease and or finance agreement to the buyer as part of the sales process, then it should not be included in the asset list. Leased or financed items that are to be assigned should be documented and stated in the business package, but immediately after the asset list section.

The expenses of the leased or financed items listed on the profit and loss can be added back to the earnings report if the financed item is going to be paid out. This is because this finance expense will not apply to the incoming owner.

Q: Can we update the asset list during the marketing campaign? 

A: Yes, most definitely and we encourage it.  As the list will form part to the business for sale, we advise that you regularly update send through us so we can update your business sales package.

If you require any assistance in preparing your asset list, please contact your business broker or designated business information package writer.

When completed please email to sales@capitalcommercial.com.au.

An example of an asset list completed by a seller.

The item shown below is an example of a completed excel spreadsheet asset list. We will now use this list in your business sales package and for marketing purposes

Generally, the seller will pay each employee all outstanding annual leave and superannuation entitlements up to the date of settlement. Sick leave of each employee is generally not adjusted, the potential costs of long service leave of each employee is generally negotiated between seller and buyer.

When a business is sold that is operated from a premises, the lessor will first have to agree to accept the buyer as the tenant of the premises. The lessor will then deal with a transfer of the existing lease from the seller to the buyer, or provide a new lease to the buyer.

Generally the solicitor acting for the seller will contact the lessor’s solicitors to advise that the business of the seller is being sold, the lessor’s solicitors will advise their client, the lessor may ask for financial or other information in relation to the buyer before agreeing to accept the buyer as the tenant.

If they are agreeable, depending on the current tenure, an assignment of the existing lease, or a new lease will be provided.

Generally the buyer will pay the legal fees for the assignment of lease or new lease, however, this process can be addressed during the negotiations for the sale of the business and sometimes shared equally between seller and buyer.

We understand that buyers want questions answered and relevant information provided.  We are committed to doing our very best at getting the relevant information to our customers and facilitating the answers to their questions.

Once you have read the Business Information Package (BIP) if you require further information or have questions, please email sales@capitalcommercial.com.au.

Our system files previously asked and answered questions about particular businesses and types of business, so we might have the answer your looking for.  We don't provide the detailed information, like Financials and Tax Returns with the initial BIP email that we send buyers, but rather summaries of the key components of the business. So if you require the supporting documents we may be able to provide if they exist.

If we don't have them on file, then we can request the seller to provide. We do encourage sellers to provide as much information as possible to buyers, with the understand and commitment from buyers it's provided confidentially and sensitively and should be handled with care and discretely.

Congratulations you are one step closer to owning your own business.  We need to get some paperwork out of the way.

At Capital Commercial Business Sales we like to receive offers from our buyers in writing.  We have an easy to use and straightforward template that we ask buyers to complete and return.

To receive the Offer to Own Template email sales@capitalcommercial.com.au requesting a copy and we will email it to you directly.

Some relevant information that we will ask you to provide when you are completing your offer.

Your information such as:

• Name of entity buying. Is it going to be in your name or a company or other entity such as a partnership, trust, etc.? If you have not established this yet place the offer in the buyers
• Who's your solicitor and their contact details:
• Stock Terms (how you are proposing to purchase the stock at value): only applies to business with SAV.
• Preferred Settlement Date:
• Specific Sale Conditions:
• Subject to (this means that the acquisition is subject to)
• How you propose to fund the purchase?
• Outstanding questions or information requests?

Once you have completed the offer form, please email to sales@capitalcommercial.com.au or fax to 1300 793 950.

If you would like to place the offer face to face, we can arrange to meet at our offices in the Melbourne Building Canberra City. Please email your request or call 1300 793 690.

Businesses purchases come in all types and sizes, and so do lawyers, law firms and legal services. Hiring a good lawyer is very important because they can have a great amount of input over the success, or lack of success in purchasing a business. Careful selection of the right lawyer to guide you through the process of buying a business is critical.

Depending on the nature of the sale and purchase of the business, you should expect to spend between $2,000.00 to $10,000.00 for a lawyer to assist you with the purchase of a business.

If you are purchasing a small business that is not located in a premises under a lease, then legal costs will be around $2,000.

If the business is operated from a premises and is subject to a lease, then costs will usually increase as the premises lease will either have to be assigned to you as new tenant, or a new lease provided by the landlord for you as the new tenant. It is common practice that the buyer pays all costs associated with the assignment of the lease, or for a new lease to be prepared, in this regard, depending on who the landlords solicitors are, expect to pay from $1,800.00 to $3,500.00 for legal fees to deal with the premises lease.

If you are buying a franchised business, legal fees will invariably increase. Your lawyer will be required to read a franchise agreement and the disclosure statement, then provide you with advice on the franchise documents – these documents can be complex legal contracts and require careful consideration prior to you entering into the contract to purchase the business. In this regard you should expect to pay from $3,000.00 to $5,000.00 to deal with the purchase of a franchised business.

Though the costs of retaining a lawyer may appear to be high, it is highly recommended that you do not deal with a complex business purchase without the assistance of a commercial lawyer that practices in the area of business purchases.

In regard to legal fees, you should always ask your lawyer for a quote - you can negotiate the legal fees and ask for a fixed fee quote.

Business banking specialising in business sales Canberra 2015.

Please find the below contact list of Business bankers and lenders that other clients and customers of Capital Commercial Business have used in the past.

Please note we are not accountable for the service provided by the individuals or firms outlined below.

You may provide information provide by our office, to your financiers, under the condition that it doesn’t conflict with the signed deed of confidentiality agreement and disclaimers provided and willingly entered into by yourself.

Yes please see the attached templates.

1. Business Plan Template: You can find a reliable and practical business plan template here at the business.gov.au website. https://www.business.gov.au/info/plan-and-start/templates-and-tools/business-plan-template-and-guide?sc_camp=5CF4404F78FC4A0EAE788B87D3C8A15D&gclid=CNzE1erBqNQCFZQIKgodF0EO7w&gclsrc=aw.ds .  Much on the information required to complete this business plan will be will provided with the Business Information Package provided for your relevant business.
   
   
2. Personal Assets and Liabilities (version 1). Often landlord will ask for a statement of assets and liabilities. This is an easy to use dashboard.
   
   
3. Cashflow forecast.

The Personal Property Securities Register, most commonly known as the PPSR, is an official government register. It is a public noticeboard of security interests in personal property that is managed by the Registrar of Personal Property Securities.

Sellers of businesses may have trade accounts, business loans or equipment leases that are recorded on the PPSR by trade suppliers or banks, these registrations must be removed by the Seller from the PPSR if they relate to the assets or trading stock of a business when the sale is completed.

Annexures and schedules are documents or information that relate to the business that are included in the contract that are not contract terms. They can include employee lists, stock lists, assets lists, premises leases and licences.

In the ACT, liquor and food licences can be transferred from the seller to the buyer – the buyer will generally pay for all associated costs with each application to transfer – other licences may be required, such as outdoor dining permits, separate applications can be made for and paid for by the buyer.

Vendor finance is when the seller of a business agrees to accept payment of a portion of the purchase price by way of finance. Generally a separate loan deed will be prepared noting the seller as lender and the buyer as borrow, the parties will agree on the sum of the finance, the length of the term, and repayment terms, including the payment of interest. Under the terms of the loan deed, the seller can register their interest in the business against the buyer (as grantor) on the PPSR.