April 2013 Issue 81

Owner’s involvement

B2B Editor 1 April 2013
Any business buyer who is looking at buying a business needsto understand what the owner currently does in the business.The business buyer wants to know the hours they work and what functions they perform.
An easy example is a chef in a restaurant. If the chef is the ownerof the restaurant, the business buyer needs to understand whatdays they work, how many hours they work (day and night), if theydo the food preparation, ordering, book work and once the ownerleaves, can another chef replicate what the current owner prepares for customers.
All this is important as it impacts the sale price that can be askedfor the business. When a profit and loss is reviewed it needs toinclude all costs and this includes the true cost for the hours andfunctions the owner undertakes in the business.
Using the example of the restaurant and the owner is the chef,if the profit and loss only shows a wage to the owner/chef of $30,000for working an 80 hour week – the profit and loss does not representthe true cost of running the business. The profit and loss needs to beadjusted to show how much it would cost to employ 1, 2 or 3 peopleto do what the owner currently does.
Once you know the true profit of the business, you can begin tounderstand what the value of the business. Further, you begin tounderstand what areas you need to address if you buy the business.
So in essence we are trying to get the adjusted profit and loss backto if the business was run under management so it includes all costs.
This does not necessarily mean businesses need to be run undermanagement – a lot of business buyers want to buy a business so theycan work in it. However business buyers are not going to pay much fora business that in essence is a job. Therefore if after including the truecost for the owner’s time in the profit and loss results in small bottomline i.e. the business only makes enough to pay the owners wage, whatyou have is a business that is actually a job.
Once the business buyer knows the adjusted profit and loss forowner’s involvement, they can look at the business for what it is anddecide if they want to proceed further.
if you want to make a net profi t of $180,000 with a franchise food businessrun under management than you will need to move quick. Some of the benefi tsof this business:
* No owner involvement
* located in one of Canberra’s strongest food courts
* Strong lease* like new fi t out
This bar/pub is run under full management with no owner involvement. Shortoperating hours for a 7 day business. Some of the benefi ts of the business:
* 2012 turnover $1m
* Gp 69%
* Net profi t $186,000
This run under management beauty salon has a like brand new fi t out andrevenues are continuing to grow. The salon mainly specialises in waxing andtanning but also focuses on makeup and skin care. With a strong databaseof 4,000 and located in a strong shopping centre – this is the ideal businessfor those working in the industry to own their own business.
$395,000 + SAV$
Very strong cafe that is situated in the large Government building with no othercompetition. Owners rely on their strong staff to operate the 5 day cafe withthe owners averaging just 16 hours in total per week.
* Turnover 2012 $670,000
* rent per week $1,300
* Gp 58%
$405,000 + SAV

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