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Valuing the micro business With every recession comes an increased demand for micro businesses. Loosely defined, these are momma-and-poppa businesses selling for less than $100,000 - and in many cases for less than $50,000. They may be small cafes, courier runs, service providers, or home-based businesses. Their financial accounts may not show a reasonable return on the owner?s investment and labour. Often they will be cash businesses with skimpy records, and will not stand up under normal due diligence. Nevertheless, many of these businesses do sell. If the present owner has run the business for, say, 7 years, his two children are at University, he has a modern car in his garage, and the family had a holiday on the Gold Coast last year, then there is a suspicion that the business earns more than the $27,000 p.a. revealed in the latest financial accounts! Paying $50,000 for a business that appears to earn only $45,000 per year may appear stupid to an accountant on $150,000 per year. But for the buyer there may be other benefits, e.g. employment, independence, self esteem, etc plus some surprising ?perks?. Business sales statistics confirm that these small businesses do sell ? and in large numbers. The prices do not reflect accepted risk and return rates, but if the buyer improves the sales and profitability the opportunity is there for a tax free capital gain. Redundancy... the best thing that ever happened to you? The credit crisis and global recession has produced an ever- increasing number of redundancies in the corporate world. For many this is seen as a disaster, particularly if they have a family and a mortgage. It will be difficult to get a job back in the "real" world at a comparable level in the current economy. They will lose the regular paycheck, the company "perks", the paid holidays, the prestige, and the anticipated career path. However, they will also lose the excessive work demands, the time-wasting meetings, the frustrations from lack of decision making power and the inability to control their future. They will lose the ?Burnout? and the boredom. For many they will discover their best option is owing their own business. This will provide them with employment, and an exceptional return on their investment. More importantly, it will provide them with independence, challenge, security and the opportunity for personal growth ? and perhaps a better lifestyle. We have seen many, many success stories over the years where corporate refugees have purchased businesses reluctantly and done wonderfully well ? both financially and personally. Despite forecast increased migration and returning expats unemployment is tipped to rise to 6% so we expect a strong flow of new buyers into the market over the next few months. We are confident many of these "reluctant entrepreneurs" will look back and celebrate the day they were made redundant. |
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