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12. Cryptocurrency – Taxation

At the moment Bitcoin may not be on the Tax Office’s radar in your country. Don’t bank on it remaining that way too long. Bitcoin is still experimental and new improvements are happening all the time.

As it increases it’s user base, it’s only a matter of time before all Tax Offices have legislation to enforce taxes of Bitcoin transactions. Remember all transactions are recorded and displayed openly, right back to day one. That could create a hefty tax bill further down the track. I’d think about paying the correct taxes today.

A handy trick for any business is to extract an amount to be withheld for taxes but take 20% of it and invest it in p2p funding finance. By the time the tax is due, half of the funds will be paid back and if the business cannor meet the other 10%, a payment scheme arranged with the Tax office will at worst cost half the persentage return you’ll earn on the crowd funding finance. We’ll be looking more into p2p funding after the crypto-currency topic.

The last time I searched the news, the major Australian banks were looking at adopting Blockchain security and the Commonwealth Bank was reviewing trading in Bitcoin. In Europe, several big banks are currently setting up for Bitcoin trading. It’s important to remember cybercurrencies effective shut the banks out, so the fact that banks are no longer refusing to acknowledge it, means it’s only a matter of time before it is accepted. Once a few major banks accept cybercurrency trading, it will open a floodgate of competition. Even if they try to invent their own altcurrency, it will still have to be compatible with Bitcoin, which is already well established.

Just a question that might be worth looking into; what would happen if you convert crypto-currency into a high value currency (e.g. Sterling or US dollars) then bring it back home to Australia or New Zealand when the exchange rates are favorable? The increase could offset some of the tax, if the transfer fees are not too high.

The Business Plan – the next step

You have the introduction section of your business plan done. Now let’s get down to the nitty gritty – the strategy, suppliers, customers, the financial details, advertising and so on.

If I was to finance your business, this is the section I would focus on. This section tells me your better than the rest and really serious, not just about making a business but making THIS business. Here’s where you have to prove you are the expert to do it.

  1. The Market – tell me about the market you intend to deal with. Who are the ideal customers? Who else can you also deal with? I want to see you have left no stone unturned and thoroughly researched your market. I want to know that you are well aware of your competition and the inroads they have made into the same market you are targeting and you have a way of getting the business that will beat them. What if they start fighting back? How will you compete with them.  If you are dealing with people in a specific area, I want to see the map, marked with your market territory and where your opposition is on that map. If you are dealing with a cross section of the community (e.g. the young mothers), show me who else has targeted that cross section and how your business will reach them and provide a better service than the competition.
    – Start with a description of your target market and why they are so well suited to your business. Try and find several markets that will use what you have to offer.
    – Describe your opposition, their pricing, advertising, their presentation and how they are perceived by the market
    – Describe how you will meet the needs of your market and how you can do it better than your opposition. Include any surveys or trials you have done.
    – Include a pricing schedule
    – Include an advertising strategic plan and samples of your advertising
  2. Suppliers – begin with explaining why you use the various suppliers. It could be because they deliver the next day, they give you special prices, they are local and it’s a cheap way to advertise to locals for loyalty.
    – make a list of all the suppliers of materials for your business, their address, trading hours, contact name, telephone number and any comments that are helpful for you (eg.”charges 10% for credit card purchases” or “do not order meat- use National Butchers instead”).

Often people start a business from a hobby. If this is your scenario, describe how your hobby divulged  a need for this service. Remember you need to fulfil a need the customers have, to have a stable clientele. Any business created on a need to sell something will fail, however a business created to fill a need will prosper.

 

 

The business plan

Maybe you are the luckiest person on Earth and won’t need finance to start your business off but  you should still do a business plan. However if you are mortal, like the rest of us, you better have one when you meet the bank manager because without it, you won’t get anyone interested in helping you grow your business.

So what is a business plan?

It is an in depth description of your business, how it will begin, what it will do to make money and what you intend it to look like in 5 to 10 years time. It tells who is who in the business and where it all began. It says who your competitors are and why you are different from your competition. The business plan is a living document, updated regularly. Eventually it will be a historical document recording your business’ humble beginnings but will still show where the business is headed.

Use a 4 ring binder or at least a catalogue folder that can take 20 pages, to begin with. Don’t just scribble it, take the time to make this a presentable document because it can actually perform a very important role in your new business. If you were asked to finance one of two businesses and given a wad of paperwork all out of order for one business and a neat professional folder for the other, which would you choose?

Keep in mind at the start, all you really have to showcase your business, is the business plan, so do it well from day 1. It should subtly sell your business by showing how you are different from your competitors and demonstrate how much thought and planning you have put into your business. There are several templates available but if you set it out this way, you can’t go wrong:

Begin with the Introduction – This describes the business generally – the location, who runs it, the legal structure of the business and the legal aspects of a registered business.

  1. Describe the function and location of your business. If you are a limited liability, it is quite likely you have a registered office elsewhere. If you have a warehouse elsewhere this is where you state it. It’s a good idea to include a photo of the existing premises here or at least how it will look when you begin trading. Don’t go into any detail of what your business does yet, just enough so the reader would know the general nature of the business for example. Include your Business Number and any official business documentation. Your aim is to prove to the reader that you are an official business, not some hobby.
    “XYZ .Pty Ltd is a retail food outlet situated on Main St. Abbotsford. The business is structured as a limited liability company with registered offices at Lygon St. Carlton, VIC 3032”
  2. Business Structure – this includes the roles of the business (e.g. selling baked goods over the counter as well as deliveries to coffee bars in the Northern suburbs on a daily basis). Ideally you want to show several income streams here. Also include the officers of the business and their role (manager, accountant, legal advisor, staff and if they are full or part time).
  3. Business Concept – this is where you can say how the idea began. The aim is to describe how you have had an idea and trialled it to discover a niche market. Include evidence (surveys, trial runs, comparisons with similar businesses etc.) Here’s where you convince me you have done more than have some wild idea. You have carried it further to test it works.

This is the end of the first stage of your plan. By now the reader should know that you are seriously business orientated.

 

Australia Govt Shutdown?

Is it possible that here in Australia we could have a “Government Shutdown”, like happened in the USA that could effect business like it did in the USA?

In short yes but highly unlikely because we have triggers in out system that prevent it from effecting our economy, reducing the impact on business.  In fact when parliament re-convenes, there might be a situation like this.

Recently we changed from a socialistic Labour government to a conservative  coalition called the  LNP (Liberal-National Party) lead by Tony Abbot. Under the Labour leadership, the focus was on returning the country’s balance of payments to a surplus. In plain language this means paying our bills off and having more money coming in than going out on expenses. As time went on with the financial problems in the USA and Europe, the estimated time to get Australia’s economy into surplus, grew longer and longer.

When the government was changed to LNP, in October this year,  although they claimed a surplus was their goal too, once the LNP were actually in power, the story changed. At the first sitting of parliament, the new treasurer asked for an increase in the country’s debt ceiling.  In simple English, rather than talk about working on returning the economy into surplus, the LNP Treasurer, Joe Hockey, asked to put us further into debt.

This is similar to what happened in the USA when Mr Obama wanted to raise the government’s debt ceiling. In their system the opposition refused to agree.

In our system, the government holds the most seats in parliament (that’s how they got into power) so the bill can be passed in the Upper House (Parliament) but to become legal and therefore be able to be acted upon, it has to be accepted by the Senate or Lower House. Tony Abbot won the most seats in parliament however not quite as many in the senate and without a majority of yes votes in the senate, the bill cannot be actioned.

In the senate the opposition does not have enough seats to vote No on their own. There are other seats that are held by representatives from other parties and even independents. It is this minority group of seats that don’t have to stick to party lines, that can side with the Labour seats to refuse the bill that would allow the increase. so far they have mostly stated they will allow only a small increase in the debt ceiling, not the large one that Joe Hockey wants.

If Joe Hockey can’t find enough government savings to run the government so it doesn’t exceed that amount, it will shut down, the same as the US government did. So far the overall effect is the same as the US.

However, that’s where the differences start to appear.

The government is now failing to serve it’s people and under the constitution, can be dissolved by the Governor General. First there would have to be a vote of no confidence and a notice of the results of that vote would be sent to the Governor General. She would then ask the opposition if they could form a government to run the country. If they say no, she can order a new election and call either party to run the government as a caretaker government until the election decides on a new government. It sounds a long winded process but the vote of no confidence can be called even before the government has used up all it’s debt limit. The result would be a change in government before the government stops functioning.

The effects on the business community would be less serious than the USA had. Having the ability to go to the Governor General means we can prevent a stalemate in parliament that would block supply, by throwing the governing party out and either installing a caretaker government  until a new election or if the opposition says they can do it, simply replacing the “lame duck” government with the opposition.

 

US Govt Shutdown – Is it really over?

The politicians got their act together and averted a collapse . . . this time.

But this is not the first time we have faced this issue and like last time, there are still no solutions to stop this happening again.

In the near future, the US President will once again have to go to congress, cap in hand and ask them to raise the debt ceiling again. Congress will once again blackmail the President for concessions somewhere else, in return for their cooperation and if they disagree, we’re straight back to square one again.

You can use all the economics clichés you like but it still comes down to basics. It doesn’t have any relation to the size of the economy. If the country’s books aren’t balanced, income with outgoings, the country is in trouble.

If there’s a surplus then a government should invest it in it’s people. It can upgrade infrastructure or some welfare project, like job creation, that will reap benefits down the line, through reduced welfare payments later. And let’s stop fudging the statistics too. If someone is unable to earn the basic wage, they are unemployed. If they are working too few hours to earn the equivalent to a basic wage, they are not employed – they are not “under employed” either – they still count as unemployed. Maybe if we get the figures right to start with and work on honest statistics, we can come up with a real solution.

If there’s a deficit, the government needs to reduce spending, increase exports or increase employment to reduce welfare costs.

What it shouldn’t do is borrow repeatedly to cover it’s expenses.
It’s no different to any household: expenses have to equal income.

What we are seeing is the result of a country who allowed their industry to be sent off shore and ignored the effect this would have on it’s population. If the people have no jobs, they have no pay. If they have no pay, they can’t buy the goods you produced overseas. Now add to this a war in Iraq, another in Afghanistan, all draining more out of the country’s economy and you have an economic basket case.

Ironically, the deterioration of the environment and climate change has opened up a whole new market, similar to the computer did in the 1970s. Creating jobs in these industries makes sense. The demand will increase worldwide for a range of new bio-green products and technologies. Currently the governments of the world are listening only to existing technologies – oil, gas, coal and atomic energy. Each has it’s own disaster on the horizon. We nearly got sucked in to the rhetoric of the Atomic Energy lobbyists. Fortunately Fukushima showed us the dark side that was not being told.

There’s a market out there just waiting for the right products. China has already moved in to one area, producing cheaper solar panels. Who’s next?

US Govt Shutdown – What’s it really mean?

There’s a lot of fiscal mumbo-jumbo out there and for most of us this is just a group of fanatics playing politics in a nation on the other side of the world, already renowned for nut cases.

Before you get all offended and rush to defend the USA, please explain where the WMD’s were in Iraq, the terrorists who murdered all those people in the World Trade Centre weren’t there either. And what other name could you call those “fruitloops” in the Tea Party?

Sorry to disappoint you but this isn’t just a political hiccup. This shutdown can cause some really serious global issues that could lead to something as catastrophic as the Great Depression, if it is mismanaged. First we need to get down to the very basics of finance – currency and trade. Let’s start at the begining:

The reason the English currency was called the pound, was because originally any bearer (person with a pound note) could go to the treasury and tender the note (hand it over) in return for a pound of gold. Today we refer to currency as “legal tender”, to mean it is backed by the government. Until 1844 it was a bit messy in England because each bank in England issued it’s own bank notes. It was a forgers heaven, mind you if you were caught the penalties were very severe.

1814 Gloucester Pound Note
An 1814 One Pound note issued by the Gloucester Old Bank
(Photo courtesy of Wikimedia Commons)

Even before then, the real currency was not gold or the bits of paper but the confidence that the issuer of the note would pay up, in gold, on demand. Because it never corroded, and was hard to find, gold was the ideal mark of value. Unfortunately gold is very heavy and bulky, so carrying gold was both risky and expensive. In lieu of trading in gold, transactions were done in IOU’s for gold or “notes”. Every country had a treasury where gold was stored in reserve, just in case someone did ask for their notes to be exchanged. The amount of gold in the treasury determined the value of the note. A note from a country with lots of gold in it’s reserves was worth more than a country with a small quantity of gold – this became known as the “exchange rate”

Over the centuries, as far as the public was concerned, the notes themselves gained value to become the currency we use today however the real value was based on the countries gold reserves.

A section of the Bank of England's gold reserve
A section of the Bank of England’s gold reserve

Until President Richard Nixon broke the pretence in 1971, the financial sector believed that the USA would exchange it’s currency for gold if asked to do so. At that point all the rules that had underpinned currency (in other words made those bits of coloured paper actually have value) since the Ancient Sumerians, were thrown out.

Because the USA is the largest economy in the financial world, it’s currency became the benchmark for world trade. I personally found I could travel anywhere in the world using US Dollars. There was always somewhere you could exchange them into local currency. Many countries accepted them in preference to the local currency. Nixon’s decision in 1971 to disassociate the dollar from gold reserves should have rocked the entire financial world but I never noticed it, did you?

So if currency is no longer backed by gold reserves, then what is it backed with?

It’s backed, like it always was, the confidence that the country can pay its debts. Gold was only a symbol of value. The real value was being able to repay the obligation.

Times have changed and the USA is no longer the industrial powerhouse and the hub of technology that it used to be. It’s industry has largely been shipped overseas to third world countries, where labour is far cheaper. The technology that was pouring out of Silicon Valley is now pouring out of China, Taiwan, The Philippines and India. Today to continue to operate the US Government has to borrow money to pay it’s bills. The President has to go, cap in hand to Congress and ask to raise the level of borrowing every year because the USA is spending more than it makes – trillions more.
If it doesn’t borrow, it can’t pay it’s debts.
If it can’t meet its debts, it loses the confidence of those who are holding large amounts of currency and as we discovered, currency today is based on confidence.

The result would be a crash in the value of the US Dollar on the world currency exchanges. If you thought the Global Financial Crisis was big, it was a blip on the radar compared to this!

So, now you have some idea of the mechanics, in the next instalment we’ll go through the effects and see why this is not just a national issue and how this madness can effect us all.

15. When is a Promotion a Demotion?

I started a takeaway business in October 2012. It was an abandoned shop going cheap and working 14 hour days for three months, we turned it into an attractive shop with our bare hands.

Actually I’m a teacher by occupation, who took a few years off in the 1980s and trained as a chef. I returned back to teaching afterwards and two years ago, acquired the service time to become classified as an “Expert Teacher”, a leap up the career promotional ladder.

You’d think that would be a step up, financially – crossing into the next level wage bracket ($80,000 p.a.) but it turned out to be a curse rather than a blessing. My contract ran out shortly afterwards and I had to apply for a new position. Normally I’d apply for 5 to 10 positions and land one or two at least. I discovered that I was getting the same number of interviews but no contracts. Finally I asked a few principals and was told that as an “Expert Teacher” I was priced out of the school’s budget. They could get a teacher in the next level down for $20,000 less per year. There was no way I could hide this latest promotion.

I had to settle for CRT work (Casual Relief Teaching) which meant some weeks I could work 5 days and others only 2 days, depending on when teachers were away. It also meant that I didn’t get paid over holidays either. Even if I did get 5 days work a week, I would still earn less with this latest promotion because I would not be paid for 13 weeks of the year – the school holidays. Then there were the public holidays too – no pay there either.

In effect, my “promotion” was actually a demotion.

After two years of relief work, minding the worst classes while their teachers went on paid leave to have a nervous breakdown, I looked at my bank balance and decided that teaching was no longer a career move. All the dedication does not pay for the repairs to the ageing car that I could not afford to replace now. Along the way I met several other “Expert” teachers who were also trying to survive on CRT work. They told me about other teachers who had been promoted only to receive a huge decrease in pay and had left teaching completely as a result.

I took a serious look at our dwindling finances and discovered the only asset we had left was the family home with it’s small home loan. The value had risen over the years and if I refinanced it, there was enough to start a small business – not enough to buy one outright but if we were careful, we could create a business that would lift us out of the “under-employed” trap. It was a scary decision to risk it all but as we discovered, we had been going backwards over the last two years anyway. The car was old and unreliable, the house appliances were at that age that they were breaking down and due for replacement. Without realising it, we had started to get behind on a few bills and on our income, would not be able to catch up. We had reduced our spending to such a point that we couldn’t cut any more off the budget and I needed a trip to the dentist. If we didn’t change something, we would only sink deeper and deeper until even the house would be at risk.

At about this time, I was asked to attend a meeting a symposium on “Surviving on an unstable income”. I had been allocated 40 minutes to speak and had it all planned out (I also do public speaking engagements). I was the fourth speaker on the list but by the time I stepped up to the microphone, there was nothing left to say. I literally threw my papers in the air and told the assembly exactly that – this was a common scenario of middle aged people being promoted into under-employment and none of us realised until now, how common it really was. Hearing from other people, both professionals and blue collar workers, who had gone down the same path as me, woke me up. It showed me that I had to take some drastic action if I was going to survive. It convinced me to take that risk and create a business of my own.
I needed to become my own employer!

What could I do?  . . . I was a qualified Chef but couldn’t afford to start up a restaurant.
To minimise the risks it had to be something I knew about, something people always wanted and possibly had to have. Food was the obvious choice and if I kept it to takeaway food, it meant less outlay for tables, chairs, plates, cutlery and all those trappings required in a restaurant.

In the following articles, I’ll take you through the stages we went through to get to where we are today. If anyone is thinking of creating their own business from scratch, it should prove very helpful.

You want to be in business – 14

Disclosure – The Section 52

This may have a different document name in your country but the role will be the same. It is a disclosure form that comes with the sale documents when a business is sold. It describes the business operating costs, anyone with a financial interest in the business, the business takings and any outstanding debts, like loan repayments or finance.

Because businesses often use credit and loans, this document is designed to show any such “financial encumberances” or in simple English, any liabilities in the form of debts, that the business owes. It’s very common for people to read more into this document and as a result, get a nasty shock when they start running the business they have just bought.

In reality, most business owners will declare a business income that is lower than real life. If they claim to earn only $45,000 a year, they get lower taxes and GST (VAT or whatever your value adding tax is called). They will also “live” off their business – using business stock and equipment for their personal use. For this reason the amount the business really makes and the amount shown on the Section 52 are different. One is a book figure and the other is a “real life” figure. In most cases the real life figure will never appear on the Section 52.

This creates a problem for the buyer because most business buyers will be using some form of finance, either to purchase the business, upgrade the equipment or to cover the running expenses for the first few weeks. The financier will base the amount of the loan and the risks (and therefore the interest rate and term) on the figures in the Section 52. Here’s an example:

  • John is selling his Takeaway Shop. which has an average takings of $6,500 a week, to Fred.
  • The Section 52 prepared by his accountant is based on the lowest figures that accountant could provide (because it kept Johns taxes to a minimum) which was $4,500 per week.
  • Fred who is buying the business, will only be able to negotiate any finance, based on a business making $4,500 a week.
  • If John has taken out a business lease, business loan or some other form of finance, this would be recorded at it’s full value, whereas the income would be recorded at the “book” value.

The resulting Section 52 could make a good business look terrible because the business income, minus the loan repayments and costs of running  business (Business Debt) could leave the “Personal Income” income below a normal wage.

In other words, according to these figures, Fred is going to invest a large some of money and a lot of time to earn an income that is below the average wage.
Put yourself in the financiers shoes; would your finance this business?

When costs are subtracted from the declared income, the resulting “Personal Income” can appear too low to secure any finance.

This is a common cause of business purchases failing and you need to keep this in mind. A business that is an excellent investment, in reality, may appear a disaster on paper and your finance is decided purely on what’s on paper.

Firstly, if you enter into any sort of arrangement to buy the business, make sure that it is conditional on obtaining finance. If you don’t do do this and the deal falls through, the seller (and agent) can keep any deposit you have paid for the business.

You need to be certain that the actual income figures are true. A business owner can say anything. It’s up to you to determine the real business income (the takings). Then you need to deduct the expenses and see if the remaining personal income is more than a wage. If not, why would you accept all the hassles of  running a business?

Typically business operators use 20% to 40% on the business income, for personal use. In the food industry, it is usually at the higher end of the range. This means if a restaurant’s books say it was taking $5,000 a week, it was probably taking around $6,500 a week. To confirm this, do a trial. It is common to arrange a 2 week trial, where you work there for free and see what the business really makes. Use that time wisely.

  • get an estimate of how much the average order is worth and how many customers come in each day.
  • go and watch a similar business, maybe your opposition, and see how many customers they get. Multiply that by your average order to get a turnover estimate for their business and compare it to the one you are thinking of buying.
  • assess what needs doing to improve the business and how much it is likely to cost you. This is going to be a business expense you need to factor into your business planning.

From the buyers point of view, the only thing a Section 52 is useful for, is to:

  1. Disclose debt and business liabilities
  2. Demonstrate your chances of getting any finance (a lender will only lend a maximum of 80% of the business income).
  3. Show you how greedy the owners are by divulging the income figures they declared versus the income they told you they really made.
  4. Provide you with a usually safe business income figure to base your planning on, knowing it is at the low end of the range.

The law is very strict about providing any false information on a Section 52 so you can rely on the information being conservative and correct.

So you want to be in business? . . . A real life comparison

Who can help? – A real life comparison

Just to illustrate what I said about using a Real Estate Agent here’s what happened to me;

In October we were looking at buying a retail food business. We heard it was for sale from one of it’s opposition and approached the owners in person. For two years previously we had helped a friend starting up in a similar business in another suburb, for a couple of hours a week. One of the other employees there, Cathy, was also looking for a business too.

Cathy saw an advertisement on the Internet and phoned the agent, Michael, who gave her some details and arranged to meet her the following Saturday at the shop to show her around. She went, waited and he didn’t show up, so Cathy introduced herself to the owners and looked through the shop. It was old, tired and surrounded by other similar businesses, so she decided to look elsewhere. The agent and the owners quoted her a price of $145,000 and she made a counter offer of $110,000, which they rejected.

Later Cathy and I were discussing what we had seen over the weekend and we realised that we had both looked at the same business. I didn’t recognise it at first until she described a few unique features about the business. I had been quoted $120,000 for the same place.  That’s $25,000 cheaper!

I went back and did a bit more research and was surprised at the result. The agent had listed this business over a year ago on a “Sole Agency” contract. This meant that the owners could not advertise with any other agent unless the sole agent agreed (and they rarely do when they know another agent is interested). It was a one year contract. During that time the agent had listed it on the Internet and done nothing more. The agent’s contract ran out two months ago but being lazy, he had not removed the ad off the Internet, where Cathy had seen it. Technically there was no “Sole Agent” contract in force. I had come along and the owners had offered the business to me for the price they would have received after the agent’s fees were paid. – saving me $25,000. As far as they were concerned (and legally speaking) the “Sole Agency” agreement was no longer in force.

They were quite within their rights to sell me the business without the involvement of the agent (and the whopping commission fee). I was legally entitled to buy the business at their offered price.

On the other hand, according to the Real Estate Institute of Victoria, even though the agent’s “Sole Agency” contract had expired, Cathy could not buy the business for the price I was offered ($25,000 less). If she did, the Real Estate Institute could try and claim the agent’s commission from the sale. According to them, the agent (through the agent’s ad on the Internet) had introduced Cathy to the business.

As members of the public, we assume the experts are right – after all they are experts, licensed Real Estate Agents, Real Estate Institute etc etc , right?

Wrong!

The fact is that Cathy can buy the business at the price I was offered, saving herself $25,000. Believe it or not, even though the agent had not bothered to renew the “Sole Agency” contract, he would still be entitled to the full commission. However, the fact the agent did not physically show up and introduce her to the site, by law means he was not the introducer. He lost his rights when he didn’t show up to the appointment. To resolve this could mean a court case – not what you want while you renovate your new business.

As it turned out we both agreed that even if the owners accepted Cathy’s offer of $110,000 for the business, she wouldn’t buy it because the squabbling with the Real Estate Institute and the Agent, would be an extra unwanted hassle while trying to revamp the tired old business.

During my investigation, I asked my solicitor to draw up a sales agreement and do all the legals for buying the business and it cost me just under $2,000.

  • So, I would have bought the business for $122,000, whereas
  • Cathy, using an agent too lazy to renew his own agreement, take his ad off the Internet and even show up for the appointment at least once, would have paid $145,000 for the business plus at least $1,000 of legal fees – a total of $146,000.

In other words, using the agent would have cost her an extra $24,000 extra for no extra benefit

I guess you could say the real losers were the business owners who engaged a real estate agent in the first place. Their shop is still on the market and they lost two potential sales. If they haggled I reckon Cathy would have come up $10,000 to the price they offered me and she already had the finance arranged! The only thing that was bugging her was the potential for a legal fight over the agent’s fees with the agent and the Real Estate Institute of Victoria.

I didn’t go through with the sale because I was offered a vacant shop in a better location and it worked out far less to set up.
The business is still for sale and the ad is still on the Internet.

 

 

You want to be in business – 12

Should I get help – Real Estate Agents?

You can locate businesses for sale through Real Estate Agents but personally I don’t recommend it.

  • The Real Estate Agent is there to sell the business and is contractually bound to act on behalf of the vendor, not you.
  • The information you get from a Real Estate Agent, while not lies, is influenced by the fact that they want the business to seem as appealing to you as possible. Remember they have never actually run this business, so should they be giving out any information at all?
  • Agents who specialise in selling businesses earn a commission in relation to the size of the sale. With a portfolio of varying sized businesses, do you think they will put in the work for your tiny purchase, compared to their larger businesses. Be prepared to leave a lot of messages with few replies.
  • Agents are contractually bound to have integrity. That’s an oxymoron. If you had any integrity, no-one would have had to write any contract to bind you to it. They are in it only for their commission and whether you succeed or fail, buying a business that will become a dinosaur in two years time, means nothing to them.
  • Ultimately you are paying that Real Estate agent, their commission is hiking up the sale price. They are working for the vendor, your opposition in the sale; since when does it make good business sense to pay your opposition’s employees?

So you have a situation where you are buying a business off someone who has never actually run it, who is employed by the vendor to convince you to pay the highest price and will make a large commission if they can convince you to buy it. There are Real Estate Agents who specialise in selling businesses but quite frankly, with experience buying a business through a Real Estate Agent and privately, I cannot see any advantage dealing with an agent. Their sales agreements are nothing special, in fact in all the cases I have investigated, the vendors or the buyers solicitor has altered some part of the agreement to secure their client. There is nothing an agent can do that you cannot do yourself with the aid of a solicitor and you would be stupid to buy any business without the assistance of your solicitor.

If you are already employing a solicitor (and you should be), why not get them to draw up the sales agreement anyway?

Rather than a $30,000 commission, you will pay somewhere between $500 and $2,000 and end up with a better agreement. If you found the property without the aid of an Estate Agent, I would go back to the owner and ask him to drop the price by the agent’s fee. After all, the vendor will lose the agent’s fee when the place sells anyway.