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Would You Buy a "Job" with Less Pay and Longer Hours?

 

(SYDNEY) - I suspect the sane answer is no (all things being equal of course).

So, if you have a business that churns over a net profit of less than $90,000 a year, which is about the average medium salary in Australia, then the sane buyer isn’t going to pay too much money for it - unless some of the other enticing qualities are there, such as more freedom, more flexibility, shorter working hours, a business that runs itself most of the time etc.

Most of the time, these enticing qualities are not there. It is a common sight to see owner-operators work at least 40 hours a week in the business, which makes it a full-time job, and another 10 hours on the business such as managing staff rosters, coordinating marketing and managing financial affairs.

If you are an owner-operator looking to sell your business at the lower end of the market, you are also competing against the jobs market which is offering the fair market value of doing that job.   A chef earning $120,000 a year without risks and with all the perks (such as sick leave, annual leave etc) is not likely to buy an eatery that earns $80,000 a year with all the risks and stress. This eatery isn’t worth much despite what the Seller may say.

 

For businesses with net earnings of less than the average medium salary in Australia, the price buyers will pay for this type of business is going to dip significantly..

 

For businesses with net earnings of less than the average medium salary in Australia, the price buyers will pay for this type of business is going to dip significantly, regardless of how much the owner “poured” into the business.   Some of these businesses have zero value if the pain points in the business are just too much, and the net profit too little to compensate.

Regrettably, owner-operators in this fix often walk away with nothing after a prolonged period of trying to exit the business.  Rather than trying to sell, the owner-operator should seek help on business improvement and business change.  Sometimes, a fresh perspective by an expert pair of eyes can solve the problems that you can’t, but you won’t know until you ask. 

For example, if an experienced advisor can find ways to take you out of the business, then the valuation changes markedly. A business that is genuinely under-management attracts investors, not people trying to buy a job. And investors are willing to pay 2 to 3x annual earnings, because this represents better returns than the sharemarket or term deposit, even if the annual earnings are less than the average medium salary in Australia. 

However, buyers beware. The vast majority of the problems in businesses are imported at acquisition, so you may be able to avoid these woes by seeking the advice of an experienced insider who can give you the micro-insights into the business. Lawyers and accountants look at the business higher up, but who you really need is somebody who can see the “hairline fractures” and the micro-traps in the business hidden away by clever camouflage and concealment.

The last thing you want is to buy something that's broken, and then have to spend most of your time and money to fix it *

Josh Foo

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Disclaimer: This article is general information only and may contain inaccuracies. No responsibilities are taken for any omissions, errors, or inaccuracies. There is no financial, legal, or any kind of advice being provided to you. You should seek proper legal and specialist advice on your own circumstances.