BAY OF PLENTY BUSINESS NEWS OCT/NOV 2019

16 BAY OF PLENTY BUSINESS NEWS October/November 2019
FAQ when buying a business
There are many important questions to ask when you are thinking
of buying a business. Here are four questions that
I think are key to understand early on.
BETTER BUSINESS BUYING
> BY TOM BESWICK
Director at Ingham Mora Chartered Accountants in Tauranga, is a
business advisor who specialises in buying and selling businesses.
He can be contacted on 027-5744- 019 or tom@inghammora.co.nz
Is the business worth the asking
price? The short answer
is – it’s complicated. It certainly
isn’t just worth what the
vendor thinks they need for
retirement.
There are lots of variables
when valuing a business and
everyone will have a different
opinion.
However, what holds true
is that well-run businesses
that have good systems will
be worth more than businesses
that entirely depend on the
owner and fall apart when they
aren’t around.
Buying a business isn’t like
a buying a house. A house for
sale can be compared with all
the other current listings - as
well as recent sales in the area.
With a bit of work, you can
start to get a feel for whether
the asking price is about right.
Businesses have so many
things that make them different
from one another.
It doesn’t take much before
a small difference in how
a business runs has a large
impact on what it is worth.
Ultimately it comes down
to a mix between the quality of
the business and how much it
is worth to you.
A business is ultimately
worth what a willing buyer will
pay and a willing seller will
sell for when neither is under
pressure.
Sometimes that means that
people pay more than they
“should” on paper – and that’s
fine.
What should you buy -
company or the assets?
The assets. Unless you are
buying from family, or you’ve
been managing the business
for the last 10-plus years you
should only buy the assets and
the goodwill.
If you buy the shares of
the company you inherit all
the skeletons in the closet –
that employee grievance from
a staff member who left six
months ago that the vendor
didn’t tell you about?
That’s on you now. Generally
this is not to be advised.
What is goodwill?
Goodwill is the difference
between what a company sells
for and the price agreed for
the physical assets (vehicles,
equipment and stock etc).
Agreeing on asset prices
as part of a business
purchase - how does that
work?
A seller is incentivised to put
a low value on physical assets
being sold as there is a tax benefit
to them doing that.
They’ve claimed depreciation
on the assets to save them
tax in the past - and they’d rather
not pay any of that tax back.
On the other hand, the buyer
is incentivised to have the
physical assets worth as much
as possible so that they can
depreciate them and achieve
real tax savings in the future.
This means that you’ll have
to negotiate on the value to put
on the physical assets.
For most people who buy
a business there will be a lot
of questions involved. Getting
great and timely answers is
important.
Even better is getting
answers to the questions that
you didn’t know that you
needed to ask - and there will
always be plenty of those. I
suggest building a great team
of advisors around you early in
the process.
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