Q. What is a Confidentiality Disclosure Agreement?
A. A Confidentiality Disclosure Agreement is a legal document commonly used in business broking in order to create a legal contract between two parties, normally the buyer and the seller. In most instances, the intent of the contract is to protect the seller’s confidential information from being divulged to third parties, to preclude a prospective buyer from becoming a competitor to the seller and to protect the seller and the sellers staff from a prospective buyer contacting them and or physically visiting the premises of the business without obtaining permission from the seller or the seller’s agent.
To access a PDF File of ROBERT GASMIER Business & Property Broker’s standard Confidentiality Disclosure Agreement (click HERE).
Q. What does PSAV mean?
A. PSAV is an abbreviation for “Plus Stock at Valuation”.
Example: Business Sale Price $450,000 PSAV – means $450,000 for the assets of the business that are offered for sale, plus the agreed value of stock on hand at the Settlement Date. As the stock level in most businesses fluctuates from day to day, it is not practical to arrive at a precise value for stock until a physical stock take is conducted.
Q. What does WIWO mean?
A. WIWO is an abbreviation for “Walk in Walk Out”
Example: Business Sale Price $450,000 WIWO – means the Sale Price ($450,000) includes all the stock on hand contained in the business at the Settlement Date.
WIWO means there is no compulsion on the business owner to leave an agreed value of stock in the business at the Settlement Date.
Q. What is Settlement and the Settlement Date?
A. Settlement means the completion of the business sale contract and normally the finalisation of payment as per the contract. Settlement Date is the day the finalisation takes place.
Q. What is Goodwill?
A. Goodwill is the value placed upon the worth of a business that is over and above the net value of the tangible assets in the business. It is normally the premium the business owner can ask and that a buyer is prepared to pay because the business is an established viable going concern.
Q. What is ROI?
A. ROI is an abbreviation for “Return on Investment”
In business broking, a Return on Investment is commonly used to value a business and it is often expressed as the time it should take for the buyer to recoup the purchase price of the business. As an example, if the purchase price of a business is $400,000 and the business produces an annual profit of $200,000, the ROI is 50% – it will take two years to recoup the purchase price.
ROI should be in proportion to the business risk – the more secure a business is, the lower the return on investment for the buyer.
Q. What are Addbacks?
A. Addbacks are adjustments to the business profit. They are made by business brokers to allow for entries shown as expenses in the Profit & Loss Statement that are ownership benefits, or they are a result of the owners finance arrangements, or they are non cash entries – such as depreciation. Similarly, non trading income entries are adjusted by deducting them from the profit. The rationale behind the addback adjustments is to arrive at an “apples with apples” situation when comparing similar businesses.
Q. Is GST applied to the Purchase Price of a business?
A. Provided the business is a genuine “Going Concern” and it is genuinely sold as a “Going Concern”, the business sale transaction would not attract GST. Sellers and buyers should obtain their own professional advice on GST applicable to the sale and purchase of a business.
Q. What does VO’s mean?
A. VO’s is an abbreviation for “Variable Outgoings”
Variable Outgoings is the collective name applied to tenancy expenses that are in addition to the tenancy rent. As an example, water rates, council rates, land tax, landlords building insurance and strata levies are all VO’s.
Q. What does Due Diligence mean?
A. Due Diligence is often used when buying a business. It is the process of the buyer or his representative, with the sellers consent, scrutinising the business and its records in order to validate, or otherwise, the decision to buy the business.
Q. What are the “on costs” associated with buying a business?
A. In addition to the business purchase price, a buyer can expect to pay:
- Due Diligence expenses (if applicable) e.g. accountancy & legal
- Borrowing expenses (if applicable) e.g. loan fees
- Stock taking expenses – normally split 50/50 with the seller
- State stamp duty
- Settlement agents fees (if applicable)
- Lease application and assignment expenses (if applicable) e.g. real estate agent & legal
- Bond as per the lease (if applicable)
- New trading entity start up expense (if applicable) e.g. accountancy & legal
- Business commencement expenses e.g. rent in advance, insurance & advertising
Q. Who pays the Business Broker?
A. Normally, the business broker’s fee is paid by the seller as a result of a successful sale.
Should you require additional information on the above or other matters associated with buying and selling a business, you are most welcome to contact ROBERT GASMIER Business & Property Broker.