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The view from a Business Valuer

The current business transfer market can really be summed up in one word – "Realism". Experienced selling agents know there is little point in sugar-coating the pill for potential vendors - its tough out there, even for businesses which have been successful in weathering the recessionary storms.

The biggest factor in shaping the market is the availability of loan finance. Banks have been criticised for their unwise lending of the past so it's not surprising that they are now adopting a far more selective and cautious approach. That's not to say that banks aren't lending but they are focussing their support on proven operators and sustainable businesses. So, a first-time buyer of a poor quality business or start-up concept isn't likely to receive a warm welcome, unless they have a lot of cash stored under the mattress.

The picture isn't helped by the increasing number of businesses passing through the banks' recovery departments, often resulting from historically high gearing. Whilst the failures of the past should not determine the lending policies of the future, unfortunately they are, making lenders more nervous of investing into similar sectors.

It's fair to say, therefore, that some business proposals are just not fundable, which obviously has an impact on their saleability and corresponding value. Even when a business is trading well, this paucity of loan finance may impact on a buyer's ability to buy.

That all sounds a big negative but it's not the full picture by any means. Demand for good quality businesses remains high, both for buyers and banks. If they tick all the boxes then deals are not only do-able, but at prices driven by the relative scarcity of such desirable assets. So, the value gap between fundable and non-fundable deals is widening.

Like it or not, these are the rules of the game, so how can a vendor maximise the value of their business? Well, don't expect your buyer's bank to "take a view" as they may have in the past. Your accounts and trading records need to be up to date and a true reflection. Take a hard look at your business and consider the weaknesses as well as the strengths - there's no point trying to hide the harsh reality if you want a sale to go through. Finding a buyer is not the same as sealing the sale.

As you look at your business ask the question "would I buy this?" and answer honestly. If you're looking to sell because you can see problems on the horizons, why expect someone else to take it over? Think about the future and what can be done to sustain, or even, improve the business. The banks will want to see a clear, well-thought out strategy going forward, so help your buyer with their business plan. An increasing part of Pinders' work is looking at options for businesses, perhaps involving property remodelling or upgrades and how weaknesses might be turned into opportunities.

Like it or not, the banks hold the key to values but there is still a strong market for professionally run businesses at realistic prices.

EMF Group

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