Part 1: Understand Your Accountant’s Limitations When Appraising a Business
Welcome, dear readers, to an enlightening series that dives deep into the fascinating world of business brokering. As an experienced professional in this field, I’ve had the privilege of facing a wide range of challenges, each of which has contributed to my growth and resilience. In this series of posts, I aim to highlight the top 10 ways in which purchasers can provide invaluable support to their business brokers.
As a business broker, I have the task of guiding clients through the intricate process of buying and selling businesses. I get to witness the excitement, dreams, and aspirations of both buyers and sellers firsthand. However, behind the scenes of this dynamic profession, there are certain challenges that, when overcome, can truly enhance the overall experience.
In this exploration, I will specifically focus on the vital role purchasers play in the acquisition process. While each purchaser is unique, there are common patterns, positive traits, and behaviours that have made my journey as a business broker all the more rewarding.
Get ready to navigate through the elements that can make the relationship with purchasers a highly fulfilling one. From their thorough due diligence to their unwavering commitment, we will uncover the top 10 aspects that make this part of my job truly gratifying. Through my insights and anecdotes, I hope to shed light on how purchasers can become instrumental allies to business brokers, providing a behind-the-scenes look at this multifaceted profession.
Whether you’re an aspiring broker looking to gain insights into the rewarding aspects of the job or simply a prospective purchaser eager to learn more about the nuances of the business world, this series promises to engage and educate. Let us embark on this journey together as we celebrate how purchasers can positively impact the world of business brokering.
Accountant Limitations When Appraising a Business
Accountants play a crucial role in helping purchasers make informed decisions when it comes to business acquisitions. However, it’s important to understand that accountants, while experts in financial matters, may not necessarily hold a broker’s license or possess in-depth knowledge of business valuations. This can impact their judgement of a “good business” from a “bad one”. Some limitations of having an accountant ‘value’ the business you intend to purchase:
Expertise Matters: Business valuation is a complex process that involves a deep understanding of various factors, including financial statements, industry trends, and market competition. When engaging your accountant, consider their familiarity with the industry. It helps to work with someone who specialises in hospitality businesses, as they will likely work alongside the brokers to truly understand the business financials.
Inadequate market knowledge: Assessing the market dynamics and competition is crucial in determining the value of a business. Without market knowledge, the accountant will not have a clear understanding of how the business performs relative to its competitors or how changes in the market could affect its future prospects. Additionally, they will not know how the business selling market is performing and what recent sales in the area have been – all critical to providing an accurate appraisal.
Ignoring lease terms: The lease agreement can have a significant impact on the value of a business. Failing to review lease terms can lead to surprises, such as restrictive clauses (e.g. demolition or relocation), high rent increases, or lease expiration in the near future, which can affect the business’s value and long-term viability.
Reliance on professionals: While involving an accountant or solicitor is a wise decision, it’s important to recognise that they rely on accurate information and the client’s input. If the purchaser does not provide essential details or fails to ask relevant questions, the professionals will not be able to provide an accurate valuation.
To address these challenges, it is crucial for the purchasers to educate themselves on basic business valuation principles, market conditions, and competition in the industry. Additionally, thoroughly reviewing the lease agreement and seeking professional guidance from experts experienced in business valuations can help ensure a more accurate assessment of the business’s worth.
It is also important to note that the accountant must concentrate on the financial KPIs of the business rather than providing an evaluation and only provide guidance to the purchaser on whether the figures provided fit within the industry benchmarks for that particular type of operation – they do not possess the necessary market knowledge required to offer anything but that! In case anyone is wondering, a Class 1 Business Broker License takes 3 years to achieve!
Collaborative efforts between professionals and purchasers can lead to successful and informed business transactions.