About Business.                       

 

Most of the following aspects apply to all business -

There are however some particular to Service Stations.      

 

Not all information may be provided and is general by nature.

Seek Individual Professional Advice.

 

Asset Sale.

 

The Sale of Plant & Equipment and or Land and or Buildings

This occurs when there is a Loss, No Trading Figures or no substantial Profit.

This does not include Paint, Tiles or Fitting Costs (Labour) of Range Hoods etc

 

Freehold Property & Business:

 

The Freehold Land and Buildings and Business together as a going concern. 

The Business may be owner manager or be under management.

These sites should give at Rate of Return on Capital,  from 20% to 50%,

unless, the value of the land is higher than the value of the Business & Buildings.

 

Freehold Investment Property: (Passive Investment)

 

The investor owns the Buildings and Land. 

The Right to  occupy the Building & Land is then leased by a

Multi National Oil Company, National Grocery Chain, or private operator.        

The rate of return (% of Rent) depends on the calibre of the tenant, length and terms of the lease.  

Leases are typically 3 to 15 years with options - The minimum (since 2005) is Five years.

The % rates of returns are currently from mid to high 8% to almost 13% nett of outgoings.

                                                                                            

The land may have a higher value for Re-development,

Therefore the highest and best value is for the land to be used

for Re-development. The Business Value has no relevance.

(The business may be used by the Developer until DA and BA are obtained.)

The current buildings may have no relevance,

unless the current buildings can be for another purpose that will

attract a higher return or enhance the return.

 

Leasehold Business:

 

(The Business only - you do not buy the Building /  Property)

The Business owner leases or rents the Building / Property from another party.

This refers to the business only:

For Example:

1. Newsagency - The business is a Tennant and rents from the landlord.

2. Post Office Business - The business rents from the Landlord

3. Business or Franchise in a Shopping Centre - the business owner rents space from the Shopping Centre.

4. Sandy's Fish & Chip Shop - the business owner rents from a private investor (landlord) who owns the property.

5. Hotel or Motel - Lease the Hotel or Motel form the Property owner.

6. Fuel Company Franchise or Commission Fuel Agency - Lease the Service Station from the Owner

 

There are hundreds of examples where the Business does not own the building / premises.

To Sell the Business you must have a good secure lease,

without a good long term secure lease, you only have Plant & Equipment to sell.

If there is no tenure the business is worth Plant & Equipment value if the Buyer wants it.

 

Beware of Demolition or Relocation Clauses in the Leases.

 

If you have a good, secure long lease. The Business may have Goodwill to sell.

 

These types of business can give a return from 20%  to 100% return in a year.

The return depends on many factors , some of which are mentioned below.      Factors

 

A high profit business can be run under management.

 

This type of business can command a good price if all other factors are favourable.

 

Franchise: (Similar to Leasehold Business.)

 

The Franchisor  owns the Freehold Land, Buildings & Business

or the Franchisor has a Head Lease the Freehold Land & Buildings for period of 10 to 20 years.

 

The Franchisor then sells the Franchise Rights to that business for a period of years - 

Most Franchises are 10years  (5 plus 5) .

 

The Franchise is systemised

The Franchisee has the benefit of the customers knowing that the business

has the same Key product the world over. The Customer knows what is in the store.

This is a Franchise agreement with a Franchisor. 

Examples- McDonalds, Caltex, Subway, 7Eleven etc

Redevelopment Sites:

The current buildings do not put the value of the land to it's highest and best use.

The land is worth more than the Current Building and / or Business.

Hence, you may continue the business for a period of time, lease, rebuild  

or redevelop the site into shops, units etc to obtain the highest and best value of the land.

 

Return On Investment: (ROI)

For a Business Only:

 

Generally for Business with a Profit over $200k to $250k after manager

 

The Total Funds that are required for The Operation of a Business:

For Example: Goodwill, Stock, Plant & Equipment, Stamp Duty, Cash Floats, Bonds

and any other Cash Requirement. (eg. Customer accounts.)

If a business has a $300,000 Profit after all Expenses, Wages, Owner or Manager's Wage etc

and a Return On Investment of 25% is required, the Total Purchase Price of $1,200,000 all inclusive.

 

 

Return On Investment: (ROI)

 

Freehold Land & Building (Facility) Only:

 

The following are four examples: (A) (B) (C) (D)

 

If you purchased some Land and a Building:

 

(A) and (B)  Same Industry Type Building and Land (e.g. Service Station.)

 

if different $$$ Rent is received and the Same Price was paid, the example will show different capitalised values.

 

Land & Building (A)

 

If the rent was $100,000 a year and you paid $1,282,051

 

that would be a 7.8% Capitalised Value

 

However

 

Land & Building (B)

 

if the rent was $166,666 a year and you paid $1,282,051

 

that would be a 13% Capitalised Value  -

 

The Difference between Building (A) and Building (B) is the Rent.

 

It is a $66,666 a year difference.

 

Why is the Same Price Paid when the Rent is Different? -

 

The reason why the Price is the same is possibly because of the following may be different:

 

1. Compliance Factors (Council, EPA or others)

2. Location of the land

3. Type of Building Material

4. State of Repair

5. The Redundancy of Plant & Equipment (If included)

6. The Value of The Fit out (If included)

7. Environmental Issues

8. Lease - Income - Tenure - Type of Tennant

and many other factors not listed here

 

Factors

 

Conversely if you purchased:

 

(C) and (D) Same Industry Type Building and Land

 

 

Land & Building (C)

 

Rent of $100,000 a year and you paid $1,282,051 that would be 7.8% Capitalised Value

 

Land & Building (D)

 

Rent of $100,000 a year and you paid  $769,230 that would be 13%    Capitalised Value -    

 

The Difference between the price of Building (C) and Building (D) is $512,821

 

Why is a Different Price Paid when the Rent is Same?

 

The reason for difference in the Price paid maybe because some of the following are different:

 

  1. Current Interest Rates - Low Rates lower Capitalised Value = Higher Price

  2. Lease - Length and Options

  3. Nett Rental Income - Outgoings, Land Tax?

  4. Quality of the Tennant.

  5. Compliance Factors. (Council, EPA, Asbestos and more to numerous to mention.)

  6. Location of the land- Best Building in worst location or Worst building in best street.

  7. Type of Building Material

  8. State of Repair

  9. The Redundancy of Plant & Equipment (If included)

  10. The Value of The Fit out (If included)

  11. Environmental Issues

  12. More these are just some.

 

and many other factors not listed here

 

Factors

 

Return On Investment: (ROI)

 

For the Freehold Land, Buildings & the Business:

 

This will be a Combination of the Freehold Land, Facility (Buildings) and the Business.

Various Businesses have return from 18% to 50% on Invested Money or Price paid.

 

 

 

More Factors that Impact on the Price of Any Business or Property.

Not all of these factors are relevant to every business or property.

This is why you need the services of an Experienced Broker and/or Advisers.

  • Access- To & From, Condition of Access Road

  • Accounts - Debtors

  • Advertising - Can you sell a secret

  • Age-

  • Air Conditioning: Condition Type etc

  • Canopy over Driveway - Size Height

  • Capital Gain Potential

  • Construction Material - Brick - Fibro etc

  • Contamination Levels - Bores holes are drilled on site and soil/ water sample taken

  • Car Parks

  • Days - The number of days the Proprietor works per week

  • Driveway: Condition, Compliance with EPA laws.

  • Driveway Service - In the eyes of the buyer??

  • Environmental Compliance (EPA)

  • External Condition: 

  • Floors - Type Condition

  • Franchise - Renewal Franchise Fees, Outgoings, Options, Term & more

  • Front Doors: Electric, Swing, Condition etc

  • Fuel Monitoring - electronic

  • Fuel Piping: Steel, Poly, Fibreglass

  • Fuel Sales Number of Litres Sold

  • Fuel Sales - Cents per litre Average Margin

  • Fuel Storage: Tank Size, Tank Type

  • Fuel Pumps; Age, Ownership, Under Pump Leak Containment

  • Glass Frontage- Type Condition

  • Good visibility into Shop? Glass Frontage, type

  • Grease Traps - Age condition etc

  • Hours- The number hours worked by Proprietor to receive income stated

  • Income - The amount - Are Key Persons required to generate the income

  • Income - Is there potential to maintain or Increase the income

  • Income - Is income stated for one proprietor only

  • Information- Potential New opposition, Road Changes etc

  • Integrity Test - Testing Pipelines & Fuel Tanks for leaks 

  • Internal Condition: Floors, Paint etc 

  • Key Personnel - For example. A workshop - Is the owner a Mechanic, the Purchaser may not be

  • Kitchen - Age & Compliance

  • Landscaping- 

  • Land Area

  • Land Value

  • Layout

  • Lease - Terms, Years left, Options, Outgoings, Demolition Clause, Re-Location Clause etc

  • Lessee - Financial Security of Lessee, Financial Security of Landlord

  • Location: City, Country, Highway, Passing Traffic Count, 

  • Location: Is the area sought after 

  • Maintenance Needs

  • Manager - Is she/he competent

  • Parking Area - Size Location

  • Plant & Equipment - Age, Condition, Is technology out dated or More needed

  • Point Of Sale: Pump Controllers - Software etc

  • Potential - Good reason for Buyer to buy but difficult to charge for

  • Potential - Difficult to sell with out 

  • Price - Get it right and sell quicker

  • Pump Controller- Type, Age

  • Sales History - Increasing or decreasing - Average of three years

  • Security: Cameras - Type Number, Video- of Hard Drive Recording,  etc

  • Security of Future Income or Profit

  • Shelving for Sale of goods: Condition & Type

  • Shop Front - Glass Visibility to Showroom

  • Shop Sales $ per month

  • Shop Sales % GP

  • Site Contamination Assessment Reports

  • Skeletons - Be Upfront - Otherwise the buyer finds out and runs away

  • Sq Metres of Sales Room

  • Stock - Amount - Balance Sheet Closing Stock - Check for sudden increases.

  • THE TENNANT - The Quality of the Tennant helps determines the ROI

  • Toilets: Number Condition etc

  • Truck Refuelling Area -

  • Visibility - Distance of Visibility From Highway Road

  • Workshop - Car Hoist, Type Age, EPA Compliance, Council Compliance

  • Not all information may be provided and is general by nature.  

  • At the end of the day it will be the Market that determines the price.

.                       

 

For an appointment call Kevin Bishop 0418 797 756 or Dennis 0427 683 743

 

Abisha Business & Property Sales 

 

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