Articles

Trust in Business

Who can I trust and when?

Written by Vanessa Hall    

Friday, 25 April 2008 22:38 

Trust is one of those funny things. We think that, because we trust someone in one situation that we can take that same trust and extend it into another situation. The thing is, sometimes it works, but often it doesn’t.

What we need to realise is that there is such a thing as situational trust. This is simply a rule that says you can’t always trust the same person in multiple situations in your life.

Let me explain. I define trust as our ability to RELY on:

A person, or people
Companies and organisations
Products and services
To deliver an outcome to us.

What happens with trust is that, when we have it in a relationship, it’s great. Things are calm, there’s less conflict, things don’t always go right, but you can at least sit down and have a conversation about it when something’s not right. Because this is good, we then automatically continue to extend trust without thinking about these three core things I talk about constantly:

What am I expecting now?
What do I really need?
Can this person promise to meet those expectations and needs?
When we don’t think about these ENPs® as I call them, and don’t communicate them, disaster strikes! Let’s look at an example:

Now, I draw my model for trust like a wall, after all, we do talk about building trust, so we have, in this case, Julie’s expectations of Ted, her needs, and the promises he has made to her, mostly implicitly.

Julie had trusted Ted in one situation, as a dating partner, and extended it so that she was trusting him as a house sitter. What she failed to do was to explain to Ted what she expected him to do while she was away, explain what she really needed from him, and to see if he was prepared to promise that to her.

Once Ted realised she expected him to keep the place tidy, wash and mop the floor, wash the dog, do some grocery shopping, and so on, he may have decided that he didn’t want to stay! Or he may have been happy to do that. Either way, the whole outcome would have been different if the ENP® conversation had occurred.

In my experience, most people do want to be trusted. We just need to learn when to trust people, how to communicate that we are trusting them, and when to make sure we are clear about what others are trusting us for.

Remember, trust is fragile handle it with care.

* Vanessa Hall has written an award winning book on trust.

Main Beach History       Link

Property Graph 

Main Beach (originally Southport East) is a suburb of the Gold Coast. During the early years in which Southport was the urban centre of recreational activity at the coast, visitors were ferried across the Broadwater to surf at the Main Beach so named because it was the main surf beach for the town of Southport. The area was defined by narrow coastal dune between the sea and the mouth of the Nerang River. Narrowneck formed the southern boundary and to the north a spit of sand terminated in a break or bar between the Broadwater and the sea. A natural basin for boats existed at the mouth of the river. The area became more popular following the construction of the Jubilee Bridge in 1926 when land was taken up and holiday houses were constructed. Some guest houses were also constructed but little or no permanent population was located in the area. Some evidence remains of the areas early popularity as a surfing beach in the beachfront planting and the kiosk and shelter shed from 1934.

The construction of the new bridge and the deviation of highway to the west of Main Beach in the late 1960s was preceded in the 1950s by early reclamation of the Nerang River to the west of the earlier subdivision and the area centred on Tedder Avenue dates only from that time. A different subdivision pattern in that portion of Main Beach is the result. Similarly the land to the north of the early subdivision - the sand spit that formed one bank of the bar - was only recently developed. Until the 1870s and 1880s the only activity in this area was limited to facilities associated with the Southport Yacht Club and other maritime activities.

Its use is still limited although resort hotels and theme parks now occupy the land. Revegetation of the Southport Spit followed the construction of the Gold Coast Seaway and gives particular character to this area and acts to link the more intensively developed area to the south with the open areas of the Broadwater and Southern Moreton Bay. Main Beach property has developed as a high rise area only relatively recently and is focused on Tedder Avenue. It has a sense of more permanent residential neighbourhood than other parts of the high rise coastal strip. The restaurants and coffee shops service this use. Most of the apartment buildings along the foreshore are more modest in scale. The isthmus at Narrowneck acts as a natural barrier to the more intensively developed area to the south.

The Gold Coast Oceanway travels on the seaward side of the Southport SLSC but then diverts inland to travel behind beachfront houses of Main Beach down to Narrowneck. Some local residents would like a new Oceanway pavement constructed along the road reserve between the beachfront houses and the dune area.

December 2008

Jobless figures may lift market off Bottom

This may well be the low water mark for private business prices in Australia. This is because the balance of supply (businesses looking to sell) and demand (people looking to buy) has begun to swing back from a massive oversupply to a more balanced equation.

Ironically a key component in the change is corporate redundancies, particularly of middle management. This is bringing a new stream of highly qualified and temporarily cashed up individuals into the market.

It is this exact demographic that fuelled the franchise boom in the 1990 recession and the dot-com bust of 2001. What is different this time is that privately owned businesses are far more competitively placed against franchises than they have been historically.

These new entrants are predicted to break the current stand-off that exists in the market at present. Triggered in October by a severe tightening on money supply, and then fed by daily predictions of doom and gloom, many buyers have been sitting on their hands waiting to see just how low prices will go.

This has effectively frozen the market. However, a number of business brokers and others in the industry are predicting that the start of 2009 will see increased activity as there is a growing consensus that any businesses worth having will not get any cheaper.

The BizExchange team has begun work on the December quarter figures, and the initial data appears to support that the bottom of the market has been reached.

As outlined in the September quarter index, there is a price point at which current business owners choose to not sell at all. It was apparent last quarter that the market was nearing the bottom; it appears now that it may have reached it, and we can look forward to a more buoyant 2009.

All of this should be good news to the many baby boomers still looking to sell their business to fund their retirement. It would appear that a significant number of these people have postponed their retirement in the hope that the market would turn. The challenge for them will now be keeping their earnings up in a more difficult market

Advice on Buying Businesses

A decision to buy a business can be an exciting one, presenting you with both opportunities and challenges that need to be assessed before committing yourself.

Buying a business is a significant investment of time and finances and you should evaluate not only the business opportunity itself but also your abilities to run a business. 

Will the business be suitable to your lifestyle?

As an independent business owner, you should consider your skills in the roles of marketer, bookkeeper, human resources manager, accountant and research & development. 

You can be responsible for all these aspects of the business until you employ appropriate staff!

A key consideration when selecting the appropriate business to purchase is to look for the warning signs. 

The Australian Competition and Consumer Commission (ACCC) recommends purchasers be wary of advertisers who:

• claim that you can make large amounts of money quickly and with little effort;
• are reluctant to provide written information;
• require upfront payments before any information is released; and
• are reluctant to provide financial information about the profitability of the business.

It is also important to be aware of the key documentation involved in the purchase of a business.  This includes the following documents:

• a Contract of Sale;
• a Section 52 statement.  (It's a requirement if the business being purchased is less than $200,000 and is being purchased in Victoria.  Check your local government for disclosure requirements);
• a lease, sublease, licence or occupancy agreement if the business has a leased premises, (in which case an Assignment of the Lease will be required);
• Transfer of Licences, such as registration of business name, intellectual property, and trade mark certificates (if applicable) and other licences and permits required for the successful operation of the business.  For example, retail food premises may require Food Registration Permits, Liquor Licences or Footpath Trading permits.

Further, if the business to be purchased involves transferring employees, employment agreements will also need to be drafted.

In addition to the above documents, when considering to purchase a business you should seek to obtain the following information:

• Yearly statements of outgoings;
• Disclosure Statement;
• Inventory of plant and equipment;
• Permits; and
• Any Hiring licensing or other agreements affecting the business. 

Before committing yourself to any business sale, you should seek professional advice from your accountant, lawyer, and if necessary from appropriate financial advisers. 

In order to obtain the greatest assistance from your professional advisors, you should seek to obtain as much financial details of the business as possible.  This will aid in making an informed decision about the business being purchased.

Deciding between franchises and businesses 

In many respects, purchasing a franchised business is very similar to that of purchasing an independent business.  Australian Business Sales Corporation Pty Limited offers both business types for sale.

The most notable difference in purchasing a franchise is that a franchised business has a level of support provided by the franchisor and its franchise network compared to operating a small business on your own.  Statistically a franchised business has a higher likelihood of success in comparison.  

One of the key advantages is the established brand recognition, especially in the first few years.

Another notable difference between purchasing a business and that of a franchised business is that as a franchised business owner, you are bound by the directions of the franchisor. 

As an independent business owner you enjoy the freedom to determine the direction of your own business. 

The legal process and documentation required for purchasing a franchised business is the same as a non franchised business with exception of some further documents as outlined in this article.

A Franchise Agreement and Disclosure Document will be provided to you by the franchisor upon the purchase of a franchised business. 

The franchise agreement is a further document which must be entered into in addition to the Contract of Sale. 

Essentially, a Franchise Agreement is an agreement granting you a right to operate a business under a system of the Franchisor.  You are associated with its intellectual property and trade marks.  In exchange is the payment of a fee for this right, usually in the form of royalties or service fees.

The Franchise Agreement deals with your relationship with the Franchisor and outlines the rights and obligations of the parties in relation to matters such as:

• Advertising and promotions;
• Accounting/reporting obligations;
• Assignment and sale of business;
• Dispute resolution procedures;
• Manuals and policy directives;
• Default and termination;
• Guarantee and indemnity.

Similarly, with the purchase of a business, professional advice is not only recommended but required to be sought under the Franchising Code of Conduct.  In this regard, you would need to have a lawyer experienced in franchising review the Franchise Agreement and Disclosure Document. 

This will ensure its compliance with the Franchising Code of Conduct and to conduct general due diligence of the business and franchise system.  Your lawyer would also be able to provide you with advice in relation to 'structuring' the purchase.

In considering the purchase of either an independent business or a franchised business, it is necessary to consider how to structure the purchase. You need to decide whether you will conduct the business as an independent proprietor, private company or as a partnership.

Depending upon your choice, taxation implications will arise and relevant shareholder or partnership agreements may be required.  It is essential that accounting and legal advice is obtained before entering into a the purchase of a business or franchised business to save you further long term costs and stress!

Whether an existing business or franchise is right for you, be sure to explore all the options available.  Browse an industry  , www.australianbusinesssales.com.au of interest on SEEK Commercial and review the current opportunties.  Google is also a handy tool to research a business of interest and trade magazines can be a useful resource for industry news. 

Speak to family and friends or seek the assistance of a business advisor.  Try to get as much advice as possible before making the big decision.

Steps to buying a business

So you think you’ve got what it takes to be your own boss? 

Buying a business is a very serious decision and can be one of the biggest investments you make in your lifetime.  This article looks at the steps involved in buying a business. 

It provides a good starting point to ensure you’ve considered all areas before making the big commitment. 

We've broken down the process of buying a business into -

Evaluate yourself

Owning a business is certainly not for everyone. It’s up to you to ensure you’ve considered all the options before making the decision to be your own boss. 

You have to identify and accept your strengths and weaknesses. It’s always a good idea to put these down on paper. List not only your professional strengths, achievements and skills but also your personal characteristics, as these will play a crucial part to your suitability and success.

SEEK offers a free self-assessment tool, SEEK Direction, to help understand your strengths, weaknesses, likes and dislikes. This can be a good starting point. If still in doubt, or you would like a more thorough analysis, there are vocational counsellors that specialise in providing a more formal assessment. 

• perseverance
• dedication
• entrepreneurship
• leadership
• self-belief and
• confidence
  

If you’re not a natural decision-maker or lack in confidence, then you may need to reconsider owning your own business. 

Business structure

In conjunction with your accountant and lawyer you should consider your business structure prior to buying a business.  There are asset protection issues and taxation considerations that need to be addressed.  Some of the possible structures which can be adopted include:

• sole trader
• company
• partnership
• trust
• or a combination of a company and trust structure
  

• the business owner's reputation in the market place;
• any current or threatened legal proceedings against the business owner;
• historical trading information and financial reports in respect of the business;
• the lease for the premises you may be occupying and the lease needs to be assessed by your advisors.  You also need to ensure that any local government council permits or licences are obtained as required.
• we have included a checklist for buying a business which is in the next section.
  

Evaluate the location

The location may be critical if you intend to be reliant on passing trade.  If the location of the business is within a shopping centre you may request from the owner or the centre management traffic management information.  This can provide helpful information about the area near the location of the business.

Cooling off rights

Some Sale of Business Contracts provide for a three day cooling off period.  It is also possible for a purchaser to avoid a contract.  These circumstances include where the purchase price does not exceed $200,000 and the vendor has failed to provide a disclosure statement.  In this instance the purchaser may avoid the contract at any time prior to completion.

Employment issues

You should be aware in acquiring a business to give careful consideration to all potential employment issues which may arise.  This includes, but is not limited to:

• statutory entitlements
• the terms and conditions of employment
• applicable industrial instruments
• termination of employment
• equal opportunity and
• occupational health and safety obligations. 
  

These issues should be discussed in detail with an experienced legal advisor prior to signing any Sale of Business Contract.  It is critical that a prospective purchaser is aware of the range of employment issues as there is various legislation imposing obligations on a business owner of or incidental to their employees. 

For example, the recently amended Workplace Relations Act 1996 (Cth) not only sets out minimum terms and conditions of employment for employees but also imposes onerous notification requirements on purchasers of businesses.  Breaches of these provisions in the Workplace Relations Act 1996 may result in penalties of up to $33,000 for corporations.

Buying a business is a serious undertaking and careful planning in terms of due diligence, financial budgeting and a detailed business plan, including an exit strategy, are critical in ensuring that you make the right decision.

Review the checklist for buying a business. 

Checklist for buying a business

Buying a business is a serious undertaking and it is important that appropriate legal and financial advice is sought prior to signing any documentation.  The franchisor or business seller should be prepared to provide you with sufficient information to conduct a due diligence in respect of the business.  You should be wary if they're reluctant to do so. 

We provide a checklist of due diligence that may assist you.  This is not comprehensive and is not a substitute for obtaining independent legal and financial advice from qualified advisors.

• Does the business have a good reputation?  Check with customers, suppliers and credit reference associations.  You can also search the business on the internet to ensure that there are no undisclosed adverse issues
• Review the ownership documentation of the business including conducting company searches and business name searches to verify the vendor
• Obtain a comprehensive list of the assets being sold and verify the condition of the assets and that they comply with all relevant regulations including occupational health and safety.  Are the assets adequately insured until settlement?  Are you able to obtain similar insurance?
• If any of the assets are leased, are the terms reasonable and can you take over the existing leases or will they be paid out by the vendor?
• Obtain a list of employees including full salary and entitlements so that you can verify the employment costs against the financial accounts.  Will key staff continue employment with you?  What if they don't?
• Obtain a list of intellectual property including all trade marks, patents, brand names, logos, etc. and verify ownership of these
• Have you checked with the relevant authorities in relation to permits or licensing obligations in respect of the business or the premises?  Are the permits and licences transferable?
• Does existing stock include old, unsaleable or items that no longer fashionable?  Have existing stock levels been run down?  If so, you may need additional cashflow to build up to a reasonable trading level.
• Will you be able to increase sales with current resources?
• Obtain a copy of the lease to any premises that is relevant to the business to determine there is sufficient tenure to operate the business and that the terms are otherwise in accordance with market conditions.  Will any new or planned developments nearby affect your trade?
• Obtain financial accounts in respect of the business for the previous three financial years.  How realistic are historical costs as a percentage of sales?  Would your cost structure differ greatly?
• Review customer lists to determine the strength of the relationship between the customers and the business
• Review material contracts and determine whether those contracts can be transferred to you
• Obtain confirmation that all taxes and WorkCover premiums are up to date
• The draft Contract of Sale should include comprehensive warranties provided by the vendor and its directors as required by your advisors
• Does the Contract of Sale include a restraint of trade clause binding the vendor and its directors to not compete for a period of time and within a certain distance of the business
• If the purchase is subject to approval of finance by your financier a relevant condition should be incorporated into the Contract of Sale
• Have you obtained legal representation from a qualified practitioner for the Contract of Sale, leases and other ancillary documentation and in respect of transmission of employees?

Ready to buy?  You may need to consider finance and business lending.

Finance & business lending

Starting up or buying a business often involves a large capital outlay. If you have insufficient funds or personal worth to meet the initial costs, you may need to consider borrowing.

Applying for a loan can be daunting, especially when you are not experienced in the area.   Whether you are applying to a bank, finance company, venture capitalist or other source, the lender's basic requirements will be similar. The following is a broad overview of the finance application process.

Generally, a lender will consider three key elements when determining whether to approve a finance application:

• the character of the applicant;
• the applicant's projected cash flow;
• the available collateral or security for the loan.

• your resume or other documents showing relevant work experience (credible references may be useful too);
• a detailed, well-thought-out business plan, displaying your understanding of the business and what is involved in running it;
• your credit history;
• full disclosure of other relevant information when requested;
• open and honest responses to any queries.

Cash Flow

The finance provider needs to be reassured that proceeds from your business will be sufficient to cover any loan repayments. Show them:

• cash flow projections, based on reasonable assumptions and attainable benchmarks (you may need an accountant to assist with this);
• justifications for your estimates and assumptions (how do you intend to sustain a particular level of sales, rent, wages etc) and provide any documents you may have which assist in supporting your rationale (eg: current expenditures for the business, staff rosters to demonstrate wage expenses);
• current balance sheets and profit and loss statements of the business to show your anticipated figures are attainable.

Collateral

If you have equity in an asset, you can borrow against the asset which then becomes security for the loan. Generally, borrowers use their home or investment property for collateral. If you are buying a franchise, some financial institutions will lend against the franchise system itself if it is accredited by the finance provider. You will need:

• an accurate and realistic market price for your house or other security (the lender will often require an independent valuation after indicative approval so you must be sure your valuation is credible);
• a certificate of title or other evidence that you own the property;
• information about any existing mortgage that may be on your property.

Be careful when using an asset as security as you are risking your ownership of this asset if you default on loan repayments.

Other Information

In addition to information relating specifically to the three criteria above, a lender may request further information about your personal finances and about the business.  These include:

• personal income and/or tax returns;
• personal debts/liabilities including any other loans;
• details about the business structure, including details of any companies, trusts, shareholders, beneficiaries etc;
• details relating to the business premises and lease (if relevant);
• details of the franchise system and the franchise agreement (if the business is a franchise);
• details regarding key personnel.

Be prepared to provide personal guarantees as this is a standard requirement for most finance providers.

What can I expect from my loan?

Before applying, and during the application process, be sure you know exactly what you can expect from any approved finance application. Important elements to consider include:

Amount - as a rough guide, financiers will lend between 50-80% of the set-up or purchase cost, depending on the lender, your history and the perceived risk.

Term of Loan - in general, lenders will not agree to loan terms longer than the term of the lease or the franchise agreement (where applicable). Terms can be up to 10 years where they are secured against the business assets.

Guarantees - lenders will usually require personal guarantees from any directors or shareholders.

Insurance - often lenders will require you to have sufficient life insurance, including cover for death and total or permanent disability.

Interest rate - it is crucial to understand how much effective interest you will be paying. As a general indicator, you can expect to pay between 8% and 10.5% on loans secured against the business.

Other fees/charges - often extra fees go unnoticed or may seem insignificant, but they add up quickly and you need to be aware of the real cost of the loan. Additional fees can include establishment fees (around 1% of the loan amount), stamp duty and legal fees.

When do you need a lawyer?

Buying a business or franchise involves many aspects which you may be unaware of. A lawyer will protect your interests, assisting you in ensuring all important points are covered off and all legal requirements are satisfied.

Buying a business

When purchasing a business, your lawyer will:

• assist you in completing due diligence checks on the business;
• arrange for title searches of any property to confirm the true proprietor and reveal any mortgages;
• arrange for company searches of the vendor company to reveal any charges over the company assets which you may be purchasing;
• arrange to search rates certificates to ascertain whether the rates have been paid as disclosed by the vendor;
• arrange to search Vehicle Security Register to reveal the title and registration of any vehicle you may purchase as part of the business;
• review your contract to ensure it adequately protects your interests, and will negotiate for the inclusion or removal of clauses as necessary;
• assist you in identifying, protecting and registering your intellectual property;
• advise you in relation to dealing with employees whether they are transferred from the previous business owner, terminated or new;
• provide advice on any further obligations you may have such as transferring the business name to you, registering for an ABN or for GST.  They will acquire the necessary licenses or permits to run the business, ensuring compliance with any obligations you have;
• provide advice on effective business and corporate structures;
• provide advice regarding finance options.

Buying a franchise

When buying a franchise, in addition to the functions outlined above, a franchising lawyer can assist you with the following aspects:

• reviewing your Franchise Agreement and any additional documents, advising you of your rights and obligations under each;
• ensure the disclosure document provided to you complies with the Franchising Code of Conduct;
• advise you in relation to effective ownership structures;
• advise you in relation to any negotiations or disputes with the franchisor;
• ensure the franchisor's procedures and requirements do not breach Trade Practices law;
• reviewing and advising you on any lease, sublease or occupancy licences;
• advising you in relation to employment matters.

Once you have done the groundwork, investigated several types of businesses and decided on the business you wish to buy, you should contact a lawyer.

Ideally, you should consult a lawyer prior to signing any documents committing you to anything. This gives your lawyer the opportunity to assess all elements of the proposed transaction and advise you accordingly.  It also gives you the opportunity to 'back out' if you discover something unexpected or unfavourable.

However, even if you have already executed a contract or other document, your lawyer can still assist in giving you a better understanding of what the transaction will involve and will help you to best protect your interests.

If you are thinking about buying or selling a business then please contact us on 

1300 722 556  and get  the best advice today !