May
22
2010
personal finances, real estate, revenue, stock, stock exchange By admin | Comments turned off

So many credit opportunities are out there

1With so many different franchise and agency arrangements in place in the UK, it is impossible to be specific on what particular franchisees and agents can do with regard to their exit planning. Your agency agreement is everything as far as your rights are concerned and you must start by understanding what you can and cannot do under this agreement.

The need for proper exit planning is becoming increasingly recognised in the franchise industry. You might, however, find that where your principal has not yet developed a policy that fully covers these issues they might be prepared, in consultation with their franchisees, to address the highly important matter of ensuring that you have a significant capital value in your business and that you can realise it on exit. Such a policy is in the interests of both franchisee and principal.

Apr
23
2010
merger, money advice, money issues, money management, money problems By admin | Comments turned off

Credit as a last resort

Where principals wish to motivate franchisees or agents to build up a capital value in their businesses and to encourage, or facilitate their exit planning, they could provide a BOLR facility. A BOLR facility is an undertaking by the principal to purchase a business from a franchisee at a certain price, subject to certain conditions. We will now examine briefly how this might apply.

Usually the BOLR facility will only come into play if the agent has gone through the exit planning steps laid down in the agency agreement to transfer his business and has failed to do so.

The BOLR facility is not meant to be a full substitute for a successfully planned exit. The idea is that it is a last resort disposal and the price paid reflects this fact. For example, in businesses with few hard assets, the principal could apply a valuation formula to arrive at a purchase price at a discount of, say, 30% to true market value or, where there is a large asset content in the business, the principal could set the BOLR price at a figure that reflects the market value of net tangible assets only.

The BOLR facility is found only amongst the more enlightened franchise and agency groups. In these groups it has proved to be a highly successful way of underpinning the value of the franchise to franchisees, as well as an effective way of motivating franchisee and agency growth.

Mar
21
2010
finances, get out of debt, income, international markets, loans By admin | Comments turned off

Finding potential partners for a payday loan

There are some particular points of note for agents or franchisees who are considering mergers, which are as follows:

Finding potential merger partners should be relatively easy within your network. Your business cultures should be very similar, as you have both been working under the same regulated system. The concept of ‘mentoring’ (where older franchisees train and support younger franchisees) is well established in some networks and it is not a large leap to go from mentoring to working together in a merged entity.

Some principals strongly favour mergers between franchisees, as questions of approving the purchaser and training new franchisees do not arise with mergers between people already within the group. (Note, however, that other principals have rules against ownership of more than one franchisee business.)

Principals will usually have more confidence in providing financial help to an acquiring owner who is already in the group than to an outsider.

Feb
22
2010
bonds, business, business tips, credit, credit cards By admin | Comments turned off

The only way out of a bad credit?

credit investorsThe major problem for retiring owners is to find a suitable merger partner. Having found a potential merger candidate, it is then necessary to overcome the difficulties that can arise with a business marriage where different people have different views on how things should be done. The main differences that need to be overcome if you are to have a successful merged business include the following:

Different business strategies.

Different working styles.

Different business cultures.

Different attitudes to owners’ salaries and benefits.

Different views on respective business values.

Where you are the owner of a very small business with no suitable heirs and no middle management staff, obviously family succession and an MBO are not available to you. You could also have difficulties with a trade sale (because ‘you are the business’ and could find it difficult to be able to transfer anything of value to a purchaser). Consequently, a merger might be the only viable way of exiting your business for a reasonable price.

Jan
19
2010
merger, money advice, money issues, money management, money problems By admin | Comments turned off

More on short-term credit planning

98Step 6: Removing impediments to sale As you would expect, some impediments take more time to remove than others. For example, should your major impediment be that your business has only two or three customers and you are advised that to be attractive to buyers it should have at least 20, you could find that this will take several years to accomplish. Conversely, if your impediments are largely cosmetic (such as your business looking run down and untidy) these can be rectified within two years. (You can learn more about impediments to sale in later posts.)

Step 7: Growing the business

Growth through acquisitions is possible, but unlikely, in the time frame allowed. You will usually achieve only limited organic growth in two years.

Step 8: Disposal preparations

These, by their nature, are short-term activities that you will be able to accomplish in a short-term plan.

Step 9: Integration of personal and business planning

Personal financial planning is a long-term enterprise and little of note could be accomplished in this regard over the short term.

Step 10: Disposal

The length of your planning is not a major factor here.

Jan
18
2010
personal finances, real estate, revenue, stock, stock exchange By admin | Comments turned off

A short-term credit plan

3Any short-term exit plan is a compromise. If you are unable or unwilling to delay your disposal for at least two years, you will be severely limited in what you can do to improve the value and saleability of your business. The shorter your planning period the harder it will be to prepare your business properly for exit. Using the 10 steps from previous post as a guideline, we summarise below what you are able to achieve in this time frame as follows:

Step 1: Time frame You have chosen a short-term plan (or one has been forced on you).

Step 2: Structure

a) Although you will have time to enter into a shareholders’ agreement, you might find it difficult at this late stage to get your fellow shareholders to agree with your terms, particularly if they know you want to exit shortly.

b) Tax minimisation: Under current tax laws you are required to own assets in your own name for a minimum of two years to take full advantage of business asset taper relief from Capital Gains Tax.

Step 3: Choosing the optimum exit option

You are limited in your choice of exit option, because of the amount of time that is needed to prepare for some options (see above).

Step 4: Tailoring your business to suit your exit option

This is something that should, ideally have begun at start-up. This is not something that can be done with only two years to exit.

Step 5: Grooming of management or successor

It is not easy to generalise here, but you would usually need two to four years to groom senior management to take over ownership of your business, while some family succession experts advise allowing 15 years to groom successfully an heir for owner/management. The actual time required will depend on the quality of the management and the personal attributes of the successor, but a period of two years’ grooming for managers and five for heirs is probably the minimum.

Jan
17
2010
get out of debt, income, international markets, investments, loans By admin | Comments turned off

How credit insolvency works

Where a business owner is considering closing down a business, insolvency will affect the exit choices available to him. The best way to close down a business from the owner’s point of view is to go through a process of a solvent managed close down with a managed sell off of assets at market prices. The worst way is, probably, a liquidation with sale of assets at fire sale prices and the added burden of the liquidator’s costs.

Post below shows the interrelation between the various factors we have discussed so far. It shows how and when you  wish to exit (or are forced to exit) influences when you might exit which, in turn, influences or limits, what method (or option) you might adopt to exit. It then considers how the method of exit will be determined by whether your company is solvent or insolvent. Becoming insolvent means you have limited opportunities to plan an exit and will, probably, lead to an immediate disposal of the business and/or its assets. If your business is solvent, obviously you should have time to plan for an exit through conventional methods.

Jan
16
2010
credit score, crisis, debt issues, economy, finances By admin | Comments turned off

Economy doesn’t always favour credit issuers

With companies there are several issues, some of which overlap, to be taken into account by directors in deciding whether their company is insolvent, but unfortunately there is no legal definition of insolvency. One issue to consider is whether a company is able to pay its debts as and when they fall due, or is able to reach agreement on their payment, or to provide acceptable security for them. Another consideration is whether the value of a company’s liabilities exceeds the value of its assets. On a pure net asset test a company might be technically insolvent, but it can continue to trade quite legally if it has the finance available to pay its current debts, or has made suitable arrangements with its creditors for payment, and has good reason to believe that its prospects will improve.

The converse is also true: some businesses could appear to have strong net assets (perhaps because of overvaluation of such things as intangibles or inter-company receivables) but still fall into cash flow difficulties and, as a result, could be wound up. The sad fact that many business owners discover is that assets are not cash, and without cash (or access to finance) you cannot continue to trade.

The decision that directors need to make regarding solvency is important for at least two reasons. Firstly, the onus is on directors to make a determination on solvency on a continuing basis so as to avoid any possible legal action for wrongful trading. Secondly, the way in which a company is wound up is dependent, among other things, on whether or not it is solvent.

Jan
15
2010
bonds, business, business tips, credit, credit cards By admin | Comments turned off

When time isn’t in favour of your credit

Where circumstances force you to exit in a hurry (perhaps because of ill health) it is possible that the time of your exit could coincide with a slump in the general economy, or in your particular industry, thus further adversely affecting your selling price. This adverse effect will apply whatever your exit option except, perhaps, a family succession.

Should you have to sell because of the death of a partner or shareholder (particularly where there is no shareholders’ agreement in place) you might have to act immediately with no time at all to plan. Here you will have to sell the business in whatever way you can and whatever the economic climate.

When there is no pressure on you to dispose of your business you can adjust your target exit date to coincide with favourable economic conditions. If the directors of a company believe a company is insolvent they have an obligation to either re-capitalise the company, or to enter into a voluntary arrangement with creditors, or to cease to incur further credit (which effectively means ceasing to trade), or to wind it up. All these outcomes, other than the re-capitalisation will, obviously, have a dramatic impact on any plan to exit the business through conventional methods.

As insolvency is a complex subject, I will spend a moment to explain some of its potential consequences. Where a sole trader decides that his business is insolvent, there is no legal obligation on him to cease trading, although one would expect that, for his own economic well-being and peace of mind, he would take every step possible to reduce his deficit through returning to profitability, or to cease trading.

Jan
14
2010
income, international markets, merger, money issues, revenue By admin | Comments turned off

Unforseen circumstances may affect your loan

Using the example above, if you are unable to list on the AIM you will need to resort to another exit method, or postpone your exit date. In this case, as your health is worsening, you cannot postpone your exit, so you will have to attempt the exit through another method, say a trade sale. You could have two major problems now, namely: the sale will be conducted under pressure and potential purchasers will probably utilise this fact to your disadvantage; the business was being ‘tailored’ and prepared for listing, which will not necessarily mean that it is suitable for a trade buyer. (Please refer to later posts for more information on ‘tailoring’.) The likely outcome is that although the business is disposed of via a trade sale, the price is substantially less than the valuation that would have been put on the business through a listing. Another possible outcome is that the business could be broken up and its assets sold at fire sale prices.

Again using the above example, let us assume slightly different circumstances. You begin with your plans to list on the AIM, but after two years fall seriously ill. You have followed the chosen method of exit, but your business is not ready to list.

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