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Monday, 16 January 2017 03:47

Frequently Asked Questions

Please read on to view our frequently asked questions and answers. If you have more questions about buying a business for sale, contact us today on (+61) 08 8331 1588 or (+61) 0417 859 190

What is AMORTISATION?
Amortisation is the goodwill figure paid for the business that is written off as a tax deduction, both and as of a time over a period of years.


What is a "BALANCE SHEET"?

A Balance Sheet is a document that shows the total assets and liabilities. Assets would commonly include $cash at bank, plant, equipment, debtors and stock. Liabilities can be best summed up as what a business owes at the date the balance sheet was prepared. This is a document relevant to the individual, not the running of the business and as such is not required when assessing a business for sale. It is the owner's private document.


What is "COST OF GOODS SOLD"?

Cost of Goods Sold is the total cost to the business of the goods sold during the specific trading period.


What is "DEPRECIATION"?

Depreciation is is the gradual process of writing off the cost of an asset, or paying off a liability by means of a sinking fund, over a period of time. The plant and equipment of a business depreciates in value and usability every year. The depreciation rates are set by the ATO and applied by an Accountant when calculating depreciation. As depreciation is not a cash expense, it is deleted as an expense when calculating the net profit of a business.


What is "E.B.I.T."?

Simply put - Earnings Before Income Tax. This is the net profit before interest charges and personal/business taxation is paid.


What is "E.B.I.T.D.A."?

Earnings Before Income Tax, Depreciation, Amortisation.


What is "GOODWILL"?

Goodwill is the intangible assets that forms part of the sale price over and above the price asked for the tangible assets and stock. This component of the sale price represents payment for the existing client base and the security of future profit. Some people say that when a business is sold, the goodwill "walks out the door" -when the owner leaves. This can be true is some cases; however, in general, this is not the case, Things such as client base, b2b relationships, intellectual property,client base, staffing et cetera do endure.


What is "GROSS PROFIT"?

Gross Profit is the single most important figure in all businesses. This figure shows the difference between the revenue and the cost of goods for a business; viz. total sales - Cost of Goods = Gross Profit. Gross profit is often expressed as a "%" of revenue [gross profit x100 divided by Total Sales = Gross Profit , GP "%" varies from industry/sector to industry/sector.What is certain though is that for any business to be successful and profitable its operating gross profit to sales ratio needs to be such that all other expenses can be met whilst retuning an acceptable net profit.


What is "INTELLECTUAL PROPERTY"?

Intellectual property [IP] represents the product of your mind or intellect. It can be an invention, trade mark, original design or the practical application of a good idea In business terms this means your proprietary knowledge - a key component of success in business today. Confidential information such as patents, designs,trade marks plant breeders rights, circuit layout rights are all legally classified at IP rights.


What is "LOAN PRINCIPAL"?

Loan Principle is the amount of money borrowed to fund an investment and on which interest is paid.


What are "MULTIPLES"?

This is the same as R.O.I. but expressed as a number, usually between one (1) and five (5); used to multiply the net profit to give total sale price


What is " P.E.B.T.D.A."?

This is short for Proprietor's Earnings Before Interest, Tax, Depreciation, Amortisation like E.B.I.T.D.A.


What is a "PROFIT AND LOSS STATEMENT"?

A profit and loss statement shows the total revenue and expenses of a business for a certain period of time. Profit and Loss Statements require thorough investigation as the "bottom line" of a profit and loss can be influenced by many factors , such as "one off" expenses; owners drawings; or revenue that may not be relevant to normal trading. These items are called"add backs"; and while relevant to the current owner -may not be to a new owner.


What is " RETURN ON INVESTMENT"?

R.O.I. is the acceptable return for your investment...that's the "net profit" from a business.


What is "STOCK AT VALUATION"?

S.A.V. is the total value of products that a business holds on the day - prior to possession/settlement. It is calculated at cost/wholesale price

It will include trading discounts applied.


What is "SALES TIME LINE"?

This is an approximate timeline that is takes to bring a business to settlement. This scope is modular in concept and design.


What is"STOCK TURN"?

Stock Turn relates to how many times, on average, the normal stock level was sold and replaced during the financial year. This is not the crucial figure for all businesses but for those as manufacture, wholesale and large retail. Stock Turn per year can indicate how well stock purchasing, production and sales are performing. Add together the closing stock and the opening stock; then divide by two (20 =an average stock in "$".

Thus "cost of goods sold -divided by average stock level = number of stock turns per year.


What is "WRITTEN DOWN VALUE" (WDV) ?

WDV is the monetary value of tangible assets of a business as they age and suffer general wear and tear. All items steadily lose value, year by year and is reflected in a depreciation schedule that is prepared by a business' accountant and forms part of any FYE reports.