State and federal governments have used first home owners grants to stimulate the building industry. I am surprised they have not established first business buyers grants to encourage first time business buyers to enter the marketplace. This could be the stimulus needed to increase the sale of businesses.
Newsagencies are excellent businesses for anyone buying their first business. Talk to just about any broker around the country and you will discover that there are plenty of newsagencies for sale and not too many moving. A first business buyers grant could be the encouragement prospective buyers need to get into the market.
I’d like to hear what the politicians seeking our votes think of this idea.
If anyone needs $7000 more in buying a business – they shouldn’t be running a business.
Newsagents make a terrible first business. The cost is high – usually 4x profits for goodwill. Cashflow is all over the place with agency sales (lottery & magazines especially) which would be very difficult for a first timer to manage.
And the administrative overhead is a factor higher than most other businesses. I think newsagencies are a good business to own, but certainly not as a first business.
A first business should be something with simple cashflows, good profitability and a max of 3x profit in goodwill (2 would be better). A first business is the one you get to make your mistakes in. You can’t do that with a million dollar newsagency.
Blake you make some interesting comment here especially on Goodwill 4 times price earnings.
Only in QLD do they get that sort of multiple and that’s because they include the Fixtures Fittings and equipment in the Goodwill price on offer.
Cash flows are easy to handle with an appropriate spreadsheet with the right data input. Any reasonable accountant can set one up. Would you mind sharing your experience in newsagency ownership as your comments are apart from the mormal transactions that I have come accross? At the moment newsagencies represent one of the best returns on investment in the small business market available, as much as 40% with two people working say 55 hours each.
i wonder how you can max your profit if you have empty shelves and no varities for customers to choose? this is how i see lots of newsagencies. to scare to take a loss ?
Mark, this is a terrific idea. Small businesses are backbones of the economy, and they employ over 90% of people. 99% businesses in Australia are small businesses. Why the politians don’t do more to help us? BHP, Rio and big companies could put millions of dollars into the advertisment to scare the government. But for small businesses, we don’t have such resources or organisation to do that. We only have the votes in our hands, I support Barnaby Joyce, he is one of the MPs who understand us.
I am told sales are heavy in Qld , but the price has come back
DR.
Check with Graham Randall at QNF Sales He will let you know the current status. However in general lending on small businesses to buy or to expand is at an all time low.
Blake, my idea was all about stimulating interest in buying businesses like newsagencies. While some are selling, it is fair to say that it is a buyers market nationally at the moment.
Mark,
Maybe the State Govts where applicable could reduce or wipe out stamp duty on the purchase of a business whether it be first owners or whatever. This would transfer far more into the pocket and show a present positive attitude, one that is lacking toward small business at the moment.
That would work Graeme. Hey, maybe they could do that in addition to a short term financial incentive to first time buyers.
Great idea!
I would just like to see any Govt do SOMETHING for small business? Please?
@Graeme
I’m an accountant (in QLD, so thats also explaining the high multi). I’ve got 1 client with a pair of newsagencies & my boss has had clients before.
@Mark
I agree on principle, that such a grant would be a good idea. However any decent newsagency purchase is going to be in the realm of $0.5-1.5m. This is not something I would ever recommend to a “first time business owner”.
The best way the govt could stimulate business sales would be to “fund” capital for banks to lend (at commercial rates/terms) to prospective purchases.
We had a client last month who had an un-mortgaged house (worth over $600k) and wanted to borrow $50k to start a business. The bank refused to process it as a “business loan”. He had to go to a new bank, and just pretend he wanted to go on a round the world holiday instead.
There are somethings that I don’t like discussing here in an open blog as I feel they are “off the top of the head subjects” and commented on accordingly
They are particualry subjects that are sensitive to prospective purchasers and others within and without the industry. This narrows my opinions to a broader approach (if that makes sense) to small business instead of newsagencies in particular. I have spent the past 4 weeks discussing newsagencies with the Big 4 and in general their attitude to us with some surprising positions taken by all 4. I would like to share with Balke (and others) the situation in QLD as far as the CBA is concerned and the ANZ. In NSW the attituude is the same with a difference. Sometimes I feel that the Yahoo site may be more appropriate to finite detail than the sometimes rather “overheated” comments that are for generally broadcasted. Wjhilst I appreciate that we have nothing to hide there are case sensitive situations that newsagents in general ought to be aware of. Once these are known it may well change some of the forthright ‘born to a right” and “seige” mentallities that are often present when in open forum.
There is much discussion and work to be done bnfore we can expect to just “get new buyers” for e.g. I think it is long past just to consider a multiple of price earnings as the only way to value Goodwill. Owners wages formula nees reassessment, Plant, property and equipment need to be reassessed. In short a total new package needs to be put to the current financial institutions.
I believe we still are the best small business investment (retail) around at the moment given certain factors we can be better.
These need focus and discussion remodeeling and then promoted differently.
Blake, I agree re funding banks or guaranteeing such laons. The problem is that the government has retreated fromm such mechanisms.
I have heard politicians recently say that they understook that banks were lending again to small business. Well, no they are not without 110% security.
15 years ago when we bought our business the nab used my house as guarantee. actually the loan itself was only 1/3 of the value of my house. the newsagency is proving profitable but the bank wanted my house.
Eric,
Thirty five years ago you could only buy a newsagency through the publishers who set the price based on audited sales of circulation. There was no goodwill for any other part of the business. You had to have two thirds unemcumbered in cash. Your house had to be sold if you couldn’t meet the criteria and you were not allowed the newsagency of your choice the publisher chose it for you for a minimum of two years. That cahnged in 1980 with the Trade Practices act. We then had 20 years of Authorisied Newsagencies approved by the Newsagency Councils in each State. Toady it is different again. it is based mopre on performance and equity with the ability to repay than security by territory. It’s about business today and as far as Banks are concerned it’s about risk minimisation of risk with ALL loans whether it be housing, commercial property or business. The individual’s financial position and acumen is all important. Our industry is in good shape and performs well however it has some catching up to do in the performance category of business models. Eric there is a lot of truth in the basic saying “The more things change the more they stay the same” We will change however “business will always be business”
I like the concept, i just feel that it may benefit small franchise vendors more frequently than be applied to larger established newsagencies when it occurs in practices. Would we see a rash of snack,drink etc vending businesses priced at $7 000 suddenly pop-up?