" There are thousands of retailers with a physical shop in Singapore and I would say many of them, particularly the small-scale retailers, are barely surviving. I’ve come to notice that the trend of “merger & acquisition” (M&A) is a very common business practice in other countries such as the United States, Europe, Taiwan etc but in the case of Singapore, it is not very common, especially the acquisition of another company.

It might be good to note that there is no legislation that specifically governs Mergers & Acquisitions in Singapore, but rather it is a set of regulations and practices (“code”) that guide the companies in Singapore through their M&A bid. However, I’ve known some people who practices M&A among SMEs.

M&A for SMEs as I speak here actually refers to the buying over of other’s businesses.

Let’s say, a retailer wish to retire, or wish to end his business. If you think that the location of his physical store is good. You have a way to clear his remaining stocks. You wish to step into his industry without prior experience and necessary contacts, buying over his business from him would perhaps be a wiser choice than starting on your own! In fact, one of the reasons why companies wish to acquire another company is, when the acquirer wishes to step into an unfamiliar territory.

If doesn’t mean that M&A for you is impossible if you do not own a multi-billion MNC. I’ve seen many of such acquisitions while I was abroad. In a way, I will also refer to this as a act of M&A.

For people who currently own a physical shop, this article by Willard Michlin, will definitely be of interest to you."

Timothy Ng
Urbanez

Many smaller body shop owners have asked, "How do I appraise my body shop?" In the last month I have been asked to do two appraisals on body shops. The first appraisal was to assist in partnership dissolution; the second appraisal was for marriage dissolution. (That is what the attorneys call a divorce.) Would you like to know how to appraise the value of a body shop business?

Before we begin, I would like to make one comment. Whenever a CPA has done an appraisal of a body shop, I find that their opinion of value is much greater than the actual value the market place will pay. This is not because the CPA's do not know what they are doing because they do; it is just that the market place places a much higher risk on buying a body shop than the accountants do. The following is an excerpt from one of those appraisals.


THE THREE WAYS TO APPRAISE A BUSINESS


1. ASSET VALUATION METHOD.


This method is basically used when a body shop does less than $400,000 a year in gross income and the seller is making wages, but no real profit above what he would be paid if working for another. On this size business, a buyer is willing to pay for the assets of the business but little or nothing for goodwill. The equipment is usually worth between $50,000 and $100,000, depending on how many frame machines the business owns and how nice a spray booth the business owns.

I have seen some specialized shops sell for more than the above number because they have a truck spray booth or another business attached to the main business. Examples of attached business might be an auto repair shop or towing operation. Also the location, size and real estate rental amount will influence the value of any business, to some degree.



2. GROSS SALES METHOD.


This is used when the sales are over $1,000,000 a year but the profit is unknown or financials are not available or reliable. Because of experience, a Body shop buyer can make reasonable estimates of future profits, if they have some basic information. The basic information includes rent, source of business (DRP, STREET, or a CAR RENTAL AGENCY), and the desirability of the location.

When this method is used, the value appears to be about 3 months sales or 25% of the last 12 months sales. This method is not very reliable on businesses with sales of less than $1,000,000, because the question of being profitable is very questionable. Why is this breaking point $1,000,000 in annual sales? Multi-store buyers will have well paid managers, so many figure their breakeven point is around a million.

Less than $1,000,000 in sales is not even worth their time. Of course we know that there are exceptions to the rules. Some of the exceptions are A. when a new location will be a satellite store to a bigger location. B. The buyer must have a location in a specific area to please a DRP. C. To get rid of a competitor.



3. The third and most used method of evaluating any business, including body shops, is the NET PROFIT METHOD.


This method is based on the idea that a business is worth what it generates, in profit and benefits, for an owner. Body shops, like so many other small businesses, often do not show a profit, at the end of the year. Strange, how so many businesses of different sizes all just happen to end up with little or no profit. What I find really amazing is that the IRS doesn't audit more businesses then they currently do.

As a result of showing poor profits, on the books, it becomes very difficult to use the NET PROFIT METHOD for appraising many small businesses. Luckily for me, I can quite often find hidden profits, of a business, by adding to the books, items we call owner's benefits. These include: Owners salaries, if a corporation. Personal autos and all the related expenses used by the owner and his family that are written off against the business, life insurance and health insurance for the owners.

Depreciation is also a hidden profit that is usually added back in to the taxable profit to help build up the total owners benefits. And lastly, personal utilities, phones, trips, etc. that are deducted on the tax return but are not really costs to run the business.

After saying all this, what is the value of a business based on the Net Profit Method? Automotive businesses, especially auto body shops appear to sell for between 1.5 to 2 years adjusted profit (book profit plus owners benefits added back in). Larger body shops doing over $2,000,000 in annual sales may sell for much more, because the owner is making much more money, than just his salary and a buyer will consider part of the profit a return on his financial investment.

Very large body shops that are being bought by public corporations are evaluated primarily on their return on investment (Percentage profit that is being made on the cash purchase price of the business.) These big buyers can afford to pay between 5 times and 10 times annual net profit, after deducting all officers' salaries and perks.

Often these, public corporations, high purchase prices include two important restrictions, which is really why they are buying the business in the first place. First: The business is bought for little or no real money. They use restricted corporate stock that is not negotiable for two years. And second: The management is required to stay and run the company for some period of years.

The bottom-line, as I see it, is that you sold your soul, not your business. One last comment on selling to large corporations; heaven help the seller who sells his business for corporate stock or the buyers bonds and the buying company goes broke or the stock market crashes. I had a close friend sell his company for mostly cash and some seller carry back financing in Dec 1997. By Feb 1998 the buying company was in bankruptcy, making the paper my friend held worthless.

CONCLUSION: Appraising a business, especially body shops, is an art not a science. No two people will appraise the value of a business the same. I am amazed that the same thing one buyer thinks is a great asset is what another buyer thinks is a major negative. Differences of opinion are what make life interesting.

Next on Urbanez Money, we take a look at Merger & Acquisition in the Singapore context.

Urbanez would like to extend her gratitude to Willard Michlin, for his kind contribution to Urbanez.
Willard Michlin is an Investor, Business Broker, California Real Estate Broker, Accountant, Financial Distress Consultant, Well known Public speaker and Administrative/Business Consultant. He can be contacted at his Ventura, California office by calling 805-529-9854 or by e-mail at kismetrei@earthlink.net See other article by Willard at http://www.kismetbusinessbrokers.com

Employees, the backbone of your corporation, the people who make it happen. Be it a small local company or a multi-national corporate empire, without the employees, you will not be sitting on your grand arm chair today.

Through formal and informal interactions, I have come to understand that almost every company exist some employees who are not motivated at all. They do not show initiative at work, come late for work, leave on the dot etc. So much to the extent that employers actually spend an “unreasonable” amount of money to engage “motivators” to talk to the company.

Yes, this does contributes to the apparently “everyone can get” People Developer Standard, but I dissuaded them from spending this redundant amount of money.

Have it ever occurred to them that they themselves are the very source contributing to the low morale of their employees?

Nowadays, you seldom hear about employees brag about the company who pays them. There no longer exists loyalty to the company, except for the age-inclined workers or some long-service workhorse in the civil service, awaiting the arrival of their pension. Instead of hoping for loyal employees, why not make them happy at work. Let the joy of working for your company be the pull-back factor in the face of higher pay and prospects on the other side?

In the arena of business studies, we all graduated with a topic on Maslow’s Hierarchy of Needs. That is a concept forgotten among many in the management. First of all, meet their needs!

Some employees are completely self-motivated by their own goals and never need any outside impetus, particularly the young employees. Others need some inspiring, positive feedback in order to apply their most creative and heartfelt energies to a job. This is the majority of people in Singapore. They need to feel they belong, to have a sense of identity with the corporation they work for, or simply a good reason to work hard for the corporation.

The desire for recognition resides in all of us and having this need acknowledged is an important part of one's work life. Are you giving your employees enough acknowledgement?

An employee is an individual but he or she forms a group within the company. Treat your employees more than just employees and they will gladly strive for the company’s growth and development, the company they belong to.

One form of recognition is by giving out corporate awards. This form of loud acknowledgement, will get you an appreciated and firm look from the receiver, and also serves as an example that the management do recognize the hard work put in by the employees. However, I’ve noticed in some organization, the award given by the company became an easily obtainable piece of paper. Almost everybody in the company received one of such award and when I asked, the employer told me that he was afraid that the non-receivers will see red over the fact that they have worked equally hard but never received the award.

Now, I’m sure this has happened in many organizations but perhaps, you should seek an alternative way of recognition for your employees. There is a form of recognition that is as powerful as receiving awards and that is “personal touch”. Add a “Personal Touch” to the way you talk to the non-recipients of the award. Ask about their family, ask about the problem they face a work. Tell them that you know how much effort they have contributed for the company, remember their family members.

Do you have this “Personal Touch” with your employees?

In one particular D&D that I was invited to, I saw for myself how this method has succeeded tremendously. The CEO walked to every table, remembered all his employees’ names, their family members, their children’s age, asked about their children, their sickness. I saw much heart-felt appreciation for the CEO’s concern.

Perhaps, it is time for you to pay more attention to the lifeblood of your corporation.