Step one is to clarify just what is for sale - Inventory? Licenses? Leases? Leasehold improvements? Accounts Receivable? Real Estate? Contracts and obligations? Perhaps even bills owed, taxes not paid ...... a business sale can be simple but is more often pretty complicated. Sometimes the sale of a business is not a real estate transaction at all - but if part of what you are selling is the land or building where the business is located, real estate is a vital part of the transaction. This column will review the sale of a business with real estate.

One of the most common types of business sales here in San Pedro is that of a hotel or resort. Get a professional evaluation of your property from a "replacement cost" point of view. That means an honest price for the land and the building if you were to buy and build today. Then subtract a percentage of the value of the building to allow for the age and condition, and you will have an estimated replacement cost. This is an important number, but is not the only thing at hand. You may find a hotel that would cost $1Million to rebuild - but it may be poorly thought out or simply not what the tourists are looking for today - if that million dollar hotel can't make money you will find that the value of the business you have for sale may be substantially below the replacement cost. On the other hand, a well-run business may enhance the value of a piece of real estate more than you imagine - so keep on thinking - there is much more to be considered.

After evaluating the real estate, evaluate the "business" itself. That means the day to day dollars in and dollars out. Just how much money can somebody make if they spend that million dollars? If the answer is $100,000, think seriously about whether a buyer with one million dollars would invest it in your hotel in order to make a 10% return. Are there other areas of the economy where a million dollars would bring them a higher rate of return? Another item to evaluate is whether the buyer can reasonably count on the cash flow remaining at least as good as it is at the time of the sale. As an example, let's take a bar or restaurant - many times the secret of the success is not so much in the product served, but is instead in the personalities and relationships of host and owners of the business. In this case, if you are a popular barkeeper and want to sell your bar, will those patrons keep coming back if you're not there? If you are a successful hotelier, it may be easier to assure the new owner that the guests are on line and prepared to be loyal - particularly if the guests are coming because of the price of the rooms or the location of the facility. Each situation is different, but this item is essential to think through thoroughly before deciding how much your business is "worth."

Next - get your books together. How much money does the business really make? I have heard it said that some shopkeepers keep three sets of books - one for the tax man showing they made no money; one for the buyer showing they made lots of money; and one for themselves telling the truth. We won't get into the morality of bookkeeping here - just be forewarned that if creative or smart bookkeeping has kept you from paying taxes over the years, you probably won't be able to prove much to a buyer about how profitable the business can be. Some buyers are going to be nosey-pokers - they may walk in off the street and without so much as a hello ask for a review of your books. Feel free to tell them "absolutely not!". It is customary at some time for a buyer to look at your books, but make sure there is a good reason for you to share such personal information with them. If they have presented you with a written offer to purchase, and have put up earnest money (refundable if they don't like the books when they read them) AND if the offer they make is something you find acceptable - then yes, at this time it is appropriate for them to ask to see your financials. It is often the custom for the seller to have the potential buyer sign a "Confidentiality" agreement as well, promising not to divulge what they read and learn in their investigations. If you think that your books are too disorderly, too incomplete or show too little profit to attract a buyer, then perhaps the best course to take is to make a business plan with projected costs and revenues. Often this is as helpful as any set of books from the past.

It is probably clear by having read that article that businesses are each very different, and that they are not easy entities for which to fix a value. When appraising a house, I look at replacement values and recent sales of comparable properties. When we evaluate a business there is rarely such an easy formula. In the end, like it or not, the "true value" of your business is the amount that somebody will pay to buy it. In the case of getting your business ready for sale, spend a little time thinking like a buyer - this alone will be very helpful.

Here are several items buyers will be thinking seriously about: First, is there any guarantee of continued cash flow? Are contracts, customers, accounts payable, suppliers etc. in place and can somebody simply step into a "well-oiled machine" and keep the business moving along? If so, this is a business that can reasonably expect a strong sales price. If the business is in a leased premises and the location will have to change soon will this be a good thing, a bad thing or have no effect at all on the business? Second, will the Seller of the business sign a "Non-Compete" agreement? If so, AND if the seller will stay on for a while to train the new owner and answer questions, then again this is a business that is going to be quite attractive to a buyer. If not, what guarantees and or assurances can be given to the new owner that the customers will not follow the former owner to a new location? If a seller cannot give such assurances, then the main value of the business is in the contracts in place and real estate that the business owns.

Looking to the future is another important factor in evaluating a business. Perhaps you are selling a business that isn't doing too well today, but due to an upcoming change, the business should soon begin to grow a lot. For an example, if you have a restaurant that is hard to get to right now, but soon there will be a new hotel right next door with 50 rooms - the future is going to be really bright for the business and even if you have poor business now. the new owner is stepping into a great opportunity! The opposite is also possible, meaning that changes could make a business obsolete for example if you are selling a car-repair shop and suddenly the island outlaws cars.

No, evaluating a business is not easy. But all this being said, we have a little guideline that has proven itself in San Pedro recently if there is a non-compete clause, and if there is every reason to expect the business to continue to do as well in future as it has in the past the business seems to sell for an amount close to one year's pre-tax net; plus the value of fixed assets. This is by no means a fixed formula. As you can see, many items affect the value, including the simple rule of supply and demand.

Is there a demand for businesses for sale in San Pedro? Yes! Who are -the buyers? People from San Pedro, people from Belize City and the mainland, people from abroad. People who want to be their own bosses. People who for the most part are already in business and who know what a business opportunity mans to them financially. Once you find a person who wants your business, you will likely find that they will tell you why they think it is worth the amount they offer you. You can tell them why you think it is worth your price. In the end two business people almost always find a common ground that's just "good business!" As with any other transaction, hire professionals to assist you in completing the paperwork, inventory, accounting, transfers, etc.

Good Business to all Thanks for reading. Diane Campbell

Footnote on "Color Up!" Two more colorful places jumped out at me this week that really deserve mention - Island Auto looks great - and how could we forget the lively colors and cartoon characters at Celi's Deli?! Have you noticed any new and special colors? If so, drop me a note and help keep the "Color Up"spirit alive!

IF YOU WOULD LIKE MORE INFORMATION on buying property in Belize, or to contact Diane or her husband Bob Campbell, click here.