When Selling a Business, it’s Important to Consider the Buyer
When Selling a Business, it’s Important to Consider the Buyer
Bill Gates famously observed that “people overestimate what they can do in one year and underestimate what they can do in 10 years.” For Barton Cha, the director of Sinosmart Business Brokering in Sydney, the last decade has been one of significant achievement.
Coming to Australia in 2013 with his wife, who held a working visa, Barton craved the security of permanent residency. Buying a business was recommended as the solution, but this proved challenging.
Barton explained, “There were not many Chinese background business brokers in Sydney (when he started), and you could not get good advice. When you are in a new country, it’s difficult for you to understand the legal things about regulations, how to do the valuation, and how to get a lease. Everything is difficult and different.”
After approaching two Chinese background business brokers in Sydney and receiving very unprofessional treatment, Barton thought, “Why don’t I do it myself? Then I can give the service to newcomers after me.”
He started his own brokerage business and, except for a brief time as an employee of a national brokerage, has steadily built Sinosmart into the successful business it is today.
Barton’s experience highlights that business buyers come from all walks of life and look to purchase a business for multiple reasons. When the time comes to sell a business, it's critical to consider the potential buyer and how your business can suit their needs.
With the reopening of borders, we see more immigrants moving to Australia and buying a business as a natural and possible visa pathway to permanent residency and citizenship. We are also seeing an increase in buyer enquiries from people with various ethnic backgrounds, such as Chinese, Indian, Pakistani, Vietnamese, and Korean.
So what does this mean for business brokers? We are seeing an increase in specialisation in specific niches such as Sinomarts' focus on assisting local and international Chinese buyers. A shared language and understanding of culture help to build bonds and guide the seller and buyer through the settlement process.
What types of buyers are you seeing?
As a business brokerage specialising in assisting Chinese buyers, Barton observed, “there are not many overseas Chinese every year who are coming to Australia planning to buy a business. Unless they know Australia well, they are afraid to buy. They aren’t even sure where they want to live - Melbourne, Sydney, the other states, or regional centres. It’s all new.”
This limited pool of overseas buyers, plus the disruption of COVID, caused Barton to rethink what type of people are actually buying businesses in Sydney now. He was aware that in many suburbs of Sydney, the Chinese population could be as high as 30% to 40%.
“There is a strong demand from local Chinese who want to buy businesses, so I decided to sell to the Chinese who stay in Australia for a while and are ready for another adventure. Even students who come to Australia for three or four years of study may be interested in buying a business. ”
“And although we specialise in working with Chinese buyers, we also work well with other cultures. We have sold businesses to Korean, Vietnamese, Middle Eastern, Iranian, and Indian buyers .”
What type of business do Immigrants prefer to buy?
A common misconception is that immigrant buyers, in particular, Chinese buyers prefer hospitality businesses. Barton laughs at that stereotype.
“Small hospitality and retail businesses are a good start for Asian immigrants. They will work hard in those businesses and improve themselves and their understanding of Australian business laws before moving on to more complicated businesses such as small supermarkets, wholesale, manufacturing, and even childcare.”
“Remember, many of these immigrants (or their children) become lawyers, accountants, and doctors and build more business skills, understand the local background, and have more experience. They can be successful in any type of business.”
Barton also commented that the typical immigrant is highly motivated and willing to do whatever it takes to succeed. They will recruit family members to help with the workload and often benefit from the support of the local community, particularly when the business caters to the specific cultural needs of that community.
Is it hard to sell an Australian business to an overseas buyer?
Despite Barton’s close contacts in China, selling a business to an overseas investor is still challenging.
Barton commented, “This is another reason we transitioned to include working with local buyers!”
In addition to the obvious difficulties of conveying business information meaningfully to overseas buyers who need help understanding the Australian business environment, the added complication of visa applications can derail the negotiation process.
Speaking the same language is a significant advantage for Barton, and modern communication options also assist. But, the process can be too lengthy for some sellers and may only proceed if visa requirements are met.
The complex world of business visas is a specialist area, and the outcome will be life-changing for the applicant. The Sinosmart team fully understands the intricacies of the requirements to obtain a visa and how buying a business or property may be a critical component. Because the application process is administered by government departments, making sure the correct procedure (including the eligibility criteria) is followed will improve the chances of success.
“The requirements can change at any time. We have to be aware of Commonwealth and New South Wales regulations. They sometimes regulate to prefer specific industries or impose employment conditions as well as capital investment requirements.”
“I am only licensed to operate in New South Wales and ACT, so we only focus on those regulations. We can collaborate with business brokers in other states (particularly Queensland) but keeping on top of the regulations here is enough.”
Barton has not noticed any preference by buyers to buy businesses in other states because those states offer business incentives. “Most buyers have already decided where they want to live before starting their search for a business. Any incentives are a bonus. The bonuses depend on what the government wants to promote at the time.”
Busting the myth!
Despite the difficulties, Barton still sells businesses to overseas buyers “mainly mainland China and a small portion from Hong Kong.”
However, he was keen to bust the myth that overseas buyers will pay extraordinary prices for businesses.
Barton explained, “I am often contacted by business owners wanting to sell to overseas buyers. They seem to think Chinese buyers will be willing to pay anything for their business.”
“But it’s not like that at all. Overseas buyers are smart and they know numbers so they can quickly work out whether it is a fair deal. Yes, they will usually pay a small premium, but it has to be fair. In Asian culture, we want to have a win-win.”
Barton’s advice for business sellers
“Be ready to sell at a reasonable price. You need to recognise that business conditions will be tougher over the next few years. People have less money to spend so many businesses will suffer.”
Barton agreed that the post-COVID problems of supply chain bottlenecks and labour shortages are passing, particularly with the return of overseas students in significant numbers.
However, the effects of inflation and higher interest rates will reduce business profitability and, therefore the potential sale price of businesses in the short term.
“Rents, power, and higher wages costs all make it harder, and with customers having less to spend, buying a business is riskier at the moment.”
And, what is the future for Barton?
Consolidating his obvious advantage in this valuable niche is Barton’s focus.
“We are doing well in this niche market through collaboration and expanding our target market beyond Chinese to include anyone speaking Chinese, Mandarin, or Cantonese. We have helped buyers from Malaysia, Singapore, Taiwan, Hong Kong, Thailand, and Cambodia as well as Iran, Vietnam, India, and even Kenya.”
“We also help non-Chinese Australians as buyers or sellers, so although our primary focus is on Chinese, we can work with any nationality. We specialise in working with local business owners and their accountants to sell their businesses to Chinese or other Asian buyers (but not exclusively!). ”