Is it worth paying Goodwill?

There are two ways of owning a business. You either start it from scratch or buy an existing business and continue running it or even better, improving it.

When you buy an existing business; over and above the value of the assets, the seller is likely to ask for a Goodwill amount for the non tangible value of the business. Even with small businesses, the amount of Goodwill being asked for currently is ridiculously high and can run into hundreds of thousands of dollars and for some even over the million dollar mark. The question then becomes if the Goodwill is worth paying.

My advice is simple: If you want the easy way out then pay the Goodwill or else start something from nothing and make it into a successful business.

There is an argument out there that paying Goodwill is worth it as you start earning profits from day one. But do you really? Remember if you paid Goodwill, you need to recover the  investment before you can really tell yourself you are making money. So if you invested say $500,000 as Goodwill then until you can earn it all back in a few year's time you haven't even reached your recovery stage and the longer the recovery stage the better off you would have been if you had started from scratch and even though you may have made losses at start, you may not have taken that long to recover them all back.

So don't be fooled by just following the crowd but do what really works best for you.

BY SURESH RAJANI

Suresh Rajani is the Business Leader at TAX FIRST (An accounting and business advisory firm)

www.taxfirst.com.au

 

 

5 things to consider at the start of a leasing arrangement

Most businesses need to lease commercial or industrial premises to conduct their day to day operations from. Yet so many business owners find themselves trapped into lease arrangements they either didn't understand or they thought were just standard practice and didn't pay attention to. Below are 5 things business owners need to consider when starting a lease arrangement:

1. Outgoing inclusive or rent plus outgoings. Most leases have the tenants pay the outgoings (land tax, water rates, council rates, etc) and not knowing the estimated outgoings can leave a big dent in the cash flow of a business.
2. Rent in advance plus security bond. The amount that needs to be paid upfront maybe much higher than just one months rent as the lease agreement would specify the amount of rent to be paid in advance and the security bond that needs to be paid.
3. Annual rent review. Just because you are signing a lease for x amount of years does not mean that your rent is going to be fixed for the x amount of years. Commercial leases normally have an annual rent increase percentage by which the rent is going to increase.
4. GST inclusive or plus GST. Many commercial landlords are registered for GST and that means they will have to charge you GST. Paying attention to and understanding if the rent is including GST, plus GST or owner not registered for GST is very important.
5. Set up and modifications. Most businesses would need to make certain changes to the premises to suit their business and it is highly recommend that you check what the lease says about the process of such modifications and what happens when your lease ceases.

BY SURESH RAJANI

Suresh Rajani is the Business Leader at TAX FIRST (An accounting and business advisory firm)

www.taxfirst.com.au