Break Even In this category, business is marginally profitable or losing money. In this type of transaction, buyer is more interested in fixed assets, location, lease terms, and cost of converting existing business to their intended use. In Break Even transactions, Market Value is determined by combining value of furniture, fixtures, and equipment (including consideration for installation), leasehold rights, tenant improvements, with some consideration for gross revenues. Break Even Market Value is sustainable only if business is operational, and owner has financial ability to continue operating until sale is closed.

Asset Sale This category is comprised of closed businesses or businesses that are experiencing extreme circumstances. An extreme circumstance may include a seller who does not have financial means to continue operating. It may also be a secured creditor or landlord whom has had to repossess a business, or it may include a business owner being forced to sell for reasons beyond their control. Any of these situations create a severe disadvantage to seller, and in turn has a dramatic effect on Market Value. In these situations, value drops to that of auction value for fixed assets, plus whatever premium might be negotiated for location, leasehold rights, and fact that equipment is in place and operational.

Other Considerations In addition to cash flow, tangible and non-tangible assets of business will influence Market Value. These tangible and non-tangible assets may include Furniture, Fixtures and Equipment; Leasehold rights; and Books and Records. Although not quite as important as profitability, these other assets will directly affect Market Value.

Whether you are evaluating a purchase price, planning for succession or positioning your business for sale these other assets should be considered. But is should always be remembered that bottom line for determining actual value of your restaurant business is simple answer: what a willing and able buyer agrees to pay!

Written by Monte Zwang of Steele Development Corporation, a consulting firm specializing in business development and financial strategies. You can reach Steele Development by calling 206.878.9666 or online at www.Steeledevelopment.com.

Make Sure you are Insured

Insurance is vital from a financial viewpoint. There are also legal requirements for employer's and public liability insurance. If you sell products, product liability insurance will protect you if someone injured by a defect in your product successfully sues you.

Are you Covered?

Many people find it hard to imagine that work they have done will result in a claim for hundreds of thousands of pounds. However, most people only contribute a link in a chain, so effects of a mistake can be out of all proportion to their individual contribution. If you offer services or advice you must get adequate professional indemnity insurance. Indemnity cover is needed for years after work has been done, because it has to cover when claim is made. Failure to do this will leave you open to claims that may make you bankrupt!

Terms and Conditions

If you don't spell out in black and white your terms and conditions of trade (T&Cs) you are giving you customers licence to pay you when they feel like it. And if they go into liquidation before paying you, you may not be able to reclaim your goods if you do not have a Retention of Title clause in your Terms & Condition’s. Draft some suitable Terms & Condition’s for your business and ask a solicitor to check them. You must ensure your customer agrees to them, and ideally, signs them when placing an order.

Data Protection

If you keep any information about individuals you may need to notify Data Protection Commissioner. It is not expensive (approximately £35 per year) and very simple to do. However, it is a criminal offence to break law on data protection. If you are caught, you face a fine of £5,000 plus costs in a Magistrate's Court, or an unlimited fine in High Court. Contact your local government who will be able to guide you in right direction to obtaining relevant information.

Read Small Print

Read all loan and overdraft agreements carefully to ensure you understand what you are letting yourself in for. Be very wary of signing personal guarantees. Banks often seek to over secure' their lending. Once you have signed any paperwork you will be legally bound to any terms and conditions that are set out in small print, no matter how unreasonable they may be. It is imperative that you read all small print before signing anything.

Property Pitfalls

Be careful when signing lease agreements, especially for property. Even if you move and sell lease on, you could find yourself liable if next person defaults. Check whether you will be liable to repair and improve property under terms of your lease.

Avoiding legal pitfalls will help ensure that smooth running of your business and will also prevent you from receiving any unwelcome fines.