Buy A Business Begin A Dream

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Buy a business and forget the job but be careful and mindful. You can get a great deal out there but take a look at some of the key steps you will need to consider to make a successful business acquisition.

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Buy A Business Begin A Dream

  1. 1. Presented by Legacy Venture Group Business Intermediaries
  2. 2.  A recent Conference Board survey, indicated that just 49% of Americans today are satisfied with their jobs -- vs. 58% in 1995…  Only 20% are satisfied with their employer's promotion and bonus policies
  3. 3.  Have personal control (avoid layoffs, ceilings…)  Be your own boss  Your efforts and investment help you  Excellent potential  It can be exciting  Satisfaction (workers less happy)  Flexibility to meet your needs & desires
  4. 4.  Lack of knowledge and / or experience  Under Capitalized (Remember Working Capital)  Wrong Location  Competition (Present & what is to come)  Asset investment too high  Rent too high  Cash Flow Challenges * from SBA.gov – a great site for entrepreneurs
  5. 5.  Create your own business  Buy a new franchise  Buy an existing business (or franchise)
  6. 6.  Advantages  Disadvantages  You can create  May need to do a just what you great deal of want research  You don’t pay for  System and someone else’s location unproven efforts  Tough to get  Total control financing
  7. 7.  Advantages  Disadvantages  It’s a “proven  No success system” guarantee  Quick to start up  Upfront costs and  May have Royalties financing  Limited control
  8. 8.  Chances of you “discovering the next McDonald’s is very unlikely
  9. 9.  But just because it’s a franchise does not mean you will be successful  Check out: http://www.bluemaumau.org/6776/25_worst_f ranchises_buy
  10. 10.  Advantages  Disadvantages  Cash flow may  The initial start immediately purchasing cost  Existing  Unseen / hidden customers problems  Easier financing  Customers may opportunities not stay … (*if, if, if)
  11. 11. Time Period % Sold 1 to 3 months 9.7% 4 to 6 months 28.3% 7 to 9 months 38.0% 10 to 12 months 15.9% 13 to 18 months 7.6% 19+ months .7% 4 to 12 months to sell 82% of businesses 7 to 9 months to sell 38% of businesses
  12. 12.  Many hunt for months  Some find what they seek in days  But 90% of shoppers never buy  Financing can take weeks or months
  13. 13. “Understanding the business that is right for you” begins and ends with You!
  14. 14.  Personal background  Personal interests  Risk tolerance  Limitations  Financial resources  Credit report  Risk Tollerance
  15. 15. If married, these questions apply to you and to your spouse:  How comfortable are you with debt?  Do you have a strong belief in yourself?  Do you believe it is a business you can handle? The answers relate to how much business you can buy
  16. 16. If married, these issues apply to you and to your spouse:  Geographic  Cultural  Industry type/knowledge  Education  Lifestyle change  People skills
  17. 17. Write out your life priorities and put in writing what you are and are not willing to sacrifice of a business i.e. Time from family, investment limits, character of the business…
  18. 18.  How near to home?  Don’t just get stuck  How many hours? on an industry at  Maximum first but open you investment? mind to any  Minimum return on business that meets investment? your needs and  Type of tasks? desires!
  19. 19.  Put together your financial summary  Be aware of ways to finance your business  Did you know you can use your IRA/401K for your business without penalty and taxes? Contact us for advisors who can help with this service.
  20. 20. You will want information about the businesses you investigate; be prepared to share about yourself to them.
  21. 21. 1. Understand your cash requirements 2. Make sure you have appropriate. Working Capital set aside!!! 3. Remember there are other expenses such as rent and utility deposits. Request a Buyer Cash Requirement Form from our offices!
  22. 22.  Business broker/intermediary  Attorney (as opposed to a general practitioner)  CPA  Commercial lender
  23. 23. Evaluate the business – and yourself – regarding:  Absentee ownership  Generation of personal income  Management style  Growth expectations  Self-image  Physical requirements Continued…
  24. 24.  Family involvement  People skills  Travel requirements  Training requirements  Demand for extra hours  Weekends  Day or night work?
  25. 25.  Review preliminary written information provided by the seller  Personally interview the seller to: ▪ Verify preliminary written information ▪ Establish a rapport ▪ Review business facilities and location ▪ Observe business operations during normal work hours (if permitted) ▪ Collect additional data to determine value of business
  26. 26.  Look for numbers from taxes and Profit/Loss statements  Be wary of “Owner to Prove” Call to discuss more things to watch out for when buying a business!
  27. 27. You will probably have to sign a NonDisclosure Agreement (NDA)or Confidentiality Agreement (CA) of these to get more details on a business. *Read carefully and do not get locked into a buyer fee obligation! Request a sample from our offices!
  28. 28. Make an initial determination of business worth based on:  Written information provided by seller  Interviews with seller and/or seller’s broker  Personal observations of the business  Analysis of historical records of the business  Additional independent and outside investigations of the business
  29. 29.  You should see evidence of earnings but you typically don’t get copies of taxes, leases, contracts and private details until you get to the Due Diligence Phase following an accepted, written contract to purchase the business Include in your Contingencies the right to have acceptable evidence of claimed earnings
  30. 30. Research values including what ratios similar businesses have sold for – NOT what For Sales are priced at! A good brokerage can proved two or more resources on what similar businesses sold for!
  31. 31. Or Owner’s Benefit What did the business generate for owner, assuming one (1) full time working owner.
  32. 32. Profit on Income Taxes + Nonrecurring Expenses - Nonrecurring Income + Non-operating Expenses - Non-operating Income + Depreciation + Amortization + Interest Expense + One Owner’s Total Compensation = SDE
  33. 33. Unless buying a discounted distressed business:  Must cover debt service  Should return 15-20% on down payment investment  Should provide a return on time (annual salary)  Should meet the lender’s debt ratio requirements
  34. 34.  In some cases a “letter of intent” (LOI) might be acceptable (See Letter of Intent)  You should submit a formal written “offer to purchase” (earnest money contract) with contingencies to the seller or seller’s broker (See Purchase Offer)
  35. 35. An offer to purchase specifies price, terms, and payment:  Cash due at closing  Assumption of debt (if any)  Bank and/or seller financing: term, etc.  Non-compete agreement  Consulting income or earn-outs Continued…
  36. 36. The offer to purchase usually has contingencies satisfied prior to closing:  Due diligence and confidential information not disclosed by the seller that the buyer still needs to review  Lease assignment or negotiation of new lease  EPA compliance  Licensing requirements  Franchise approval Continued…
  37. 37. Other issues that are addressed in the offer to purchase Agreement:  Buyer and seller warranties  Training  Allocation of purchase price  Desired closing date  Date by which seller must respond
  38. 38.  Legal and tax Issues  Litigation  IRS audits/state sales tax  Accounting  Accurate picture of financial position  Accounting method used (cash vs. accrual)  Inventory valuation  State regulations  Environmental
  39. 39.  Purchase/sales agreement  Promissory note  Security agreements  Bill of sale  UCC filings  Board of directors resolution (authorization to sell)  Real estate documentation (if appropriate)  Lease agreements  Other side agreements  Closing statements (prepared by attorney and/or title company)
  40. 40. Pre-acquisition steps:  Create buyer’s corporate entity and/or register fictitious name  Federal ID number  Corporate bank account(s)  Obtain appropriate licenses (occupational, state sales tax, local, etc.)  Obtain insurance
  41. 41. NEVER CLOSE WITHOUT A CLOSING ATTORNEY  Execute (sign) the pre-approved closing documents  Transfer proceeds of the sale to the seller  Transfer ownership of the Business to the buyer
  42. 42.  Sellers will usually train you for 2 weeks to 6 months  Anything beyond 2 weeks is generally part of a consulting arrangement
  43. 43. SEARCH QUALIFYING BROKER DEAL MAKING CLOSING PROCESS DATABASE Explain Buying Process Business Interest Buyer/Seller First Meeting Coordinate Due Diligence Financial/Credit worthiness Qualify Buyer for Tour Business Loan Request Package A specific Business Business Review 1-Page Business Probe Buyer’s continued Lender Introductions Experience Summary Interest Licensing Determine Buyer Interest Motivate Buyer to Act – Assist in Resolving All Offer to Purchase Issues Life style changes Nondisclosure Agreement Facilitate Negotiations Formal Contract Geographic Review CBR LOI or offer to purchase Review Final Documents Location /Data Package Close!
  44. 44.  Hire professionals who deal with buying and selling businesses on a full-time basis  Do your homework  Know what you are willing to pay  Prepare yourself for the purchase  Enjoy the process and …
  45. 45. Legacy Venture Group Business Intermediaries Call for more information on subjects covered in this business buying overview Request listing updates or to get our e-newsletter. Info@BuyBizUSA.com 813.571.7700

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