Buy A Business Begin A Dream

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Thoughts about buying a franchise, buying an existing business or creating a start-up.

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Buy A Business Begin A Dream

  1. 1. 1. LIVE YOUR DREAM2. BUILD YOUR WEALTH3. CREATE YOUR LEGACY4. GROW YOUR EMPIRE
  2. 2. SavingsStock i.e.Apple –no matter how many IPADsyou buy, you won’t change the stock valueBuying homes – Florida is still seeing declinesin values and has been for yearsCommercial Real Estate – Around the Globe,developed land sites un-occupiedBusinesses
  3. 3. Influence means you can affect the outcomethough not everyone does wellPlan and prepare wellSeek wisdom of trusted advisorsUse your vision and wisdom
  4. 4. InheritStart upFranchiseExisting – existing franchise and existing non-franchise
  5. 5. Fred HerveyRay KrocHoward SchultzCy Ansary
  6. 6. 1951 when Fred Hervey purchased threeKay’s Food Stores in El Paso, Texas.one of the nation’s leading convenience storechains w over 6,000 stores
  7. 7. Read: Behind the Golden ArchesApril 15, 1955,[8] the ninth McDonaldsrestaurant overall. Kroc later purchased theMcDonald brothers equity in the companyand led its worldwide expansion
  8. 8. Read: Pour Your Heart Into It1987 acquires Starbucks
  9. 9. a private, real life tale
  10. 10. Presented byLegacy Venture Group Business Intermediaries
  11. 11. Over 50% close up in the first four yearsaccording to an SBA.gov reporthttp://www.sba.gov/advo/stats/bh_sbe03.pdf
  12. 12. Realize it can still take years before thefranchise matures, if at all, to yield a profitJust because you love the product does notguarantee successDo your research before selecting a franchiseVisit sites like:http://www.wikidfranchise.org/
  13. 13. You can tell how well a business is doing upuntil you purchase itYou should be able to improve the businessYou “can” start making money right awayNote: you must still run it right – there is nopromise it will continue as is
  14. 14. Have personal control (avoid layoffs,ceilings…)Be your own bossYour efforts and investment help youExcellent potentialIt can be excitingSatisfaction (workers less happy)Flexibility to meet your needs & desires
  15. 15. Lack of knowledge and / or experienceUnder Capitalized (Remember Working Capital)Wrong LocationCompetition (Present & what is to come)Asset investment too highRent too highCash Flow Challenges* from SBA.gov – a great site for entrepreneurs
  16. 16. 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
  17. 17. Advantages Disadvantages It’s a “proven No success system” guarantee Quick to start up Upfront costs and May have Royalties financing Limited control
  18. 18. Chances of you “discoveringthe next McDonald’s is veryunlikely
  19. 19. But just because it’s a franchise does not meanyou will be successfulCheck out:http://www.bluemaumau.org/6776/25_worst_franchises_buy
  20. 20. 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)
  21. 21. Time Period % Sold1 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
  22. 22. Many hunt for monthsSome find what they seek in daysBut 90% of shoppers never buyFinancing can take weeks or months
  23. 23. “Understanding the business that is right for you” begins and ends with You!
  24. 24. Personal backgroundPersonal interestsRisk toleranceLimitationsFinancial resourcesCredit reportRisk Tollerance
  25. 25. 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 canhandle?The answers relate to how much business you can buy
  26. 26. If married, these issues apply to you and to your spouse: Geographic Cultural Industry type/knowledge Education Lifestyle change People skills
  27. 27. Write out your life priorities and put in writing what you are and are not willing to sacrifice of a businessi.e. Time from family, investment limits, character of the business…
  28. 28. How near to home? Don’t just get stuckHow many hours? on an industry atMaximum first but open youinvestment? mind to anyMinimum return on business that meetsinvestment? your needs andType of tasks? desires!
  29. 29. Put together your financial summaryBe aware of ways to finance your businessDid you know you can use your IRA/401K foryour business without penalty and taxes?Contact us for advisors who can help with this service.
  30. 30. You will want information about the businesses you investigate;be prepared to share about yourself to them.
  31. 31. 1. Understand your cash requirements2. 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!
  32. 32. Business broker/intermediaryAttorney (as opposed to a generalpractitioner)CPACommercial lender
  33. 33. Evaluate the business – and yourself – regarding: Absentee ownership Generation of personal income Management style Growth expectations Self-image Physical requirements Continued…
  34. 34. Family involvementPeople skillsTravel requirementsTraining requirementsDemand for extra hours Weekends Day or night work?
  35. 35. People are successful at lots of thingsKroc and Schultz were salesmenMike Lewis – MBA owns plumbing coSam Champala – PHD runs many gas stationsKris VanOlst – Accountant owns restaurantsCy – Attorney owns Logistics CompanyLive Your Dream
  36. 36. Review preliminary written informationprovided by the sellerPersonally 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
  37. 37. What business should I buy?Look for owner’s to say you cant get good help the equipment is no good the competition is too fierce the economy
  38. 38. Has good recordsHas good earnings (or is very well priced)Has bank or owner financing offered
  39. 39. Be wary of “Owner to Prove” Look for numbers from Taxes and Profit/Loss statements Request 4506TCall to discuss more things to watch out for when buying a business!
  40. 40. 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!
  41. 41. 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
  42. 42. 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 businessInclude in your Contingencies the right to have acceptable evidence of claimed earnings
  43. 43. 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!
  44. 44. Or Owner’s Benefit What did the business generate for owner,assuming one (1) full time working owner.
  45. 45. Profit on Income Taxes + Nonrecurring Expenses - Nonrecurring Income + Non-operating Expenses - Non-operating Income + Depreciation + Amortization + Interest Expense + One Owner’s Total Compensation = SDE
  46. 46. 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
  47. 47. In some cases a “letter of intent” (LOI) mightbe acceptable (See Letter of Intent)You should submit a formal written “offer topurchase” (earnest money contract) withcontingencies to the seller or seller’s broker(See Purchase Offer)
  48. 48. 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…
  49. 49. 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…
  50. 50. 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
  51. 51. Legal and tax Issues Litigation IRS audits/state sales taxAccounting Accurate picture of financial position Accounting method used (cash vs. accrual) Inventory valuationState regulations Environmental
  52. 52. Purchase/sales agreementPromissory noteSecurity agreementsBill of saleUCC filingsBoard of directors resolution (authorization to sell)Real estate documentation (if appropriate)Lease agreementsOther side agreementsClosing statements (prepared by attorney and/ortitle company)
  53. 53. 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
  54. 54. NEVER CLOSE WITHOUT A CLOSING ATTORNEYExecute (sign) the pre-approved closingdocumentsTransfer proceeds of the sale to the sellerTransfer ownership of the Business to the buyer
  55. 55. Sellers will usually trainyou for 2 weeks to 6monthsAnything beyond 2 weeksis generally part of aconsulting arrangement
  56. 56. SEARCH QUALIFYING BROKER DEAL MAKING CLOSING PROCESS DATABASE Explain Buying Process Business Interest Buyer/Seller First Meeting Coordinate Due DiligenceFinancial/Credit worthiness Qualify Buyer for Tour Business Loan Request Package A specific Business Business Review 1-Page Business 1- 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!
  57. 57. Hire professionals who deal with buyingand selling businesses on a full-time basisDo your homeworkKnow what you are willing to payPrepare yourself for the purchaseEnjoy the process and …
  58. 58. Legacy Venture Group Business IntermediariesCall for more information on subjects covered in thisbusiness buying overviewRequest listing updates or to get our e-newsletter.Info@BuyBizUSA.com813.571.7700

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