Doing business in the US                   Autumn 2011                   Business plan                         1Iván Cueva...
Index         Mission         Vision         Objectives         Model outline and strategy         Market research        ...
Mission        Provide to Los Angeles area drivers with the after sales services needed to maintaintheir vehicles operativ...
Market researchThe market         Usually, using the customer point of view, the vehicles´ aftermarket is divided in:     ...
Vehicle age                            Average expenditure in reparations/maintenance                                     ...
The perception that a weak economy favors the aftermarket appears to be holding forthe short-term. Cost-awareness amongst ...
Factors influencing the health of the aftermarket sector industry include: the numberof vehicles reaching prime aftermarke...
Sustained periods of gasoline costs over $3 per gallon could result in uncertainty for theconsumer, reduced miles driven, ...
Location selectionThis research is focus in to evaluate the location of the first repair shop. The research will bedone ag...
2007                          Areas with faster population                          growthMedian household income growthCh...
Median household incomeMedian age                          11Iván Cuevas                    Doing business in the US
ConclusionThe areas to be studied in order to acquire the first garage are going to be:                Glendale           ...
GlendaleZip Codes: 91201, 91202, 91203, 91204, 91205, 91206, 91207, 91208Population: 190,000Median household income: $53,0...
Areas of interest               Glendale population density (US Census Bureau 2000)                                       ...
Area of interest              Glendale median age (US Census Bureau 2000)                                  15Iván Cuevas  ...
CompetitionUsing the key word “automobile repair shop” in Google maps, we can see as red points all thebusiness related wi...
17Iván Cuevas        Doing business in the US
AlhambraZip codes: 91801, 91802, 91803Population: 86,000Median household income: $50,382Median Age: 39 years              ...
Areas of interest                         Alhambra population density (US Census Bureau 2000)                             ...
Area of interest              Alhambra median age (US Census Bureau 2000)                                  20Iván Cuevas  ...
Competition         Using the key word “automobile repair shop” in Google maps, we can see as red points all the         b...
El Monte – South el MonteZip codes: 91731, 91732, 91733, 91735Population: 113,000+20,000Median household income: $44,000Me...
Al Monte population density (US Census Bureau 2000)              El Monte Change in median household income since 2000    ...
El Monte median age (US Census Bureau 2000)                                  24Iván Cuevas                                ...
CompetitionUsing the key word “automobile repair shop” in Google maps, we can see as red points all thebusiness related wi...
Assessing the potential marketIn order to assess the potential revenues related with the automotive after-sales market, we...
Once we know the potential market, the current size of the market should be calculated. Inthis case the data are obtained ...
The ideal repair shopAccording to the Midas investor presentation, their average shop sales are $600,000. In theNADA state...
Total labor cost: $199.472 + 9.7% = $218.820Manager: the owner will take the manager position due to his experience in the...
Other areas:               Client reception and waiting area               Administrative area, used by the technician con...
MarketingTotal market: $88,000,000Total competitors: 114+29 = 143Average market share: 1/143= 0.7%Average competitors sale...
All services                     Friendly/close     Affordable                  Compromised                       32Iván C...
Friendly/close     AffordableUsing the attributes observed in the websites, we build the Meets ends chain:   Attributes   ...
Clients segments:2 segment of clients are going to be defined in order to make a better communication:Tightrope walker mom...
Bachelor degree in science. Master degree in landscape design.Lives in Los Feliz, LA.Work part time in the Glendale City H...
Lives in GlendaleWork as accountant in Americas United Bank.Income: $85,000Spare time: reading bestsellers, visiting his s...
explained to the costumer (Attributes: compromised; friendly/close. Values: peace of         mind; family safety).As a sum...
OperationsIn order to improve the internal processes and the client retention, a probed methodology isgoing to be deployed...
•    Motivating and rewarding the people involved to do it right, developing incentives         and commissions.To Be Effe...
Iván Cuevas                                                                                                               ...
Iván Cuevas                                Oil Maintenance                                                                ...
Iván Cuevas                                                                                                               ...
Iván Cuevas                                              Oil Maintenance                                                  ...
As seen in the previous pages, the total investment required is $224,000 (January 2012).         $180,000 will be provided...
MeasurementIn order to assure the achievement of the objectives, and to be able to made a monthly followup (in some cases ...
46Iván Cuevas        Doing business in the US
47Iván Cuevas        Doing business in the US
Legal considerationsEntity type: Limited Liability Company taxed as partnership.         Advantages:                 Owner...
o   Federal                            Employer Identification Number (EIN or SSN)                            Proof of R...
o   Customer lists                    o   Sales records                    o   Supplier/purchaser list                    ...
Compliance with the Bulk Sales laws of the state                          Any representation and warranties of the seller ...
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Repair shop business plan

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Study for the opening of a new repair shop in LA area

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  1. 1. Doing business in the US Autumn 2011 Business plan 1Iván Cuevas Doing business in the US
  2. 2. Index Mission Vision Objectives Model outline and strategy Market research The market The evolution during the last years Location selection Population growth since 1960 Median household income growth Median household income Median age Conclusion Glendale Competition Alhambra Competition El Monte Competition Assessing the potential market The ideal repair shop The staff The building Marketing Our client Client segments Business processes focus on target clients Brand image Operations Financials Profit and loss forecast Cash flow Measurement Legal considerations Entity type Considerations for buying a business Research for buying a business Determining the value of a business Sales agreement Bibliography, resources 2Iván Cuevas Doing business in the US
  3. 3. Mission Provide to Los Angeles area drivers with the after sales services needed to maintaintheir vehicles operative.Vision Develop a professional repair shops network around the city of LA, with excellentservice and high client retention, which can be easily integrated in a franchise or automobilemakers´ network.Objectives Own 5 repair shops around LA City in 7 years. Increase their profitability up to 35%,improving their operations and client loyalty. Each repair shop should be part of a franchise orautomobile makers´ network after three years of being bought.Model outline and strategy The development of the network is going to be based in the acquisition of runningrepair shops on sale. The main points to be considered in the acquisition of these repair shopswill be: Location: around or in the city of LA. The interesting areas are defined by population, population growth rate, income per capita, and income growth. Other factors to be considered are total number of vehicles, vehicles per person, competition and style of life. Installations: the repair shops should meet the general franchises and automobile makers’ standards. General function: owner and managers with technical skills, not focus on customer satisfaction and loyalty. Poor use of marketing tools and low managerial knowledge Profitability: low operational profitability but maintained during the last years. The lack of operational control and client monitoring are the main causes for this low profitability. Under the new management 3 areas will be improve in order to increase profitability: Client retention Sales Performance The first repair shop will be acquired using personal savings mainly, in order to reinvestall the possible profits in the purchase of the next garage. At the same time the risk of beingunable to find external resources is reduced. 3Iván Cuevas Doing business in the US
  4. 4. Market researchThe market Usually, using the customer point of view, the vehicles´ aftermarket is divided in: Automobile brand repair shops Non Automobile brand repair shops Do-it-for-me Parts shops Do-it-yourself Three are the factors that distinguish these businesses in the consumer brain: Technical competence: the repairs shops under the umbrella of an automobile brand have better technical skills. This is due to the training, access to technical information and support from the brand. Consumers tend to use these services in case of difficult reparations. Price: the use of original equipment service (OES)parts and the technical skills required from the technicians cause a higher price in the automobile brand repair shops. Warranty: the obligation to repair the car in the official network during the warranty period is an advantage for this kind of repair shops. In the other hand, the reparations under warranty are not as profitable as other services. As a result of these 3 factors, the clients use the official network during the first yearsof vehicles´ life, or only during the warranty period. The owners tend to look for cheaperplaces where to repair their vehicles as these are getting older. Vehicle age % clients that use the official network for reparations At the same time, as the vehicles are getting older, they required more reparations. Sothe average expenditure in maintenance and reparations increases during the first years. 4Iván Cuevas Doing business in the US
  5. 5. Vehicle age Average expenditure in reparations/maintenance (€ in Spain) This increase in reparations is an opportunity than the brands´ networks tend to losebecause of the low loyalty of their clients. This opportunity is absorbed by the other players ofthe industry.The evolution during the last years The combination of lower gasoline prices, easing cutbacks in miles driven, andexpectations of lower new vehicle sales has the potential to increase aftermarket sales in thenear to intermediate term. The aftermarket experienced a sales boom after 1,160 dealershipsclosed in 2009. It was estimated that more than $7 billion in 2009 parts and services would beredirected to independent service outlets and auto parts stores and non-OE auto partsdistributors as dealers closed shop. Independent garages employed an estimated 332,262individuals. For 2010, there are an estimated 80,050 independent general mechanical servicebusinesses in the United States. It is estimated that 70 percent (173 million) of out-of-warrantyvehicles are repaired at independent shops. 5Iván Cuevas Doing business in the US
  6. 6. The perception that a weak economy favors the aftermarket appears to be holding forthe short-term. Cost-awareness amongst automobile consumers have lead many to invest inservicing and repairs of their vehicles rather than purchasing a new one because of the effectof the weakened global economy. The aftermarket (parts and services) is estimated to be anearly $200 billion industry and has benefited as consumers defer new vehicle purchasesbecause of uncertainty about their jobs, housing market, and availability of disposable income.Still, even the aftermarket is not immune to the state of the economy. Using the Survey Cost Method the size of the U.S. automotive aftermarket includingthe service sector was $187.3 billion in 2008, down slightly from 2007. Focusing solely on the parts portion of the market, the North American aftermarketparts sector was worth $80.3 billion in 2009 in wholesale dollars, up slightly (0.9 percent) from2008. The aftermarket in North America has shown a slow, but steady increase since 2000when the market was $62.4 billion. ASA (Automotive Service Association) projects total sales for general mechanical repairfacilities in 2010 to be $39.9 billion, based on U.S. Census Bureau figures for generalmechanical repair. Adding in specialty repair facilities, oil change facilities and transmissionshops, the estimated total sales moves closer to $57 billion. The figures do not include the approximately 17,900 auto dealerships with servicefacilities that took in approximately $28 billion ($16 billion in labor and $12 billion in parts) in2009, according to the National Automobile Dealership Association. 6Iván Cuevas Doing business in the US
  7. 7. Factors influencing the health of the aftermarket sector industry include: the numberof vehicles reaching prime aftermarket age (about 8 years); the cost of fuel; the amount ofunperformed maintenance; and the ability to get or keep used cars in circulation. In 1996,there were a total of 198 million vehicles in operation in the United States. By 2007, thatnumber had grown to over 241 and more vehicles “came of age” needing more repairs. In thelonger term, the number of cars sold was only 10.3 million in 2009, down from 17 million a fewyears ago, which means in the aftermarket’s sweet spot of 5-7 years, there will eventually befewer cars needing service.There were fewer new cars bought (10.3 million vehicles) in 2009 than were scrapped (14million vehicles), resulting in 246 million vehicles on the road, four million fewer than in 2008. Vehicles on the road (millions)The average vehicle age increased to 10.6 years for all cars and light trucks up from 10.2 yearsin 2007. In 2007, the percentage of cars 11 years old or older was 41.3 percent compared with40.9 percent in 2006. For trucks the percentage was 29.5 percent in 2007, and 29.2 percent in2006. The older fleet reflects improved overall vehicle durability. Despite improved durabilityper unit, increased vehicle lifespan provides a market for replacement aftermarket parts suchas struts, exhaust systems, water pumps and alternators, as well as performance and stylingproducts. This increased fleet age offers increased aftermarket sales which offsets to somedegree the lower parts replacement rate due to increasing new vehicle quality and reliability. 7Iván Cuevas Doing business in the US
  8. 8. Sustained periods of gasoline costs over $3 per gallon could result in uncertainty for theconsumer, reduced miles driven, and prolonged periods of deferrals of automotive services.The fewer miles driven also reduce wear, leading to less maintenance. The average annualmiles driven by motorists, 11,604 miles for cars in 2007, was down slightly from previous years.The U.S. Department of Transportation found Americans drove 6.6 billion miles more in 2009than in 2008, an increase of 0.2 percent. In 2010 the increase was a 0.70%. Although gasprices have dropped from the $4 per gallon levels experienced in the summer of 2008,Americans continued to drive less miles on average. 8Iván Cuevas Doing business in the US
  9. 9. Location selectionThis research is focus in to evaluate the location of the first repair shop. The research will bedone again to decide next locations when necessary. In the research 3 areas in the LA County will be evaluated. To decide which the areas are to beevaluated, the population growth, the income growth and the average age are going to beconsidered. Population growth: areas with fast population growth are the most interesting for our business. In general, this type of areas are residential areas, with lack of services. Median household income growth: many areas around big cities absorb people that cannot afford anymore the increase of housing prices in the city centre. They look for more disposable income, which can be use in other services. At the same time we look for low-median class people. Average age: we look for areas with young people, which in the next years will increase their income.Population growth since 1960In order to locate the areas with fast growth population, we are going to use the followingmaps. In them the population density is represented by colors.1960 9Iván Cuevas Doing business in the US
  10. 10. 2007 Areas with faster population growthMedian household income growthChange in median household income since 2000. 10Iván Cuevas Doing business in the US
  11. 11. Median household incomeMedian age 11Iván Cuevas Doing business in the US
  12. 12. ConclusionThe areas to be studied in order to acquire the first garage are going to be: Glendale Alhambra El Monte – South El Monte 12Iván Cuevas Doing business in the US
  13. 13. GlendaleZip Codes: 91201, 91202, 91203, 91204, 91205, 91206, 91207, 91208Population: 190,000Median household income: $53,000Median Age: 41 years Reference point Glendale ZIP codes 13Iván Cuevas Doing business in the US
  14. 14. Areas of interest Glendale population density (US Census Bureau 2000) Area of interest Glendale Change in median household income since 2000 (US Census Bureau 2010) 14Iván Cuevas Doing business in the US
  15. 15. Area of interest Glendale median age (US Census Bureau 2000) 15Iván Cuevas Doing business in the US
  16. 16. CompetitionUsing the key word “automobile repair shop” in Google maps, we can see as red points all thebusiness related with the automotive after-sales. Business Area Comercial Area Target area Dealerships Area 16Iván Cuevas Doing business in the US
  17. 17. 17Iván Cuevas Doing business in the US
  18. 18. AlhambraZip codes: 91801, 91802, 91803Population: 86,000Median household income: $50,382Median Age: 39 years Reference point Alhambra ZIP codes 18Iván Cuevas Doing business in the US
  19. 19. Areas of interest Alhambra population density (US Census Bureau 2000) Areas of interest Alhambra Change in median household income since 2000 (US Census Bureau 2010) 19Iván Cuevas Doing business in the US
  20. 20. Area of interest Alhambra median age (US Census Bureau 2000) 20Iván Cuevas Doing business in the US
  21. 21. Competition Using the key word “automobile repair shop” in Google maps, we can see as red points all the business related with the automotive after-sales. Target area Dealerships AreaComercial Area Comercial Area 21 Iván Cuevas Doing business in the US
  22. 22. El Monte – South el MonteZip codes: 91731, 91732, 91733, 91735Population: 113,000+20,000Median household income: $44,000Median Age: 31 years Reference point El Monte ZIP codes 22Iván Cuevas Doing business in the US
  23. 23. Al Monte population density (US Census Bureau 2000) El Monte Change in median household income since 2000 (US Census Bureau 2010) 23Iván Cuevas Doing business in the US
  24. 24. El Monte median age (US Census Bureau 2000) 24Iván Cuevas Doing business in the US
  25. 25. CompetitionUsing the key word “automobile repair shop” in Google maps, we can see as red points all thebusiness related with the automotive after-sales. Target area El Monte Shopping Centre Five Points Plaza Shopping Centre 25Iván Cuevas Doing business in the US
  26. 26. Assessing the potential marketIn order to assess the potential revenues related with the automotive after-sales market, weuse the Consumer Expenditure Survey 2010 (CES), made by the Bureau of Labor Statistics. Thesurvey provides average expenditure in “Gasoline and Motor Oil” combined, and expenditurein vehicles “Maintenance”. The gasoline expenditure is not part of our market, so the expensein oil has been estimated as a 23% of the “Gasoline and Motor Oil” expenditure. Average MPG: 24 Average annual mileage (2010): 12,000 Average gasoline cost: $3.30/gallon Total annual expenditure in gasoline: (12,000/24)x3.30= $1650 Average expenditure in “Gasoline and Motor Oil”: $2.132 % spent in oil: 1-(1650/2132) = 23%According to the CES, the expenditure in these 2 concepts vary significantly with differentsocioeconomic factors, such as region of residence, age, occupation, education, etc… To have amore accurate number, the medium age and house income of the 3 cities have beenconsidered. Alhambra Glendale El Monte/S . El monte Population 86000 190000 133000 Nº of households 29000 72000 32000 M edium income $ 50.352 $ 53.980 $ 44.000 M edium age 39 41 31 Consumer Expenditure Survey Gasoline and motor oil by medium income$ 2.455 $ 2.455 $ 2.152 2010 (Average annual % of motot oil 23% 23% 23% expenditure by income before M otor oil by medium income $ 565 $ 565 $ 495 taxes) M aintenance by medium income $ 752 $ 752 $ 760 Total by medium income $ 1.317 $ 1.317 $ 1.255 Gasoline and motor oil by medium age $ 2.537 $ 2.537 $ 2.208 Consumer Expenditure Survey % of motot oil 0,23 0,23 0,23 2010 (Average annual M otor oil by medium age $ 584 $ 584 $ 508 expenditure by age) M aintenance by medium age $ 889 $ 889 $ 705 Total by medium age $ 1.473 $ 1.473 $ 1.213 Average expenses in maintenance and oil $ 1.395 $ 1.395 $ 1.234 Potential market (Nº of households x Average expenses in maintenance and oil) $ 40.442.820 $ 100.409.760 $ 39.484.800 26Iván Cuevas Doing business in the US
  27. 27. Once we know the potential market, the current size of the market should be calculated. Inthis case the data are obtained from the US Census Bureau. Our market is included in 2different NAICS codes: 8111 (Automotive repair and maintenance), and 4413 (Automotiveparts, accessories, and tire stores). Alhambra Glendale El Monte/S . El monteNAICS 8111 (Automotive repair Number of stablishments 42 114 144 and maintenance) Receipts/revenues $ 27.000.000 $ 65.000.000 $ 58.000.000NAICS 4413 (Automotive parts, Number of stablishments 13 29 38 accessories, and tire stores) Receipts/revenues $ 12.000.000 $ 23.000.000 $ 77.000.000 Total $ 39.000.000 $ 88.000.000 $ 135.000.000I defined the absorption rate as real revenues/potential market, to know how the actualmarket is cover by the companies currently running. Alhambra Glendale El Monte/S. El monte Absorption 96% 88% 342%As we see, in El Monte the absorption is much bigger than in the other 2 cities. EL Monte –South El Monte has 27 used car dealers (3 in Glendale, 2 in Alhambra). This can cause theproliferation of the after-sales business. At the same time El Monte look like a point ofreference for cities around. It causes that the population of Montebello, Pico Rivera, BaldwinPark or Temple City goes to El Monte in order to repair their car. So El Monte is not consideredas a good location for a new repair shop.The best situation for our repair shop seems to be Glendale. The lower market absorption bythe current competitors suggests this city. At the same time its business area attractsthousands of workers everyday, which are potential clients for our business. 27Iván Cuevas Doing business in the US
  28. 28. The ideal repair shopAccording to the Midas investor presentation, their average shop sales are $600,000. In theNADA state of the industry report, the total service labor sales to customers in 2009 were$16.38 billion, and $12.48 billion in parts. So the service sales are a 60% labor and 40% parts.If we apply these percentages to an average Midas shop, the labor sales are $360.000. Average labor rate in the US: $68/h Hours invoiced: $360,000/($68/h)= 5,294hThe staffTime invoiced by technician: Hours per day: 8 Annual working days: 261 Holidays: 11 federal holydays + 2 weeks = 21 days Total hours of presence= 8 x (261-21) = 1,920 hours/year Estimated productivity (Hours invoiced/Hours worked) = 110% Estimated employment (Hours worked/Hours presence) = 95% Total hours invoice by technician by year = 1920 X 0,95 x 1,10 = 2,006 hoursTechnicians required: 5,294 / 2,006 = 2,63 ~ 3 TechniciansMedian hourly wages for technician: $16.09/h Direct labor cost: 16.09 x 3 technicians x 2,006 hours= $96,8291 service advisor/technicians supervisor is required. Annual wage: $56,190A service administrative is recommendable. Annual wage: $28,320Labor cost: $96,829 + $56,190 + $28,320 = $181.339 + 10% Bonus/commissions = $199.472Taxes (paid by the company) Social Security: 6.2% California State Unemployment Insurance: 3.4% California Employment Training Tax: 0.1%Total taxes: 9.7% 28Iván Cuevas Doing business in the US
  29. 29. Total labor cost: $199.472 + 9.7% = $218.820Manager: the owner will take the manager position due to his experience in the automotiveindustry.Owner´s resume:Mechanical engineer with an MBA. 6 years of experience in the automotive industry. He hasworked in all the major players within the automotive distribution system (dealerships,national sales companies and consultancy/audit firms).Professional experienceAutomotive After-sales Consultant, JMAC (Japanese Management Association Consultants),Spain, June 2010- June 2011Warranty contact, Renault Trucks (Volvo Group), Madrid, June 2008 - September 2009Service Zone Manager, Renault Trucks (Volvo Group), Spain, February 2007 - June 2008Ford Warranty Specialist, MSX International, Spain, October 2005 - February 2007Education2011-present: Certificate in International Trade and Commerce, UCLA, Los Angeles2008-2009: Higher education program in Automotive Industry Management, Instituto deEmpresa IE, Madrid2005-2006: Master´s degree in Business Administration, ESIC (School of Marketing andCommerce), Madrid2004-2005: Master’s degree in Automotive Engineering, UPM and the University Institute ofAutomobile Research, Madrid1995-2003: Bachelor Science in Mechanical Engineering, University Alfonso X, MadridThe buildingWith 3 technicians, the ideal repair shop should have at least 6 bays, and a minimum of 4hoists (6 hoists are recommendable). Average time of reparation: 0.9h Hours worked by 3 technicians/day =3 x 8 hours x 95% = 22.8 hours/day Total reparations orders/day = 22.8/0.9 = 25.3So in an average day we will attend 26 clients. If we estimated 0.8 parking spots for each OR Parking spots= (25.3 OR/day) x (0.8 parking spot/ OR)= 20 client parking spots Staff parking spots: 4 Total parking spots: 20+4 = 24 29Iván Cuevas Doing business in the US
  30. 30. Other areas: Client reception and waiting area Administrative area, used by the technician controller and by the service administrative. Should be inside the reception area in order to attend clients. Parts warehouse Manager office Clients´ restroom Staff area (launch area + restroom) Staff parking Loading zone Reception area + Manager Parts office waiting Staff Restr area oom 30Iván Cuevas Doing business in the US
  31. 31. MarketingTotal market: $88,000,000Total competitors: 114+29 = 143Average market share: 1/143= 0.7%Average competitors sales: $88,000,000x0.7%= $615,000As defined before, our ideal repair shop is calculated for selling $600,000/year. Having 6 baysallows 4 technician to work in our repair shop. So our potential sales are: Potential invoiced hours: 4 technicians x 2,006 hours = 8,024 hours/year Potential labor sales: 8,024 x 68$/h = $545,000 Total sales (60% labor / 40% parts) = $545,000/0,6 = $910,000 Potential market share =$910,000 / $88,000,000 = 1,03%As seen, we can absorb the average market share ($615,000), and even grow up to $910,000.So we are going to develop marketing actions in order to achieve our maximum potential.Our clientOur objective is become part of a franchise network (Midas, Meineke,…) So the type of clientswe are looking for should be similar to their clients. In order to have a better understanding ofour potential clients, the meets end chain theory is going to be used to know their values.The meets end chain theory makes connections between the attributes of a product or servicewith the clients´ values, in order to know the motivations that drive the client to the purchase.The method used is personal interviews. The lack of resources doesn´t allows us to use thepersonal interviews, but we apply the theory in order to know better our clients.To see the attributes that our clients value the most, let´s analyze the Midas and Meinekewebsites. 31Iván Cuevas Doing business in the US
  32. 32. All services Friendly/close Affordable Compromised 32Iván Cuevas Doing business in the US
  33. 33. Friendly/close AffordableUsing the attributes observed in the websites, we build the Meets ends chain: Attributes Consequences Values • Affordable • More disposable • Independence (time • All services income and money) • Compromised • One stop: more • Peace of mind • Friendly/close disposible time • Family safety • Trustworthy • Relaxation • Fair price 33Iván Cuevas Doing business in the US
  34. 34. Clients segments:2 segment of clients are going to be defined in order to make a better communication:Tightrope walker mommyMedium, medium-low classMarriedHave kidsHigher educationDon´t work or part time workJapanese second hand carHer family is her priorityDon´t know anything about carsThrifty JohnMedium, medium-low class.Blue collar worker or white collar, but in a staff position (possibly retired).Looking for a good price-service relation. He doesn´t want to feel that is wasting money.He has achieve a good standard of living taking care of every expense of his family.With free time for looking for bargains or competitors.Old American car (that bought new).After defining the general characteristics of these two segments, a more complete profile isgoing to be developed for two possible clients within these segments.Tightrope walker mommyApril Marshburn, 34 years old.Married for 3 years.1 Kid (Lucas, 2 years old). 34Iván Cuevas Doing business in the US
  35. 35. Bachelor degree in science. Master degree in landscape design.Lives in Los Feliz, LA.Work part time in the Glendale City Hall, Environmental Protection Department.Income: $30,000. Household income: $110.000Spare time: her kid, her husband, reading, cinema… But in general she doesn´t have too muchtime for herself.Car : Toyota Camry 2000.Likes organic food, but has no budget for it.Buys at Trader Joes and Ralphs.Her preferred thing to do is traveling, but since she got married they couldn´t afford travelingabroad.Has an Android phone.Favorite restaurants: exotic (Thai, Indian…)Thrifty JohnTom Hammer, 55 years old.Married for 35 years.3 sons, 2 grandsons. None of them live with him.Enrolled 2 years in the army. 35Iván Cuevas Doing business in the US
  36. 36. Lives in GlendaleWork as accountant in Americas United Bank.Income: $85,000Spare time: reading bestsellers, visiting his sons, makes and paints plumb soldiers (especiallyfocus on WWII)Car : Cadillac DeVille 2005.Every 3 years goes on a cruiser with her wife.Has a Motorola.Favorite restaurants: Italian.Business processes focus on target clientsIn order to achieve the attributes looked for by our potential clients, and to offer a service thatcan fit with their values, there are some internal processes that should be developed. Fixed appointment: All the previous paper work should be done previously the client show up. It includes a quotation and the estimated time of termination of the work, which could be communicated to the client when arranging the appointment. The client should be attended at that time. His name will be in a welcome board (Attributes: compromised; friendly/close. Values: Independence –time-; relaxation). Dropping the car: all the possible reparations should be agreed with the client at that moment. A final quotation should be given to him with the agreed reparations. A reliable time for the end of the reparations must be communicated (attributes: affordable –no surprises in the final invoice-; compromised; close. Values: independence –time and money-; peace of mind; relaxation). Getting the car back: Car ready on time and with the cost previously agreed. The invoice, the reparations done to the car, and issues relative to the car should be 36Iván Cuevas Doing business in the US
  37. 37. explained to the costumer (Attributes: compromised; friendly/close. Values: peace of mind; family safety).As a summary, the clients should now 3 things as soon as possible: What are the reparations my car needs? How much is going to cost? When am I going to have my car back?Focusing most of our processes in answering these questions the sooner we can, we willachieve the client satisfaction.Brand ImageTrying to develop a friendly brand, focus on service, the brand name will be: OMG (Oil Maintenance Group)The claim for the brand will be “OMG: what a service!”Example of communication 37Iván Cuevas Doing business in the US
  38. 38. OperationsIn order to improve the internal processes and the client retention, a probed methodology isgoing to be deployed in every new repair shop acquired.Putting it simply, if 3 things (‘elements’) should be done well: • keep customers coming back (Retain), and • find and satisfy all their Service needs on every visit (Sell), and • run the workshop as a ‘tight ship’ (Be Effective),then more profit is earned.Improved customer retention comes from: • Making sure customers are fully satisfied after every visit (customer concern resolution by surveys) • Knowing, and responding to, local competition (local competition analysis every 3 months) • Keeping in touch, and reminding Routine Services by letter, text or email. • Bringing lost customers back in on a planned, organised basis , developing a service marketing planningImproved Sell comes from: • Customer appointments that give time with the advisor • Running ‘health checks’ on every vehicle that comes in, and offering customers a vehicle health check with the Advisor (Direct Reception) 38Iván Cuevas Doing business in the US
  39. 39. • Motivating and rewarding the people involved to do it right, developing incentives and commissions.To Be Effective means: • Optimising how the workshop is planned and loaded, using a workshop planning • Operating good general workshop-related practices, organizing the lay out to minimize the time waste by the technicians • Pre-picking parts ahead of technicians starting any job • Having technicians correctly clock on and off all jobsTo hold together and steer what’s happening elsewhere , and effective Management &Monitoring system is needed: • Regular measurement of actual performance vs. targets, developing a complete system of evaluation and control • Regular review of, and response to, measured performance (Weekly Management Meeting and Action Plan update ) • Daily communication/discussion with staff on key items/issue (A daily, 10 minute morning operating meeting )This methodology has been probed effective in more than 200 repairs shops all around theworld, and only requires a small investment. 39Iván Cuevas Doing business in the US
  40. 40. Iván Cuevas Financials Profit and loss forecast Oil Maintenance 2012 Group 2011 January February March April May June July August September October November December 2012 Parts sales $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 240.000 Labor sales $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 360.000 Total sales $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 600.000 Parts cost $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 168.000 Labor cost $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 91.429 Gross profit $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 340.571 40 Rent $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 60.000 Salary service advisor (taxes included) $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 61.640 Salary service administrative (taxes included) $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 31.067 Supplies $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 1.800 Repairs and maintenance $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 4.800 Telephone and utilities $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 3.600 Advertising $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 30.000 Others services (accounting; insurances) $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 4.800 Expenses $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 197.707 Net profit $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 142.864Doing business in the US
  41. 41. Iván Cuevas Oil Maintenance 2013 Group January February March April May June July August September October November December 2013 2014 2015 Parts sales $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 254.400 $ 274.752 $ 302.227 Labor sales $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 381.600 $ 412.128 $ 453.341 Total sales $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 636.000 $ 686.880 $ 755.568 Parts cost $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 178.080 $ 192.326 $ 211.559 Labor cost $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 96.914 $ 104.667 $ 115.134 Gross profit $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 361.006 $ 389.886 $ 428.875 Rent $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 60.000 $ 60.000 $ 60.000 41 Salary service advisor (taxes included) $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 63.490 $ 65.394 $ 67.356 Salary service administrative (taxes included) $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 31.999 $ 32.959 $ 33.948 Supplies $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 1.854 $ 1.910 $ 1.967 Repairs and maintenance $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 4.944 $ 5.092 $ 5.245 Telephone and utilities $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 3.708 $ 3.819 $ 3.934 Advertising $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 30.900 $ 31.827 $ 32.782 Others services (accounting; insurances) $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 4.944 $ 5.092 $ 5.245 Expenses $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 201.839 $ 206.094 $ 210.477 Net profit $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 159.167 $ 183.792 $ 218.398Doing business in the US
  42. 42. Iván Cuevas Cash Flow Oil Maintenance 2012 Group 2011 January February March April May June July August September October November December 2012 Cash $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 Clients $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 Stock $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 Current Assets $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 Investment in current assets $ 27.000 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 27.000 Business purchase price $ 180.000 $ 180.000 Machinery renovation $ 10.000 $ 10.000 Signal renovations $ 2.000 $ 2.000 Computer renovation $ 1.500 $ 1.500 Initial Stock (15 days of sales) $ 10.000 $ 10.000 Permits and paper work $ 2.000 $ 2.000 42 Rent deposit (3 months) $ 15.000 $ 15.000 Fix assets $ 220.500 $ 220.500 Investment in fix assets $ 220.500 $ 220.500 Suppliers $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 Short term credits $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 Current liabilities $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 Investment in current liabilities $ 16.000 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 16.000 Invesmetn in Working funds (Current assest-current liabilities) $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 Investment in working funds $ 11.000 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 11.000 Net profit after taxes (estimated taxes: 10% sales) $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 82.864 Amortization $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 3.100 Funds generated by the operations $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 85.964 Invesmetn in Working funds $ 11.000 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 11.000 Investment in fix assets $ 220.500 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 220.500 Free operational Cash fllow $ -224.336 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ -145.536 Accumulated Cash fllow $ -224.336 $ -217.173 $ -210.009 $ -202.845 $ -195.682 $ -188.518 $ -181.354 $ -174.191 $ -167.027 $ -159.863 $ -152.700 $ -145.536 $ -53.972Doing business in the US
  43. 43. Iván Cuevas Oil Maintenance 2013 Group January February March April May June July August September October November December 2013 2014 2015 Cash $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.145 $ 1.259 Clients $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 18.317 $ 20.148 Stock $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 11.448 $ 12.593 Current Assets $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 30.910 $ 34.001 Investment in current assets $ 1.620 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 1.620 $ 2.290 $ 3.091 Business purchase price Machinery renovation $ 6.000 $ 6.000 $ 6.000 $ 6.000 Signal renovations $ 2.000 Computer renovation $ 1.500 Initial Stock (15 days of sales) Permits and paper work Rent deposit (3 months) 43 Fix assets Investment in fix assets $ 6.000 $ 6.000 $ 9.500 $ 6.000 Suppliers $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 16.027 $ 17.630 Short term credits $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.290 $ 2.519 Current liabilities $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 18.317 $ 20.148 Investment in current liabilities $ 960 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 960 $ 1.357 $ 1.832 Invesmetn in Working funds (Current assest-current liabilities) $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 12.593 $ 13.852 Investment in working funds $ 660 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 660 $ 933 $ 1.259 Net profit after taxes (estimated taxes: 10% sales) $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 95.567 $ 137.844 $ 163.799 Amortization $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 3.100 $ 3.100 $ 3.100 Funds generated by the operations $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 98.667 $ 140.944 $ 166.899 Invesmetn in Working funds $ 660 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 660 $ 933 $ 1.259 Investment in fix assets $ 6.000 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 6.000 $ 9.500 $ 6.000 Free operational Cash fllow $ 1.562 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 92.007 $ 130.511 $ 159.639 Accumulated Cash fllow $ -143.974 $ -135.752 $ -127.529 $ -119.307 $ -111.085 $ -102.863 $-94.640 $-86.418 $-78.196 $-69.974 $-61.751 $-53.529 $ -53.529 $ 76.982 $ 236.622Doing business in the US
  44. 44. As seen in the previous pages, the total investment required is $224,000 (January 2012). $180,000 will be provided by the owner´s family. $18,000 will be provided by the owner. $26,000 to be borrowed from a financial institutionThe total investment will be recover in the first semester of the third year. 44Iván Cuevas Doing business in the US
  45. 45. MeasurementIn order to assure the achievement of the objectives, and to be able to made a monthly followup (in some cases daily), these are the figures to be control, and the targets for the next twoyears:In order to have a good control on all the variables that can impact on these objectives, thefollowing tables will be used to control the business: 45Iván Cuevas Doing business in the US
  46. 46. 46Iván Cuevas Doing business in the US
  47. 47. 47Iván Cuevas Doing business in the US
  48. 48. Legal considerationsEntity type: Limited Liability Company taxed as partnership. Advantages: Owners have limited personal liability for business debts even if they participate in management Profit and loss can be allocated differently than ownership interests There are far fewer forms required for registering and there are fewer start-up costs. Filing taxes is a once-a-year affair on April 15: a single-member LLC files a 1040 and Schedule C like a sole proprietor; partners in an LLC file a 1065 partnership tax return like owners in a traditional partnership. LLCs are not required to have formal meetings and keep minutes. Steps to follow: Choose a Business Name. File the Articles of Organization. Create an Operating Agreement. Obtain Licenses and Permits. Business permits and other requirements in the city of Glendale for automotive service and repair o City permits (Glendale)  Building and Construction Permit  Zoning (Land Use) Approval o County (Los Angeles)  Business Personal Property  Fictitious Name Filing (DBA)  Weights and Measures  Authority to Construct/Permit to Operate o State (California)  Air Tanks Permit  Automobile Repair Dealer Registration  Corporation, Company or Partnership Filings  Discrimination Law  Industrial Activities Storm Water General Permit  Occupational Safety and Health Information: Injury and Illness Prevention plan  Registration Form for Employers  Sales & Use Permit (Sellers Permit)  State EPA Identification Number  Wage order #4: Professional, Technical, Clerical, Mechanical and Similar Occupations  Waste Discharge Requirements (WDRs)  Workers Compensation Information  California Business and Professions Code Section 9884 48Iván Cuevas Doing business in the US
  49. 49. o Federal  Employer Identification Number (EIN or SSN)  Proof of Residency Requirement  Labor laws Fair Labor Standards Act Davis-Bacon Act (prevailing wage) Americans with Disabilities Act Immigration and Naturalization Act Family and Medical Leave Act  Automotive Repair Act Hiring Employees Announce Your BusinessConsiderations for buying a business Research for buying a business: Letter of Intent: a Letter of Intent usually creates a non-binding offer to purchase the business and is usually needed in order for the seller to provide sensitive information about the business. The Letter of Intent should spell out: o The proposed price o Terms of the purchase o Conditions for the sale of the business o The document should also state that either side may revise the terms or quit the proposed deal for any reason until a binding contract is executed. Confidentiality Agreement: often required by the seller, a confidentiality agreement indicates that you wont use the information about the sellers business for any purpose other than making the decision to buy. Contracts and Leases: to discover all the obligations that the business is subject to, including property leases and equipment leases. In the case where there is a current lease for the location of the business, be aware that may have to work with the current landlord to assume any existing lease on the business premises or negotiate a new lease. If acquire an existing lease from another lessee, may have to pay the previous lessee for the privilege. The cost of acquiring the lease may be amortized over the remaining term of the lease. Financial Statements: examine the financial statements from the business for at least the past three to five years. Make sure that the statements are accompanied by an audit letter from a CPA firm. Tax Returns: review the businesss tax returns from the past three to five years. This will help to determine the profitability of the business as well as whether any tax liability is outstanding. Important Documents: numerous documents should be checked: o Real and personal property documents o Bank accounts 49Iván Cuevas Doing business in the US
  50. 50. o Customer lists o Sales records o Supplier/purchaser list o Contracts o Advertisement materials o Inventory receipts/lists o Organization charts o Payroll, benefits, and employee pension/profit sharing info o Employee roster o Certification by federal, state or local agencies o List of owners Determining the value of a business Methods: Capitalized Earning Approach: This method refers to the return on the investment that is expected by an investor. Excess Earning Method: Similar to the capitalized earning method, except that it splits off return on assets from other earnings. Cash Flow Method: This method is usually used when attempting to determine how much of a loan the cash flow of the business will support. The adjusted cash flow is used as a benchmark to measure the firms ability to service debt. Tangible Assets (Balance Sheet) Method: This method values the business by the tangible assets. Value of Specific Intangible Assets Method: This method is based upon the buyers buying a wanted intangible asset versus creating it. This method also takes into consideration valuing the goodwill of the business. Sales agreement: The sales agreement is the key document in buying the businessassets or stock of a corporation. The document need to be reviewed in minute detail to makesure it outlines the terms agreed. The following is a checklist of items that should be addressedin the agreement: Names of seller, buyer, and business Background information Assets being sold Purchase price and allocation of assets Covenant not to compete Any adjustments to be made Terms of the agreement and payment terms List of inventory included in the sale 50Iván Cuevas Doing business in the US
  51. 51. Compliance with the Bulk Sales laws of the state Any representation and warranties of the seller Any representation and warranties of the buyer Determination as to the access to any business information Determination as to the running of the business prior to closing Contingencies Possibilities of having the seller continue as a consultant Fees, including brokers fees Date of closingBibliography, resourcesGovernor´s Office of Economic Development, CA http://business.ca.gov/Small Business Administration http://www.sba.gov/National Automotive Dealers Association http://www.nada.org/Social Explorer http://www.socialexplorer.com/pub/home/home.aspxMapping America http://projects.nytimes.com/census/2010/explorerBureau of Labor Statistics http://www.bls.gov/home.htmU.S. Census Bureau http://www.census.gov/Maps Huge Info http://maps.huge.info/zip.htmFederal Highway Administration http://www.fhwa.dot.gov/Autoinc http://www.autoinc.org/Midas http://www.midas.com/Meineke http://meineke.com/Center for Economic Vitality, Western Washington University http://www.cevforbusiness.com/ 51Iván Cuevas Doing business in the US

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