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Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
Morgan & Westfield Sample Selling Memorandum
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Morgan & Westfield Sample Selling Memorandum

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  • 1. MORGAN & WESTFIELD ________________________________________________________________________ CONFIDENTIAL Business Opportunity Summary World of Shades, Inc. Los Angeles, CA
  • 2. World Of Shades, Inc. Notice of Confidentiality The information presented in this document is highly sensitive and confidential and is for use only by those who have signed a Confidentiality Agreement for the purpose of considering the business described herein for acquisition. The information presented in this confidential business opportunity summary shall be treated as secret and confidential, and no part of it shall be disclosed to others, except as provided in a signed confidentiality agreement. The confidential business summary cannot be reproduced, duplicated, or revealed, in whole or in part, or used in any other manner without prior written permission from Morgan and Westfield. Should there be no interest in the business as an acquisition, the confidential business opportunity summary and other additional information provided concerning the client company, shall be promptly returned to Morgan and Westfield at the address listed. No correspondence or communication of any form to the company, its owners, stockholders, employees or professional services shall occur until such time that prior permission is granted by Morgan and Westfield. Such permission will specify the person for contact. All correspondence shall be directed to Morgan and Westfield. All contacts and showings are to be arranged through Morgan and Westfield by appointment only. Under no circumstances is the management or employees of the Client Company to be contacted directly. Offered by: Morgan & Westfield 4195 Chino Hills Pkwy #510 Chino Hills, CA 91709 909-248-0876 | 909-248-0877 | F 800-948-5206 info@morganandwestfield.com www.morganandwestfield.com This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 2
  • 3. World Of Shades, Inc. World of Shades You’ll never shop for shades anywhere else Los Angeles, California Price: $2,300,000 Including $175,000 in Inventory, $100,000 in accounts receivable, and $30,000 in work-in-progress 50% down and the balance financed over 7 years at 8% interest rate Summary: Since 1985, World of Shades, Inc. has grown from a small home- based business into one of the largest independent window- covering retailers in Los Angeles. With over 100,000 satisfied customers, World of Shades, Inc. products cover the windows of thousands of homes in the Los Angeles area. World of Shades, Inc. can accommodate any home with styles ranging from the simplest to the latest in window decoration. World of Shades, Inc. specializes in blinds, shutters, drapery, motorized window coverings, solar screens, and window tinting. Not only does World of Shades, Inc. carry the top brands, but they also manufacture the most popular treatments in-house accommodating any budget. World of Shades, Inc. stands behind all of their products with a limited lifetime warranty. In addition, World of Shades, Inc. has the lowest warranty call back in the industry. As a wholesaler and retailer with a 15,475 square foot factory and showroom, World of Shades, Inc. sells thousands of window coverings per month all across the Los Angeles valley. This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 3
  • 4. World Of Shades, Inc. Business Attributes: This outstanding business has the following attributes: 20+ Years in Business. On-site Manufacturing Facilities High Margins Long-term, Repeat Customers Increasing Sales and Profit Trend Established Systems Established Customer Base Excellent systems make absentee ownership possible The Market: The Los Angeles market is one of the largest in the nation. The Los Angeles valley also enjoys one of the lowest unemployment rates in the nation. World of Shades, Inc. has positioned itself to capitalize on the future growth of this market by building alliances with national builders and large commercial developers. Due to the high level of heat in Los Angeles, window coverings are in high demand and mandatory for every home. Window treatments keep the home cool but also protect the interior furnishings, style the home, and provide privacy. The vendors and manufacturers have historically controlled the market. They have a reputation of poor customer service and unreliability. Since World of Shades, Inc. manufactures their own product, this concern is not a threat and prevents others from entering the industry. World of Shades, Inc. can also expand the company by manufacturing for other retailers in the industry. A new trend has emerged with the conversion of apartments and other properties to condominiums, and the addition of mid-rises and towers. All of these units need window coverings and the contracts for these projects can be extremely large. This trend increases the number of units per acre generating an enormous potential for growth. World of Shades, Inc. currently has over $ 1,000,000.00 contracted with Los Angeles’ largest builders. Builders have fully embraced the idea of selling window coverings, realizing profits on the options as the profits on their homes have decreased as land costs have increased. In an effort to edge the competition, some builders are making window coverings mandatory and are building it into the price of the home. This only reinforces World of Shades, Inc. market share as they are This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 4
  • 5. World Of Shades, Inc. contrac with alm all of th largest bu cted most he uilders and a one builde as er does oothers soon follow, virtu ually elimin nating the co ompetition a as the hom are already covered prior to close of escrow mes d w. Mar Area Ser rket rved Market % of Gros Sales ss Market se erved since Los Angeles Counnty 52%% 19 985 Oraange County 20%% 19 990 San Berardino Couunty 18%% 19 993 Riverside Countyy 5% % 19 995 San Diego and surround a ding area 5% % 20 001 Figure 1Markets Serv ved Busin History ness y: World of Shades, Inc. started in 1985 with one person and a gran h n nd idea. T owner w selling real estate and many o his client The was of ts were a asking for referrals of products f their ho f for ome. A ver ry commo request w for wind on was dow covering The own decided t gs. ner to start small and orrder from a local venddor. The owwner quit reaal This Confidenti Documen may not b reproduce without th prior exp s ial nt be ed he press written n pe ermission of Morgan & Westfield f 5
  • 6. World Of Shades, Inc. estate in 1988 and went full time into the industry. He has expanded the company over the years from hard work, honesty, and integrity, which have brought him a lot of referrals. He started manufacturing his own product in the end of 2004 after wanting independence from the vendors to better serve his clients. The most rapid growth has been in the last 3 years since he started manufacturing his own products. Operating Times: This store is open seven days per week as follows: DAYS OPEN CLOSE Monday – Friday 8:00 am 4:00 pm Saturday - Sunday Appointment only Appointment only The owner currently works less than a forty hour work week. Previously, he worked 20 hours per week and had a full-time sales manager. Type of Entity: There are two entities. World of Shades, Inc., the retailer/wholesaler, is a Delaware Limited Liability Company formed in 2003. Xexum, Inc. the manufacturing company, is also a Delaware Limited Liability Company formed in 2005. The financial statements have been consolidated into the attached Financial model to simplify the valuation as if it were one entity. For all practical purposes, the business is one company. Xexum, Inc. (World of Shades, Inc. Manufacturing and Trucking), a separate identity was established to assist in future growth. It would enable other retailers to purchase products without feeling as if they were buying from the competition and give the company more of a manufacturing feel as opposed to a retail company. Licensing Requirements: World of Shades, Inc. has a business license for each county it operates in. A tax resale license is also required. No contractor’s license is required. This should reduce the amount of time required to close on the transaction. Product/Service: Average Sale - $2,200 World of Shades, Inc. makes and sells window coverings for only the interior of the home. This makes it easy for the installers who can work inside the home and not outside in the heat. The products are used in any type of residence including houses, apartments, and condos. The average sale in 2006 was $2,200.00. It is estimated that this has increased slightly, perhaps to $2,400.00 for 2007. This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 6
  • 7. World Of Shades, Inc. Xexxum, Inc., t manufac the cturing arm of World o of Shaades, Inc., on sells to W nly World of Sha ades, Inc. an nd doe not sell to other ret es tailers. Xex xum,Inc. onl ly mannufactures t most po the opular and c cost effectiv ve products to min nimize operaating expens including ses g: vertticals, 2” FFaux Wood, 2” Wood Blinds, an , nd som motorizat me tion. Margin on these products ar ns re very high, and they are low maintenan with few y w nce w serv vice calls. S Since only th most popular product he ts are manufactu ured in-house, this m minimizes th he amoount of inv ventory that must be k kept on han nd whi minimizes the amou of workin capital th ich unt ng he buy needs to operate the c yer company. All oth products are ordered directly from vendors. her m Produ Mix: uct Pro oduct Type % of Total Shades 45 5% Shutters 40 0% Other 15 5% Customers: 95% o World of Shades, Inc business is from new construction of c. s n. Approximately 65% of World of Shades, I business comes from Inc. m builder World o Shades, I rs. of Inc. works w with 28 main residentia al builder as well as builders of apartments and condos. Some of th rs s f he project contain up to 500 hom and can bring in $2 ts p mes n 200,000.00 i in revenu per comm ue munity. Build make th ideal custo ders he omer becaus se the coontracts can be very large and long-term with health n hy margin As discu ns. ussed earlier, many of th builders a packagin , he are ng the cost of window coverings into the pr w s rice of the h home. This iis called a “Standard Option”. T customer is offered a completel d The ly finishe home for one price; all options a included in the price ed are d e. This is a new trend with the a s advantage be VERY HOME eing that EV in the developmen gets wind nt dow coverin = more business fo ngs or World of Shades, Inc.. World of Shades, Inc. places some of it d s ts employ yees at the builders “de esign center to help t customer rs” the rs pick tthe right prroduct for t their home. The altern native to th he standard option is to present it as an option to the hom n meowner. The to customer only repres op sents approx ximately 5% of World o % of Shades Inc. reve s, enues and the top thr ree custome represen ers nt approxximately 10 of reven 0% nues. 90% of the bui ilders sign a This Confidenti Documen may not b reproduce without th prior exp s ial nt be ed he press written n pe ermission of Morgan & Westfield f 7
  • 8. World Of Shades, Inc. contract with World of Shades, Inc. which typically lasts until the completion of the development. Top 5 Customers as a % of Total Sales Builder #1 5% Builder #2 3% Builder #3 2% Builder #4 2% Builder #5 2% Marketing: World of Shades, Inc. spent less than 1% of its total revenue on advertising in 2006. $16,200.00 was spent on billboard advertising in 2006 that brought in very little business. This program will not be repeated and should result in $16,200.00 more cash flow to the buyer in 2007. This expense was not adjusted for in the Price Point Valuation and was left in place. The owner has found that the price of the “Yellow Pages” ad did not justify the investment. Most of World of Shades, Inc. business comes from referrals and from builders. The owner sells directly to the large builders, thus reducing the commissions he has to pay out to salespeople. Most of the leads that are given to the salespeople are generated from previous clients and real estate agents. Where does new business come from? Misc., 5% Repeat Business,  Referrals, 40% 25% Sales People, 30% This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 8
  • 9. World Of Shades, Inc. Staffing and Payroll: During 2006, total employee payroll/commission expense was $432,589.00, minus Officer’s Salary of $28,000 or an average of $33,715 per month, or an average of 8.45% of total revenue. The owner’s salary is not listed separately on the financial statement but is included in line item – “Payroll Wages-Office”. There are currently 27 employees including one owner. The owner currently manages the business and sells to builders. In 2006, the owner worked very little allowing the manager to run the company. Xexum,Inc. has 13 employees, all of which are involved in the manufacturing and production of window coverings. Xexum,Inc. has a full time manager and all employees are cross-trained. There is one shift from 8 a.m. – 4 p.m. with a thirty-minute lunch. The employees in XEXUM,INC. are paid between $6.00 and $12.00 an hour. Turnover in XEXUM,INC. is very low. World of Shades, Inc. has 14 employees including the owner. The owner manages the company and closes the big accounts with the builders. There is one bookkeeper and one controller who keep the books for both companies. The bookkeeper is paid $12.00 an hour and does billing and collecting and also scheduling for the installers and has been with the company for four months. The controller, central to the company, is paid $55,000.00 a year, and has been with the company for over 2 years. 6 of the employees are salespeople paid on straight commission with no salary or draw. All of the sales are handled outside, typically at the customer’s home or at the builders design center. The salespeople come to the office to complete their paperwork. Their commission is based on the gross profit of the job, not the selling price so the salespeople are encouraged to maximize profits. The salespeople have a quota of 12 jobs per month and have the opportunity to make $60,000.00 to $70,000.00 per year. The commission is 35% of gross profit if the lead is generated by World of Shades, Inc. and 50% of gross profit if the lead is generated by the salesperson. Sales meetings used to be mandatory if the quota was not met, but now all salespeople have been meeting their quotas so sales meetings are on an as needed basis. There are also 5 full-time installers, employed with the company for several years. The installers use a truck and trailer to deliver This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 9
  • 10. World Of Shades, Inc. and install the product. The installers are paid a set amount per window, not a % of the job. Competition: World of Shades, Inc. has established itself in the market with its strong belief in customer service. World of Shades, Inc. is contracted with some of the largest builders in Los Angeles and has been for years. This enables World of Shades, Inc. to cover the windows prior to close of escrow thereby eliminating all competition. This relationship also increases World of Shades, Inc. position in the market, as it is easier to obtain clients with healthy referral list. Technology QuickBooks is used to manage the books. All customers and sales are closely managed by the owner using Microsoft Excel. Software is also used in XEXUM, INC. to manage the cutting of the product. Product can also be ordered online directly from the vendors. The business includes 8 networked computers with monitors. Location: World of Shades, Inc. and XEXUM,INC. were located in a 10,000 square foot facility but have been moved to a new facility with a smaller showroom in an Industrial Park. There is a 300 square foot showroom, 4-5 private offices, and a warehouse. The rent at the old location started at $4,800.00 but has increased along with the CAM’s over the years to $8,800.00 per month and has motivated the owner to move to a more cost effective location. The move will save the new owner $32,000.00 in rent without affecting revenue. The business is not location dependent as it gets no walk in business and all salespeople call directly to the customers. Some of World of Shades, Inc. employees are also working inside of 3 of the builders design centers. There is no rent charged for this arrangement. There is also one sales center located inside of a carpet store at a rent of $2,000.00 per month. This is located on the Profit and Loss Statement under the heading: This design center is in the largest carpet retailer in Los Angeles and both companies work hand in hand establishing new contacts. 95%-98% of World of Shades, Inc. business occurs in the Los Angeles valley with the remainder in parts of California and Southern Nevada. These jobs are done only for past clients. This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 10
  • 11. World Of Shades, Inc. Lease: The business occupies a 6,475 square foot building. It is located on a 16,079 square foot parcel of land. The monthly base rent is $5,301.00 plus monthly CAM of $744.00 for a total monthly rent of $6,054.00 or $.94 per square foot, based on the building space. The base rent will increase 3% per year. The current lease term concludes in 2010; and there is one 3-year option to renew. The lease is assignable. The security deposit is $8,000.00. The property is family owned, and the landlord owns the whole complex. The business owner researched the property heavily before committing to the move. The offices are cooled with air-conditioning and the warehouse is cooled using swamp coolers to minimize utility bills. It is estimated that the sales could be doubled in the same location. A second production shift could be added and even a third if necessary. Adjacent Uses: Light Industrial: Machine shop, T-shirt company. Furniture, Fixtures, and Equipment: The business is a completely furnished and functioning business; it is completely turnkey. All of the hard assets of the business are included in the price. These include all furniture, fixtures, and equipment. As of December 31, 2006, the current book (depreciated) value of fixed assets, excluding current assets such as accounts receivable and inventory, was only about $16,144.00 and This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 11
  • 12. World Of Shades, Inc. accumulated depreciation was $37,814.00. Replacement value would be far greater. The new owner should be able to allocate a significant portion of the purchase price to hard, depreciable assets, thus sheltering some of the future profits of the business. Vehicles and Trailers: 2003 Toyota Truck – 70,000 miles, Market Value $8,000.00 3 2005 10ft’ Trailers – fully logo’d and custom painted; $2,500.00 each, excellent condition, stored inside. 1 2005 15ft’ x 5ft’ fully enclosed trailer-custom painted $4,500.00. It is estimated that to keep the equipment in good repair, a new owner would have to spend approximately $5,000.00 per year. Suppliers: XEXUM, INC. supplies over 50% of what World of Shades, Inc. sells. The product can be manufactured and ready for installation in 2 days. On average, it takes two weeks to receive the product from the vendors. It takes 6 weeks for shutters. Most of the vendors are located in Los Angeles and order the product from overseas and wholesale it here in the United States. World of Shades, Inc. works with approximately 12 vendors, and most have Net 30 day terms with a discount for early payment. Inventory: This business maintains $150,000.00 to $200,000.00 in inventory at any one time. In 2006, total COGS were 74% of sales. At year’s end, there was $176,083.00 in inventory. Thus, the average annual inventory turnover rate is estimated to be 20.50 times, or approximately 17.8 days. The price includes $175,000.00 in inventory, at cost. The price would be adjusted depending on the actual inventory on hand at the close of escrow. The Seller would liquidate any inventory deemed to be “obsolete” prior to the close, if any. All inventory is shown on the XEXUM, INC. Balance Sheet. World of Shades, Inc. Balance Sheet shows no inventory. Work in Progress: ALL WORK IN PROGRESS, SALES ORDERS AND BUILDER CONTRACTS ARE INCLUDED IN THE SALES PRICE. Definition: Works in Progress are jobs that have been prepaid and awaiting installation, currently $40,000.00 This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 12
  • 13. World Of Shades, Inc. Definition: Sales Orders are open contracts; waiting to order the materials, currently $500,000.00 Definition: Builder Contracts are contracts for communities, currently over $1,000,000.00. These are for communities that are going to be build, some contracts are for window coverings in every home, for other contracts it is optional to the consumer but usually purchased. Sales Process: The customer calls in and the receptionist answers the telephone and then forwards the call to a sales rep. The sales rep’s objective is to schedule an appointment and does a brief interview and pre- qualification on the phone. The product can be sold with just floor plans or the rep goes to the homeowner’s house. The product is sold and the contract is drawn up and the design (very simple, two dimensions are needed) is handled by the salesperson. The product is then ordered either from XEXUM, INC. or a vendor. The jobs are prioritized according to how soon the job needs to be done. Listed on the order is the dollar amount of the job, costs, profit, and commission. The order is sent to the owner for final approval. (4-5 orders per day on average) An installation sheet is next drawn up including: customer information, closing time, job information. The receptionist schedules an appointment with the customer and also with the installer. The job is then sent to the installers’ boxes, called “weekly jobs” and logged into the installers’ calendar. The job is then installed and the installer calls the receptionist with the status – complete, not complete; and the installer picks up the payment. The job then goes to the bookkeepers’ box where it is entered into Excel, QuickBooks, and saved alphabetically in a filing cabinet. Accounts Receivable and Payable: ALL ACCOUNTS RECEIVABLE ARE INCLUDED IN THE SALES PRICE. THE BUYER MUST PAY THE ACCOUNTS PAYABLE AT CLOSING, WITH A MAXIMUM OF $30,000.00. Accounts receivable as of the writing of this report was $94,000.00; of which $66,000.00 is due from builders and $28,000.00 is due from homeowners. The aging of the A/R is very healthy with the majority paying within the allotted time frame or within 60 days. Very few are deemed uncollectible. The sales price will include all accounts receivable with a minimum of $50,000.00 included in the price at time of closing. Accounts payable was zero at time of report. This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 13
  • 14. World Of Shades, Inc. Few sales are cash sales. Most homeowners pay with a credit card or wrap the cost into their construction loan. For the homeowner, the full balance is due upon completion of installation. For builders, the terms are NET 30 after the job is complete with no discount offered for early payment. The contract for the sale is one page. Bad Debt Expense for 2006 was only $4,914.00 and only $128.00 in 2005. World of Shades, Inc. has to pursue on average 2-3 collections per year; which are less than $5,000.00. World of Shades, Inc. has never lost a collection, and has minimum bad debt expense. Utility Expenses: During 2006, utility expenses averaged $350.00 per month or .0009% of sales. The utilities are expected to decrease for 2007 as a result of the move to the smaller facility. Insurance World of Shades, Inc. carries a $1 million dollar liability policy. Cost of Sales: During 2006, the cost of goods sold averaged 72.19% of sales. Sales Trends: World of Shades, Inc. is poised to do well over $5.5 million in sales in 2007. The company should be much more profitable than in 2006 because expenses have been trimmed. Annual Revenues $6,000,000.00  $5,000,000.00  $4,000,000.00  $3,000,000.00  $2,000,000.00  Revenues $1,000,000.00  $‐ 2004 2005 2006 2007 Projected This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 14
  • 15. World Of Shades, Inc. Seller's Discretionary Earnings $900,000.00  $800,000.00  $700,000.00  $600,000.00  $500,000.00  $400,000.00  $300,000.00  $200,000.00  $100,000.00  $‐ 2004 2005 2006 2008 Seller’s Discretionary Earnings is Defined as: 1. Pre-tax business net profit. 2. Plus total compensation of a single owner operator. 3. Plus adjustments to all other working owner’s compensation to market rate. 4. Plus annual depreciation and amortization expenses (non-cash expenses). 5. Plus interest expense. 6. Plus non-recurring expenses. 7. Plus expenses not related to the business operations. Improvement And Expansion Potential: The Seller believes that the Buyer could improve this business by implementation of the following: Hire more commissioned salespeople. Wholesale to other retailers. Increase advertising investment. Go after additional large accounts with builders. Open another office in Phoenix, Texas or Northern California. World of Shades, Inc. current builders also build in these markets. This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 15
  • 16. World Of Shades, Inc. Accounting Method: Books are kept in house using QuickBooks on a cash basis by the bookkeeper and controller. They are also compiled by an outside accountant on an annual basis. Financial Results: PricePoint©, a standard industry business valuation model, was utilized to present the financial results of this business. The Seller’s profit/loss statement for 2006 is presented and will be provided for review during the Buyer’s due diligence along with month-to-month 2007 financials. As shown, numerous adjustments had to be made in order to convert the Seller’s Profit and Loss, prepared for tax reporting purposes, to the actual cash flow of this business. This is not uncommon for small, privately owned retail businesses. Adjustments are explained by the footnotes presented in the Price Point Valuation. The Seller, and its accountant, will be able to explain and provide supporting documentation to the Buyer during the due diligence process, for each adjustment. The net profit (“Seller’s Discretionary Earnings” or “SDE”) for this business, during 2006, was approximately $738,632 or 15.44% of sales. Seller’s Debt: All assets will be delivered free and clear of liens and encumbrances at the close of escrow, evidenced by a Bill of Sale. Reason for Sale: The owner would like to move to Orange County, California to surf and fish and take it easy. He has other ideas for future business but needs time to pursue them. He may buy a small business but would like to realize the fruits of his 18 years of labor. Buyer Qualifications: No background or direct industry experience is necessary to run this company. The ideal buyer will have strong people and management skills and will spend his time calling on builder accounts and managing the sales force. Asking Price and Terms: The Seller is offering the business for $2,300,000 with terms on a case by case basis. This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 16
  • 17. World Of Shades, Inc. PricePoint© Valuation: PricePoint©, was also utilized to estimate the value of this business. The valuation and other analyses, presented herein, assume that the Buyer will purchase this business using Seller Financing or an SBA Loan. As discussed previously, the Valuation presents the conversion from taxable profit and loss, to an approximation of the annualized cash flow. The Price Point analysis of the Key Factors was used to calculate an appropriate multiplier for this business. This multiplier was calculated to be approximately 2.82 times the current annual cash flow. Cash Flow Sufficiency: The Valuation presents an analysis of cash flow the Buyer’s perspective. This analysis assumes that the Buyer acquires the business with the following financing: 80% of the purchase price is borrowed from the Bank The Buyer pays the balance plus closing costs in cash at closing. Under this scenario, at asking price, including the inventory, the Buyer’s total annual debt service payments of principal and interest $291,789.00. This would provide debt coverage of approximately 2.5 times. Well over the 1.25 coverage ratio required by most lenders. If the new Owner realized only the same cash flow as the Seller realized during 2006, then the new owner would net $446,843, after servicing debt. Return on Investment and Investment Recapture: The Valuation also presents an analysis of return on investment and investment recapture period for this scenario. At asking price, with a total investment of $2,300,000; including closing costs and lease deposit, the new Owner would potentially realize first-year return on total investment of 19.0%. Thus, the total investment would be recaptured in approximately 63.3 months. However, most owner/operators want to know the return they would receive based on the cash out of pocket (i.e. their “Cash on Cash” return). In this case, the Cash-On-Cash Return on Investment is approximately 86.5%, based on all the aforementioned assumptions. Thus, the cash investment would be recaptured in approximately 26 months. This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 17
  • 18. World Of Shades, Inc. Training: The Seller will provide 4 weeks of training to the new buyer, at 24 hours per week. Additional training/consulting is available from the Seller, if required, for an additional fee. Non-Compete: The Seller will agree to a non-compete clause with the Buyer, directly or indirectly, for a period of Ten (10) years within a thirty(30) mile radius of the business. This essentially protects the Buyer anywhere within the entire Las Vegas Valley. Seller’s Disclosure Statement: A detailed Disclosure Statement, made by the Seller regarding this business and the information presented herein, is presented. Disclaimer: Morgan and Westfield .has based this presentation and analysis upon information supplied by the Seller and the Seller’s Disclosure Statement. Morgan and Westfield did not make an attempt to independently verify these representations, and, therefore, does not make any expressed nor implied warrantees as to the conclusions drawn. During the due diligence process, it is the responsibility of the Buyer, with the aid of an accountant and/or attorney, if necessary, to independently verify all representations which have been made. This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield 18
  • 19. Valuation and Most Probable Selling Price World of Shades, Inc. April 9, 2007 Type of Ownership: C Corporation Source of Financial Information: Business Owner The PricePoint pricing report is based on information furnished by the owner(s)/officer(s) of the business under review. Neither Jacob Orosz, nor Morgan and Westfield assumes responsibility for the accuracy or completeness of the information. Buyers should seek their own tax, accounting, and legal counsel, if they need assistance in understanding the methods employed and the conclusions drawn herein. Prepared by Jacob E. Orosz
  • 20. -2- World of Shades Adjusted Income Statement For the Year Ended December 2006 Statement Adjustment Revised Income $ $ $ Gross Sales 4,782,505 0 4,782,505 Other Income 116,014 1 116,014 Total Income 4,898,519 0 4,898,519 Cost of Goods Sold 3,452,586 29,058 2 3,423,528 Gross Profit 1,445,933 29,058 1,474,991 Expenses Advertising 35,045 21,914 3 13,131 Auto 24,722 22,800 4 1,922 Bad Debt 4,914 0 4,914 Computer Service 7,082 0 7,082 Contributions 550 550 5 0 Dues & Subscriptions 2,535 2,535 6 0 Fuel 10,375 10,375 7 0 Insurance 106,200 65,508 8 40,692 Interest Expense 112,197 112,197 9 0 Licenses & Permits 2,981 0 2,981 Misc. 857 857 10 0 Office Supplies 22,660 14,860 11 7,800 Office Wages-1099 87,876 33,000 18 54,876 Payroll Expenses 249,123 0 249,123 Payroll Taxes 86,613 7,800 12 78,813 Payroll Wages-Office 202,787 78,000 13 124,787 Postage & Delivery 923 0 923 Printing & Reproduction 4,502 0 4,502 Professional Fees 8,392 0 8,392 Rent 111,096 21,914 14 89,182 Repairs & Maintenance 16,905 2,000 15 14,905 Surcharge Fees 970 0 970 Taxes 8,011 0 8,011 Telephone 1,375 1,375 16 0 Uniforms 3,345 3,345 17 0 Utilities 5,973 0 5,973 Workers Compensation 17,380 0 17,380 Total Expenses 1,135,389 736,359 Net Profit / SDE 310,544 428,088 738,632 (Before Taxes) Prepared by Jacob E. Orosz
  • 21. -3- 1 2006 Revenue booked in 2007 for tax purposes. 2 Installers no longer paid to measure, now performed by salespeople savings of $1,600. Personal construction expenses of log cabin, non business expense. 3 Golf sponsorship of friend $5000, One time lettering of trailers $914. Other - $16,000. 4 Owner's personal vehicle 5 Non-business expense. 6 Non-business expense. 7 Owner's personal vehicle expenses. 8 Dental insurance no longer covered for employees $1892. Owner's health insurance $3616. Life insurance and retirement plan a non business expense. 9 Would not accrue to new owner. 10 Non-business expense. 11 One-time purchase of showroom displays $13,300. Office supplies paid by salesmen $1,560. 12 Sales Manager's payroll taxes $4,800. Owner's payroll taxes $3,000. 13 Sales Manager's role -will accrue to owner $48,000. Owner's wages $30,000. 14 Rent reduced in new facilities by $2,790 per month. 15 Non-recurring expense. 16 Owner's personal cell phone. 17 Uniforms no longer paid for employees. Prepared by Jacob E. Orosz
  • 22. -4- World of Shades Adjusted Income Statement For the Year Ended December 2005 Statement Adjustment Revised Income $ $ $ Gross Sales 5,090,578 0 5,090,578 Other Income 0 0 0 Total Income 5,090,578 0 5,090,578 Cost of Goods Sold 3,840,899 250,470 1 3,590,429 Gross Profit 1,249,679 250,470 1,500,149 Expenses Advertising 22,055 2,510 2 19,545 Auto 36,787 35,430 3 1,357 Bad Debt 128 0 128 Computer Service 6,907 0 6,907 Contributions 1,697 1,697 4 0 Dues & Subscriptions 3,845 3,845 5 0 Fuel 4,992 4,992 6 0 Insurance 35,104 6,321 7 28,783 Licenses & Permits 2,680 0 2,680 Misc. 4,593 4,593 8 0 Office Supplies 48,993 6,112 9 42,881 Office Wages-1099 10,237 0 10,237 Payroll Expenses 163,550 0 163,550 Payroll Taxes 96,890 13,600 10 83,290 Payroll Wages-Office 258,802 136,000 11 122,802 Postage & Delivery 1,102 0 1,102 Printing & Reproduction 4,637 0 4,637 Professional Fees 9,540 0 9,540 Rent 130,674 2,510 12 97,146 Repairs & Maintenance 9,970 0 9,970 Depreciation 4,060 0 4,060 Taxes 7,069 0 7,069 Telephone 1,888 1,888 13 0 Uniforms 6,244 6,244 14 0 Utilities 4,208 0 4,208 Workers Compensation 3,042 0 3,042 Total Expenses 879,694 622,934 Net Profit / SDE 169,985 476,212 646,197 (Before Taxes) Prepared by Jacob E. Orosz
  • 23. -5- 1 $3800 - Installers no longer paid to measure, job now performed by salespeople. COGS from another unrelated business. 2 Non-Business Expense. 3 Owner's personal vehicle. 4 Non-business expense. 5 Non-business expense. 6 Owner's personal vehicle expenses. 7 Dental insurance no longer provided for employees $2705. Owner's health insurance $3616. 8 Non-business expense. 9 Office supplies paid by salesmen $6,112. 10 Sales Manager's payroll taxes $4,800. Friend's payroll taxes $2,800. Owner's payroll taxes $6,000. 11 Sales Manager duties assumed by owner $48,000. Excess wages paid to friend $28,000. Owner's salary $60,000. 12 Rent reduction in new facilities by $2,790 per month. 13 Owner's personal cell phone. 14 Uniforms no longer paid for employees. Prepared by Jacob E. Orosz
  • 24. -6- World of Shades, Inc. Key Factor Analysis Number of Years Business Has Operated: 19 Number of Years Owner Has Operated Business: 19 Owner's Required Down Payment Percentage: 50% Amount of Competition: 2.50 Growth of Las Vegas: 3.60 Number of buyers in the market.: 3.50 Industry Trend: 2.60 Location & Facilities: 2.80 Marketability: 3.10 Historical Profit Trend: 2.70 Ease of Replication: 2.60 Amount of Risk: 2.80 Key Factor Multiplier: 2.82 Prepared by Jacob E. Orosz
  • 25. -7- World of Shades, Inc. Adjusted Income Summary 2005 2006 Average Total Income $5,090,578 $4,898,519 $4,994,548 Cost of Goods $3,840,899 $3,435,142 $3,638,020 Gross Profit $1,269,131 $1,463,377 $1,366,254 Total Expenses $622,934 $724,745 $673,840 SDE $646,197 $738,632 $692,414 Prepared by Jacob E. Orosz
  • 26. -8- World of Shades Asking Price 2005 2006 Simple Average Seller’s Discretionary Earnings $646,197 $738,632 $692,415 (SDE) SDE Weighting 20% 80% 50% Cash at Closing 50% Seller Carry Weighted Adjusted SDE $720,145 Cash Flow Multiplier 2.82 Most Probable Selling Price $2,030,808 Most Probable Selling Price, Rounded $2,030,000 Inventory on Hand at Closing, Valued at Cost, With Price Adjusted to Actual $275,000 Most Probable Selling Price Rounded, Including Inventory, Valued at Cost $2,305,000 Price Comparables Including $275,000 in Inventory and Accounts Receivable Multiple of SDE $2,255,399 Based on multiple of 2.75 Multiple of Gross Sales $2,272,819 Based on 40% of Annual Revenue. Prepared by Jacob E. Orosz
  • 27. World of Shades, Inc. Assuming SBA Financing BOX OF "REALITY" BUSINESS PRICING ANALYSIS Based on 2007 $4,782,505 Annual Gross Revenue $738,632 Annual Adjusted Net Cash Flow From Operations $650,000 Book Value of Assets/FFE at the End of the Period $120,000 Accumulated Depreciation at the End of the Period $175,000 Inventory as of the End of the Period $0 Other Annu PRICING SELLER'S ASKING PRICE: $2,300,000 BASIS Assuming SBA Financing LOW MIDDLE HIGH 1. Gross Sales: Annual Gross Revenue $4,782,505 $4,782,505 $4,782,505 Percentage 40% 45% 50% Implied Price of Business 1,913,002 2,152,127 2,391,253 + Inventory 175,000 175,000 175,000 + Other 0 0 0 Most Probable Selling Price $2,088,002 $2,327,127 $2,566,253 2. Book Value of Assets $650,000 + 50% of Accumulated Depr. 60,000 + Annual Adjusted Net C/F 738,632 + 50% Annual Adjusted Net C/F 369,316 + Inventory 175,000 + Other 0 Most Probable Selling Price $1,992,948 3. Net Cash Flow Multiplier: Annual Adjusted Net C/F $738,632 $738,632 $738,632 Industry Standard Multiplier 2.50 2.75 3.00 Multiple of Cash Flow 1,846,580 2,031,238 2,215,896 + Inventory 175,000 175,000 175,000 + Other 0 0 0 Most Probable Selling Price $2,021,580 $2,206,238 $2,390,896 ANALYSIS OF CASH FLOW MULTIPLIER KEY FACTORS & MOST PROBABLE SELLING PRICE FACTOR ASSESSMENT 1. Number of Years Business Has Operated 19 2. Number of Years Owner Has Operated the Business 19 3. Owner's Required Down Payment Percentage 20% 4. Amount of Competition in Market (0=Plenty, 4=None) 2.70 5. Growth of Las Vegas 3.60 6. Number of Buyers in the Market 3.30 7. Industry Growth Trend (0=Declining, 4=Growing) 2.70 8. Location and Facilities (0=Poor, 4=Excellent) 3.70 9. Marketability (0=Poor, 4=Excellent) 2.80 10. Historical Profit Trend (0=Low, 4=High) 2.80 11. Ease of Business Replication (0=Easy, 4=Difficult) 3.20 12. Amount of Risk (0=High, 4=Low) 3.10 Overall Weighted Average of Key Factors 2.880 Implied Price Based on Net Cash Flow Multiplier $2,127,260 + Inventory 175,000 + Other 0 Most Probable Selling Price $2,302,260
  • 28. World of Shades, Inc. Assuming SBA Financing MPSP Proposed Selling Price of the Business $1,925,000 $2,025,000 $2,125,000 Inventory 175,000 175,000 175,000 Other 0 0 0 Total Proposed Selling Price, Including Inventory $2,100,000 $2,200,000 $2,300,000 Maximum Percentage Financed 80% 80% 80% Amount Financed $1,680,000 $1,760,000 $1,840,000 Loan Term Assumptions: Annual Interest Rate 8.00% 8.00% 8.00% Number of Years 10 10 10 Monthly Payments of Principal and Interest $20,383 $21,354 $22,324 Annual Payments of Principal and Interest $244,596 $256,244 $267,891 SUMMARY OF ANNUAL CASH FLOW TO NEW OWNER Cash Flow from the Business (based on prior period) $738,632 $738,632 $738,632 Annual Loan Debt Service -244,596 -256,244 -267,891 Net Cash Flow to Owner After Debt Service $494,036 $482,388 $470,741 Number Times Debt Covered 3.0 2.9 2.8 SUMMARY OF NEW OWNER'S 1st YEAR RETURN ON INVESTMENT AFTER PAYMENTS OF PRINCIPAL & INTEREST RETURN ON TOTAL INVESTMENT Net Cash Flow to Owner After Debt Service $494,036 $482,388 $470,741 New Owner's Investment: Closing Costs Plus SBA Loan Points (2.25%) $47,800 $49,600 $51,400 Total Purchase Price 2,100,000 2,200,000 2,300,000 New Owner's Total Investment $2,147,800 $2,249,600 $2,351,400 Return on Total Investment 23.0% 21.4% 20.0% Months to Recapture Total Invested 52.2 56.0 59.9 RETURN ON CASH INVESTMENT Net Cash Flow to Owner After Debt Service $494,036 $482,388 $470,741 New Owner's Cash Investment (Excluding Working Capital): Closing Costs Plus SBA Loan Points (2.25%) $47,800 $49,600 $51,400 Cash Down Payment 420,000 440,000 460,000 Cash Invested By New Owner $467,800 $489,600 $511,400 Cash on Cash Return on Investment 105.6% 98.5% 92.0% Months to Recapture Cash Invested 11.4 12.2 13.0 The above set forth information has been secured from the Seller. Morgan & Westfield, Inc. in no way guarantees the accuracy of such information, nor does it warrant any assumptions as true and correct. During the due diligence process, it is the responsibility of the Buyer, with the aid of an accountant and/or attorney, if necessary, to independently verify all representations which have been made.
  • 29. World of Shades, Inc. Assuming Seller Financing BOX OF "REALITY" BUSINESS PRICING ANALYSIS Based on 2007 $4,782,505 Annual Gross Revenue $738,632 Annual Adjusted Net Cash Flow From Operations $650,000 Book Value of Assets/FFE at the End of the Period $120,000 Accumulated Depreciation at the End of the Period $175,000 Inventory as of the End of the Period $0 Other PRICING SELLER'S ASKING PRICE: $2,300,000 BASIS Assuming Seller Financing LOW MIDDLE HIGH 1. Gross Sales: Annual Gross Revenue $4,782,505 $4,782,505 $4,782,505 Percentage 40% 45% 50% Implied Price of Business 1,913,002 2,152,127 2,391,253 + Inventory 175,000 175,000 175,000 + Other 0 0 0 Most Probable Selling Price $2,088,002 $2,327,127 $2,566,253 2. Book Value of Assets $650,000 + 50% of Accumulated Depr. 60,000 + Annual Adjusted Net C/F 738,632 + 50% Annual Adjusted Net C/F 369,316 + Inventory 175,000 + Other 0 Most Probable Selling Price $1,992,948 3. Net Cash Flow Multiplier: Annual Adjusted Net C/F $738,632 $738,632 $738,632 Industry Standard Multiplier 2.50 2.75 3.00 Multiple of Cash Flow 1,846,580 2,031,238 2,215,896 + Inventory 175,000 175,000 175,000 + Other 0 0 0 Most Probable Selling Price $2,021,580 $2,206,238 $2,390,896 ANALYSIS OF CASH FLOW MULTIPLIER KEY FACTORS & MOST PROBABLE SELLING PRICE FACTOR ASSESSMENT 1. Number of Years Business Has Operated 19 2. Number of Years Owner Has Operated the Business 19 3. Owner's Required Down Payment Percentage 20% 4. Amount of Competition in Market (0=Plenty, 4=None) 2.70 5. Growth of Las Vegas 3.60 6. Number of Buyers in the Market 3.30 7. Industry Growth Trend (0=Declining, 4=Growing) 2.70 8. Location and Facilities (0=Poor, 4=Excellent) 3.70 9. Marketability (0=Poor, 4=Excellent) 2.80 10. Historical Profit Trend (0=Low, 4=High) 2.80 11. Ease of Business Replication (0=Easy, 4=Difficult) 3.20 12. Amount of Risk (0=High, 4=Low) 3.10 Overall Weighted Average of Key Factors 2.880 Implied Price Based on Net Cash Flow Multiplier $2,127,260 + Inventory 175,000 + Other 0 Most Probable Selling Price $2,302,260
  • 30. World of Shades, Inc. Assuming Seller Financing MPSP Proposed Selling Price of the Business $1,925,000 $2,025,000 $2,125,000 Inventory 175,000 175,000 175,000 Other 0 0 0 Total Proposed Selling Price, Including Inventory $2,100,000 $2,200,000 $2,300,000 Maximum Percentage Financed 50% 50% 50% Amount Financed $1,050,000 $1,100,000 $1,150,000 Loan Term Assumptions: Annual Interest Rate 8.00% 8.00% 8.00% Number of Years 6 6 6 Monthly Payments of Principal and Interest $18,410 $19,287 $20,163 Annual Payments of Principal and Interest $220,919 $231,439 $241,959 SUMMARY OF ANNUAL CASH FLOW TO NEW OWNER Cash Flow from the Business (based on prior period) $738,632 $738,632 $738,632 Annual Debt Service -220,919 -231,439 -241,959 Net Cash Flow to Owner After Debt Service $517,713 $507,193 $496,673 Number Times Debt Covered 3.3 3.2 3.1 SUMMARY OF NEW OWNER'S 1st YEAR RETURN ON INVESTMENT AFTER PAYMENTS OF PRINCIPAL & INTEREST RETURN ON TOTAL INVESTMENT Net Cash Flow to Owner After Debt Service $517,713 $507,193 $496,673 New Owner's Investment: Closing Costs $10,000 $10,000 $10,000 Total Purchase Price 2,100,000 2,200,000 2,300,000 New Owner's Total Investment $2,110,000 $2,210,000 $2,310,000 Return on Total Investment 24.5% 22.9% 21.5% Months to Recapture Total Invested 48.9 52.3 55.8 RETURN ON CASH INVESTMENT Net Cash Flow to Owner After Debt Service $517,713 $507,193 $496,673 New Owner's Cash Investment (Excluding Working Capital): Closing Costs $10,000 $10,000 $10,000 Cash Down Payment 1,050,000 1,100,000 1,150,000 Cash Invested By New Owner $1,060,000 $1,110,000 $1,160,000 Cash on Cash Return on Investment 48.8% 45.7% 42.8% Months to Recapture Cash Invested 24.6 26.3 28.0 The above set forth information has been secured from the Seller. Morgan & Westfield, Inc. in no way guarantees the accuracy of such information, nor does it warrant any assumptions as true and correct. During the due diligence process, it is the responsibility of the Buyer, with the aid of an accountant and/or attorney, if necessary, to independently verify all representations which have been made.
  • 31. July 15, 2007 Morgan & Westfield, Inc. 4195 Chino Hills Pkwy #510 Chino Hills, CA 91709 Subject: World of Shades Dear Jacob: I have had the opportunity to do a preliminary review of the cash flow recast that you provided to me on the subject business. Based on the historical numbers provided I would like to propose the following loan scenario for discussion: Loan Amount: $1,920,000 (80% of purchase price plus fees/costs) Loan Term: 10 years Loan Rate: 10%; Wall Street Journal Prime + 2.5% (subject to change) Monthly Payment: $25,372.94 Collateral: First lien on all business assets (All available personal assets from buyer, up to 100% of loan) Working Capital: A $100,000 Line of Credit was added to the project cost. (This figure may change and must be justified by a complete application.) The subject loan scenario was developed with a qualified borrower taking an annual salary of $150,000. This letter does not constitute a commitment from Popular Small Business Capital to finance the subject loan. This letter is for discussion purposes only. A complete loan application must be submitted from a qualified borrower and analyzed by Popular Small Business Capital. Thank you for the opportunity to assist you in financing the subject business. Sincerely, Tim Johnson Business Development Officer Popular Small Business Capital, A Division of Banco Popular North America 9600 West Bryn Mawr Avenue, Rosemont, IL 60018 www.popularsmallbiz.com

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