Information For Business Buyers


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Information for Business Buyers

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Information For Business Buyers

  1. 1. A Business of Your OWN SUNBELT ® Business Brokers If you’re never going to be President of the company you’re with, you may need a new company!
  2. 2. Why? <ul><li>Job Security </li></ul><ul><li>Control your own destiny </li></ul><ul><li>Financial Independence </li></ul>
  3. 3. <ul><li>Government Surveys show over 60% of new start-up businesses fail in the first 3 years. </li></ul>Why Buy an Established Business? <ul><li>Why? </li></ul><ul><ul><li>Poor Location, Product and/or Service Mix </li></ul></ul><ul><ul><li>Under Capitalized </li></ul></ul><ul><ul><li>Poor Planning </li></ul></ul>Existing businesses have a proven track record of success!
  4. 4. Benefits of Buying an Existing Business… <ul><li>Actual Operating Results….not Projections </li></ul><ul><li>Immediate Cash Flow </li></ul><ul><li>Trained Employees in Place </li></ul><ul><li>Established Customers and Suppliers </li></ul><ul><li>Training Assistance by the Seller </li></ul><ul><li>More Financing Options </li></ul>
  5. 5. Reasons People Sell <ul><li>Retirement </li></ul><ul><li>Illness </li></ul><ul><li>Partnership Dispute </li></ul><ul><li>Relocation </li></ul><ul><li>New Commitments </li></ul><ul><li>Upgrading </li></ul><ul><li>Divorce </li></ul><ul><li>Death </li></ul>
  6. 6. Three Components of a Successful Business <ul><li>Location </li></ul><ul><li>Product/Service </li></ul><ul><li>Management </li></ul>
  7. 7. Buying an Existing Business… <ul><li>…provides the two essentials to success: </li></ul><ul><li>1. Proven Location </li></ul><ul><li>2. Right Product/Service </li></ul>= Positive Cash flow
  8. 8. YOU provide the Third ingredient: <ul><li>Management </li></ul>Work Buying an Existing Business…
  9. 9. Who Pays for the Business? <ul><li>The only monetary investment you have in your new business is… </li></ul>… the down payment. The business pays for itself out of its cash flow.
  10. 10. How? <ul><li>Cash flow </li></ul><ul><li>It’s the Seller’s Discretionary Cash </li></ul><ul><li>- </li></ul><ul><li>Moneys that you’ll take home as the business owner after paying the debt. </li></ul>
  11. 11. Cash Flow = Seller’s Discretionary Cash $ = Buyer’s Discretionary Cash Less 25%* - Your Acquisition Cost $ = SELLER’S DISCRETIONARY CASH $ + Net Profit (Loss) from P&L $ TOTAL ADJUSTMENTS $ b. Amortization $ a. Depreciation $ Non-Cash Expenses $ Non-Recurring Expenses (explain) $ g. Owner(s) Personal Expenses paid by the Business $ f. Owner(s) Benefits and Perks $ e. Entertainment $ d. Interest, if not applicable $ c. Insurance (excess) $ b. Travel $ a. Auto Expense $ Discretionary Expenses, if included in expenses $ Owners(s)/Officers Salary, if included in expenses Addendum to P&L Summary
  12. 12. Example: 36,000 Annual Net X 12 3,000 Monthly Cash Flow (1,000) 25% for Debt Service 4,000 Mo. Cash Flow 30,000 1/3 down $100,000 Sales Price
  13. 13. Financing Options <ul><li>Use other people’s money! </li></ul><ul><ul><li>Personal Guaranty </li></ul></ul><ul><ul><li>& possible additional personal collateral </li></ul></ul><ul><ul><li>Personal Guaranty </li></ul></ul><ul><ul><li>& possible additional personal collateral </li></ul></ul><ul><ul><li>Greater Independence </li></ul></ul><ul><ul><li>Greater Owner Commitment </li></ul></ul><ul><ul><li>Business Serves as </li></ul></ul><ul><ul><li>Collateral for the Loan </li></ul></ul><ul><ul><li>Business Serves as </li></ul></ul><ul><ul><li>Collateral for the Loan </li></ul></ul><ul><ul><li>Application, Processing </li></ul></ul><ul><ul><li>& Loan Closing </li></ul></ul><ul><ul><li>Simple Credit Checks & Loan Closing </li></ul></ul><ul><ul><li>Low Down payment </li></ul></ul><ul><ul><li>Low Down Payment </li></ul></ul><ul><ul><li>Various Financing Options at much longer terms </li></ul></ul><ul><ul><li>Lower Interest Rate </li></ul></ul>Institutional financing Seller financing
  14. 14. Valuing a Business <ul><li>2 to 3 times earnings </li></ul><ul><li>Equipment + Inventory + 1 Year Net </li></ul><ul><li>1 Year Gross Sales </li></ul>Business Worth Terms Production
  15. 15. Buying a Business <ul><li>Cash Flow </li></ul><ul><li>Down Payment (entry fee) </li></ul><ul><li>Business Retires Debt </li></ul><ul><li>The Business Buys Itself ! </li></ul>
  16. 16. <ul><li>If you can buy a business ... </li></ul>What the Business is Worth to you. for the amount you have to put down... <ul><ul><ul><li>And it will still earn the desired profit… </li></ul></ul></ul><ul><ul><ul><ul><li>That is what the business is worth to you! </li></ul></ul></ul></ul>
  17. 17. Buying Process: <ul><li>Interview with your professional Sunbelt Business Broker helps determine potential businesses you may be interested in. </li></ul><ul><li>Confidentially tour businesses that are of interest. </li></ul><ul><ul><li>(How does it make you feel?) </li></ul></ul><ul><li>Can you make improvements? </li></ul><ul><li>Make an offer based on initial disclosure information provided by the seller (Safe Decision, Certified Earnest Money) </li></ul>
  18. 18. What is An Offer? <ul><li>Further, it should be made contingent upon: </li></ul><ul><li>All equipment being in working order </li></ul><ul><li>Books/Records check to prove Seller’s gross sales </li></ul><ul><li>Lease Assignment or Sublease </li></ul><ul><li>Ability to get necessary licenses or financing </li></ul><ul><li>Business passing necessary inspections </li></ul><ul><li>Business being sold free & clear of debt, except as noted. </li></ul>An offer expresses your interest to purchase & doesn’t become an agreement to buy unless your price and terms are accepted in full!
  19. 19. Getting to an Agreement <ul><li>Removing Contingencies </li></ul><ul><li>Your protection </li></ul><ul><li>You must be satisfied </li></ul><ul><li>You are in control of your money </li></ul><ul><li>Each contingency removed, one-by-one </li></ul><ul><li>IF they don’t check out, you have the option to: </li></ul><ul><ul><li>Make another Offer </li></ul></ul><ul><ul><li>Cancel the Offer and Get your money refunded </li></ul></ul><ul><ul><li>Make an Offer on Another Business </li></ul></ul>
  20. 20. Brokers Do… drive you to the closing! We’ll even Present Facts Arrange & facilitate Franchisor meeting Aid in your meeting your Landlord Coordinate any inventory tabulations Bridge gap between you & Seller Provide tips & resources on incorporating & starting out Negotiate Identify professional support - attorneys, accountants, & appraisers Educate Facilitate funding your purchase with either the Seller or Lenders Save you Time & $$
  21. 21. Brokers Do Not… <ul><li>Make your decisions </li></ul><ul><li>Manage your business </li></ul><ul><li>Show you the Seller’s books and records without an offer </li></ul>
  22. 22. Advisors <ul><li>Talk to… </li></ul><ul><li>Businessmen for mentoring on buying your business </li></ul><ul><li>Attorney for Legal and Tax matters </li></ul><ul><li>Accountant for Taxes, Accounting & Bookkeeping </li></ul><ul><li>Lenders </li></ul>
  23. 23. Escrow Attorney <ul><li>Does Not represent Seller or Buyer </li></ul><ul><li>Draws up all closing documents </li></ul><ul><li>Cost shared equally by Seller & Buyer </li></ul>
  24. 24. The Closing <ul><li>Who’s there: </li></ul><ul><ul><li>You & Seller </li></ul></ul><ul><ul><li>Broker </li></ul></ul><ul><ul><li>Escrow Attorney </li></ul></ul><ul><ul><li>Lender </li></ul></ul><ul><li>What Happens: </li></ul><ul><ul><li>Documents briefly reviewed, approved & signed </li></ul></ul><ul><ul><li>You and Lender release check to Seller </li></ul></ul><ul><ul><li>Seller gives you the keys </li></ul></ul>
  25. 25. And with the. . . Keys in your pocket! Documents signed. You Are In BUSINESS Congratulations!