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

1. 1. LIVE YOUR DREAM
2. BUILD YOUR WEALTH
3. CREATE YOUR LEGACY
4. GROW YOUR EMPIRE

2. Savings
Stock i.e.Apple –no matter how many IPADs
you buy, you won’t change the stock value
Buying homes – Florida is still seeing declines
in values and has been for years
Commercial Real Estate – Around the Globe,
developed land sites un-occupied
Businesses

3. Influence means you can affect the outcome
though not everyone does well
Plan and prepare well
Seek wisdom of trusted advisors
Use your vision and wisdom

4. Inherit
Start up
Franchise
Existing – existing franchise and existing non-
franchise

5. Fred Hervey
Ray Kroc
Howard Schultz
Cy Ansary

6. 1951 when Fred Hervey purchased three
Kay’s Food Stores in El Paso, Texas.
one of the nation’s leading convenience store
chains w over 6,000 stores

7. Read: Behind the Golden Arches
April 15, 1955,[8] the ninth McDonald's
restaurant overall. Kroc later purchased the
McDonald brothers' equity in the company
and led its worldwide expansion

8. Read: Pour Your Heart Into It
1987 acquires Starbucks

9. a private, real life tale

10. Presented by
Legacy Venture Group Business Intermediaries

12. Over 50% close up in the first four years
according to an SBA.gov report
http://www.sba.gov/advo/stats/bh_sbe03.pdf

13. Realize it can still take years before the
franchise matures, if at all, to yield a profit
Just because you love the product does not
guarantee success
Do your research before selecting a franchise
Visit sites like:
http://www.wikidfranchise.org/

14. You can tell how well a business is doing up
until you purchase it
You should be able to improve the business
You “can” start making money right away
Note: you must still run it right – there is no
promise it will continue as is

15. Have personal control (avoid layoffs,
ceilings…)
Be your own boss
Your efforts and investment help you
Excellent potential
It can be exciting
Satisfaction (workers less happy)
Flexibility to meet your needs & desires

16. Lack of knowledge and / or experience
Under Capitalized (Remember Working Capital)
Wrong Location
Competition (Present & what is to come)
Asset investment too high
Rent too high
Cash Flow Challenges
* from SBA.gov – a great site for entrepreneurs

17. Advantages Disadvantages
You can create May need to do a
just what you great deal of
want research
You don’t pay for System and
someone else’s location unproven
efforts Tough to get
Total control financing

18. Advantages Disadvantages
It’s a “proven No success
system” guarantee
Quick to start up Upfront costs and
May have Royalties
financing Limited control

19. Chances of you “discovering
the next McDonald’s is very
unlikely

20. But just because it’s a franchise does not mean
you will be successful
Check out:
http://www.bluemaumau.org/6776/25_worst_f
ranchises_buy

21. Advantages Disadvantages
Cash flow may The initial
start immediately purchasing cost
Existing Unseen / hidden
customers problems
Easier financing Customers may
opportunities not stay …
(*if, if, if)

22. Time Period % Sold
1 to 3 months 9.7%
4 to 6 months 28.3%
7 to 9 months 38.0%
10 to 12 months 15.9%
13 to 18 months 7.6%
19+ months .7%
4 to 12 months to sell 82% of businesses
7 to 9 months to sell 38% of businesses

23. Many hunt for months
Some find what they seek in days
But 90% of shoppers never buy
Financing can take weeks or months

24. “Understanding the business that is
right for you”
begins and ends with You!

25. Personal background
Personal interests
Risk tolerance
Limitations
Financial resources
Credit report
Risk Tollerance

26. If married, these questions apply to you and to
your spouse:
How comfortable are you with debt?
Do you have a strong belief in yourself?
Do you believe it is a business you can
handle?
The answers relate to how much business
you can buy

27. If married, these issues apply to you and to
your spouse:
Geographic
Cultural
Industry type/knowledge
Education
Lifestyle change
People skills

28. Write out your life priorities and put
in writing what you are and are not
willing to sacrifice of a business
i.e. Time from family, investment
limits, character of the business…

29. How near to home? Don’t just get stuck
How many hours? on an industry at
Maximum first but open you
investment? mind to any
Minimum return on business that meets
investment? your needs and
Type of tasks? desires!

30. Put together your financial summary
Be aware of ways to finance your business
Did you know you can use your IRA/401K for
your business without penalty and taxes?
Contact us for advisors who can help with this service.

31. You will want information
about the businesses you
investigate;
be prepared to share about
yourself to them.

32. 1. Understand your cash requirements
2. Make sure you have appropriate.
Working Capital set aside!!!
3. Remember there are other expenses
such as rent and utility deposits.
Request a Buyer Cash Requirement Form from our offices!

33. Business broker/intermediary
Attorney (as opposed to a general
practitioner)
CPA
Commercial lender

34. Evaluate the business – and yourself –
regarding:
Absentee ownership
Generation of personal income
Management style
Growth expectations
Self-image
Physical requirements
Continued…

35. Family involvement
People skills
Travel requirements
Training requirements
Demand for extra hours
Weekends
Day or night work?

36. People are successful at lots of things
Kroc and Schultz were salesmen
Mike Lewis – MBA owns plumbing co
Sam Champala – PHD runs many gas stations
Kris VanOlst – Accountant owns restaurants
Cy – Attorney owns Logistics Company
Live Your Dream

37. Review preliminary written information
provided by the seller
Personally interview the seller to:
▪ Verify preliminary written information
▪ Establish a rapport
▪ Review business facilities and location
▪ Observe business operations during normal work hours
(if permitted)
▪ Collect additional data to determine value of business

38. What business should I buy?
Look for owner’s to say
you can't get good help
the equipment is no good
the competition is too fierce
the economy

40. Has good records
Has good earnings (or is very well priced)
Has bank or owner financing offered

42. Be wary of “Owner to Prove”
Look for numbers from Taxes
and Profit/Loss statements
Request 4506T
Call to discuss more things to watch out for when buying a
business!

43. You will probably have to sign a
NonDisclosure Agreement (NDA)or
Confidentiality Agreement (CA) of these
to get more details on a business.
*Read carefully and do not get locked into a buyer
fee obligation!
Request a sample from our offices!

44. Make an initial determination of business worth
based on:
Written information provided by seller
Interviews with seller and/or seller’s broker
Personal observations of the business
Analysis of historical records of the business
Additional independent and outside
investigations of the business

45. You should see evidence of earnings but you
typically don’t get copies of taxes, leases,
contracts and private details until you get to
the Due Diligence Phase following an
accepted, written contract to purchase the
business
Include in your Contingencies the right to have
acceptable evidence of claimed earnings

46. Research values including what
ratios similar businesses have
sold for –
NOT what For Sales are priced at!
A good brokerage can proved two or more
resources on what similar businesses sold for!

47. Or Owner’s Benefit
What did the business
generate for owner,
assuming one (1) full time
working owner.

48. Profit on Income Taxes
+ Nonrecurring Expenses
- Nonrecurring Income
+ Non-operating Expenses
- Non-operating Income
+ Depreciation
+ Amortization
+ Interest Expense
+ One Owner’s Total Compensation
= SDE

49. Unless buying a discounted distressed business:
Must cover debt service
Should return 15-20% on down payment
investment
Should provide a return on time (annual
salary)
Should meet the lender’s debt ratio
requirements

50. In some cases a “letter of intent” (LOI) might
be acceptable (See Letter of Intent)
You should submit a formal written “offer to
purchase” (earnest money contract) with
contingencies to the seller or seller’s broker
(See Purchase Offer)

51. An offer to purchase specifies price, terms, and
payment:
Cash due at closing
Assumption of debt (if any)
Bank and/or seller financing: term, etc.
Non-compete agreement
Consulting income or earn-outs
Continued…

52. The offer to purchase usually has contingencies
satisfied prior to closing:
Due diligence and confidential information not
disclosed by the seller that the buyer still needs
to review
Lease assignment or negotiation of new lease
EPA compliance
Licensing requirements
Franchise approval
Continued…

53. Other issues that are addressed in the offer to
purchase Agreement:
Buyer and seller warranties
Training
Allocation of purchase price
Desired closing date
Date by which seller must respond

54. Legal and tax Issues
Litigation
IRS audits/state sales tax
Accounting
Accurate picture of financial position
Accounting method used (cash vs. accrual)
Inventory valuation
State regulations
Environmental

55. Purchase/sales agreement
Promissory note
Security agreements
Bill of sale
UCC filings
Board of directors resolution (authorization to sell)
Real estate documentation (if appropriate)
Lease agreements
Other side agreements
Closing statements (prepared by attorney and/or
title company)

56. Pre-acquisition steps:
Create buyer’s corporate entity and/or
register fictitious name
Federal ID number
Corporate bank account(s)
Obtain appropriate licenses
(occupational, state sales tax, local, etc.)
Obtain insurance

57. NEVER CLOSE WITHOUT A CLOSING ATTORNEY
Execute (sign) the pre-approved closing
documents
Transfer proceeds of the sale to the seller
Transfer ownership of the Business to the buyer

58. Sellers will usually train
you for 2 weeks to 6
months
Anything beyond 2 weeks
is generally part of a
consulting arrangement

59. SEARCH
QUALIFYING
BROKER DEAL MAKING CLOSING
PROCESS
DATABASE
Explain Buying Process Business Interest Buyer/Seller First Meeting Coordinate Due
Diligence
Financial/Credit worthiness Qualify Buyer for Tour Business Loan Request Package
A specific Business
Business Review 1-Page Business
1- Probe Buyer’s continued Lender Introductions
Experience Summary Interest
Licensing Determine Buyer Interest Motivate Buyer to Act – Assist in Resolving All
Offer to Purchase Issues
Life style changes Nondisclosure Agreement Facilitate Negotiations Formal Contract
Geographic Review CBR LOI or offer to purchase Review Final Documents
Location /Data Package
Close!

60. Hire professionals who deal with buying
and selling businesses on a full-time basis
Do your homework
Know what you are willing to pay
Prepare yourself for the purchase
Enjoy the process and …

63. Legacy Venture Group Business Intermediaries
Call for more information on subjects covered in this
business buying overview
Request listing updates or to get our e-newsletter.
Info@BuyBizUSA.com
813.571.7700