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1. LIVE YOUR DREAM2. BUILD YOUR WEALTH3. CREATE YOUR LEGACY4. GROW YOUR EMPIRE
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
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
Inherit Start up Franchise Existing – existing franchise and existing non-
franchise
Fred Hervey Ray Kroc Howard Schultz Cy Ansary
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
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
Read: Pour Your Heart Into It 1987 acquires Starbucks
a private, real life tale
Presented byLegacy Venture Group Business Intermediaries
Over 50% close up in the first four years according to an SBA.gov report
http://www.sba.gov/advo/stats/bh_sbe03.pdf
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/
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
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
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
Advantages
You can create
just what you
want
You don’t pay for
someone else’s
efforts
Total control
Disadvantages
May need to do a
great deal of
research
System and
location unproven
Tough to get
financing
Advantages
It’s a “proven
system”
Quick to start up
May have
financing
Disadvantages
No success
guarantee
Upfront costs and
Royalties
Limited control
Chances of you “discovering the next McDonald’s is very unlikely
But just because it’s a franchise does not mean you will be successful
Check out: http://www.bluemaumau.org/6776/25_worst_franchises_buy
Advantages
Cash flow may
start immediately
Existing
customers
Easier financing
opportunities
(*if, if, if)
Disadvantages
The initial
purchasing cost
Unseen / hidden
problems
Customers may
not stay …
Time Period % Sold1 to 3 months 9.7%4 to 6 months 28.3%7 to 9 months 38.0%10 to 12 months 15.9%13 to 18 months 7.6%19+ months .7%
4 to 12 months to sell 82% of businesses7 to 9 months to sell 38% of businesses
Many hunt for months
Some find what they seek in days
But 90% of shoppers never buy
Financing can take weeks or months
“Understanding the business that is right for you” begins and ends with You!
Personal background Personal interests Risk tolerance Limitations Financial resources Credit report Risk Tollerance
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
If married, these issues apply to you and to your spouse:
Geographic Cultural Industry type/knowledge Education Lifestyle change People skills
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…
How near to home? How many hours? Maximum
investment? Minimum return on
investment? Type of tasks?
Don’t just get stuck on an industry at first but open you mind to any business that meets your needs and desires!
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.
You will want information about the businesses you
investigate; be prepared to share about
yourself to them.
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!
Business broker/intermediary Attorney (as opposed to a general
practitioner) CPA Commercial lender
Evaluate the business – and yourself –regarding:
Absentee ownership Generation of personal income Management style Growth expectations Self-image Physical requirements
Continued…
Family involvement People skills Travel requirements Training requirements Demand for extra hours
Weekends
Day or night work?
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
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
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
Has good records Has good earnings (or is very well priced) Has bank or owner financing offered
Be wary of “Owner to Prove”Look for numbers from Taxes
and Profit/Loss statementsRequest 4506T
Call to discuss more things to watch out for when buying a business!
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!
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
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
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!
Or Owner’s Benefit
What did the business
generate for
owner, assuming one (1) full
time working owner.
Profit on Income Taxes+ Nonrecurring Expenses- Nonrecurring Income+ Non-operating Expenses- Non-operating Income+ Depreciation+ Amortization+ Interest Expense+ One Owner’s Total Compensation= SDE
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
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)
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…
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…
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
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
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)
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
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
Sellers will usually train you for 2 weeks to 6 months
Anything beyond 2 weeks is generally part of a consulting arrangement
QUALIFYING
PROCESS
SEARCH
BROKER
DATABASE
DEAL MAKING CLOSING
Explain Buying Process Business Interest Buyer/Seller First Meeting Coordinate Due
Diligence
Financial/Credit worthiness Qualify Buyer for
A specific Business
Tour Business Loan Request Package
Business
Experience
Review 1-Page Business
Summary
Probe Buyer’s continued
Interest
Lender Introductions
Licensing Determine Buyer Interest Motivate Buyer to Act –
Offer to Purchase
Assist in Resolving All
Issues
Life style changes Nondisclosure Agreement Facilitate Negotiations Formal Contract
Geographic
Location
Review CBR
/Data Package
LOI or offer to purchase Review Final Documents
Close!
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 …
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
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