Presented byLegacy Venture Group Business Intermediaries

A recent Conference Board survey, indicated that just 49% of Americans today are satisfied with their jobs -- vs. 58% in 1995…

Only 20% are satisfied with their employer's promotion and bonus policies

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

Create your own

business

Buy a new

franchise

Buy an existing

business (or

franchise)

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?

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

Look for numbers from taxes and Profit/Loss statements

Be wary of “Owner to Prove”

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

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Info@BuyBizUSA.com

813.571.7700