Charlotte Business Brokers, Mergers and Acquisitions
Helping Entrepeneurs Buy and Sell Businesses

Detail Steps in the Buying Process
What is the Right Business for YOU
What is the right business for you
Gifts & talents Survey Results
Experience Survey
Interest Survey
Geographic target
Cash Flow needs, amount and timing (Immediate or over time)
Establishing 5 goals that the purchase must meet (Be realistic)
Think now about pulling trigger - If all of the goals are met, would you buy it?
Every business has risks.  Know them and be ready to accept and go.
The key is once you find one to move quickly.
Your goal should be to buy a business at a good price, it won't be a steal.. 
Everyone will need to win to make the deal work.  Buyer and seller
Define expected timeline
Financial Ability - Size of Business
If they have personal financial statement
Discuss other sources of funds (Family)
We need to help prepare personal financial statement
Will you meet SBA lending requirements
Get your credit report and rating.  Clean it up if possible (pg 417 has contacts)
If equity in home, get equity line now.  It may be more difficult later
Getting Organized
Provide list of what business types and size of business that fit criteria established
Finding the Right Business
Hiring us to Do the initial search
Active listings
Initial Broker Search & Review
All Regional Resources Search - Current Listings
Business not Yet listed
Develop List
Solicit via Mail
Solicit via Phone
Doing the Search Yourself
Where to find the right business
Basic list of methods
Online MLS Sources
List of Brokers in Area - Call and talk with broker (Work for seller)
Local Advertisements - Newspaper, Craigslist, Local business publications
Trade Publications for specific business category of interest
Develop list of businesses of interest and contact business owners
List of key MLS databases (Partial List) (Small)
Look at Craigslist
Do a search, there are others available
List of brokers in your area
List of Trade publications & Industry specific reference material
Preparing your information for brokers / sellers
Non Disclosure
Entrepreneur Experience or industry specific experience
Acquisition Criteria
Your Credit Report with Ratings
Start considering finance options now.  What info they need and lending parameters
The Seller
SBA (Small Business Administration)
Asset-Based Lenders
Factoring Companies
Leasing Companies
Friends & Family Members
Angel Investors
Professionals (your accountant, attorney or even broker)
Equipment Lenders
Retirement Plans
Research listings and determine if they meet criteria
Financially Viable
Industry of interest
Business has potential of satisfying goals
Think through initial negatives or areas of concern for this business
Think through initial positives of this business
Why is it for sale
Any owner pressures to sale that could help in pricing
Initial Valuation - Does pricing make since
Does not need to be priced right, just reasonable
Visiting the Business
Prepare for the visit
Develop agenda for meeting 
Develop of list of additional information expected at the meeting
Use general questionnaire for initial meeting
Identify any questions unique to this business
Send the agenda with expectation to selling party and ask them if they would like to make any changes
Actually visit the business with or without buyer
Get answers to questions
Look for potential contingencies to the purchase during the discussion
Post visit discussion
Financial Analysis and Valuation
Financial analysis
What is included in the sale
Basic Accounting Education & definition of terms
Revenue's & profitability by Category
Working Capital
Ratio Analysis
Risk Assessment
Estimated Institutional Financing Available, (SBA Requirements)
Based on history, what should I expect to net after acquisition
Valuations more of an art than a science
Valuation is based on your requirements
Valuation methods
What is business worth to you
Operational Analysis 
Define key drivers & Risks
Competitive analysis
Evaluating Personnel
General Risk Factors
The Offer and Negotiation
Samples of offering Form
The need for legal guidance
Key issues to consider in any offer
Negotiation tactics
Be prepared before you start
Do a lot of what if.  Really get yourself ready.  Know your options
Emotions - Understand your emotions and what works for you
Consider Sellers Emotions
Play the what if game.  Consider all the options
Friend buyer ploy 
Deal Structure
Cash, Commercial financing, Seller Financing and Earn-out
All cash deals - Discount 15% to 25% (Avoid if possible unless under $100k)
Use Earn out - if future uncertain or dependent on key issues happening
Reasons: Key Customer Concentration
Reasons: Recent Significant Growth or Projected Growth
Reasons: Something makes the future uncertain.  Key contract expiring
By part 60% now, and 8% per year for 5 years.
The Offer
Remember it's your offer
Don't wait around.  Good businesses go fast
No risk offer - Should have rescind deal clause
Identify contingencies of the sale
Review of offer and recommendations of changes or counter-offer
Offer to purchase versus - Letter of intent
Look for key elements
Make sure it is no-risk
Considers financing and earn out options
Pricing is below market value
Why Offer to purchase better, if you are ready
Proof that you are serious buyer
Immediately identify sellers willingness to negotiate (Level of pain)
However, remember this is a legal document.  Attorney is required
Why Choose letter of intent
Simple and quick - Attorney helpful but not required
Asset versus stock purchase
Asset purchase is the norm in small business acquisitions
Asset purchase - you are assuming no past liabilities of the company
Asset Purchase - Tax advantages - Stepped up depr & Company structure
Stock - May be required if certain licensing, contracts or other issues involved
Stock - Require bullet proof indemnification by the Seller for past events
Stock - Significant amount of seller financing. - Can file claim against seller
How much to offer
Offer price close to your valuation (10% to 20% less) - Best course 
Shows you are serious buyer
Many other items to negotiate - Settle this item quickly
If you lowball, seller will assume all future items are negotiable
Sellers response will provide you feedback on if deal is possible
Initial offer should include significant seller financing, 
If they offer 25% request 50%
Interest rate - Offer 2% below rate offered or prime plus 1%
Term - Offer term 30% to 50% longer than presented
This gives them somewhere else to negotiate.
You don't know what you can get unless you ask
Waiting after offer
Do nothing.  No calls or anything until offer expires
If broker calls, do not respond until after written response received
Typically not a lot of back and forth offers (offer, counter, recounter and acceptance)
What about Real Estate?
Generally best not to buy real estate
Added debt burden
Financing may be more difficult
Higher closing costs
Repairs may be needed - additional capital
You may decide to relocate the business
Premises may not meet your needs in the future
Best solution is the right to buy at fixed price in future, but not obligated to 
However, buying R/E may offer favorable terms on business loan.
If you can get it below FMV. IT may make since
If buying you should offer FMV or list whichever is less.  Wording important
Negotiating the lease: Ideal options
Building improvements, where necessary
Painting the place
one or two year lease with 2 five years options to extend (at predetermined price)
A month or two of free rent, or reduced rent first quarter
Retain the right to sublet or subdivide
Sellers Response to your offer
The Counter - Tells you a lot (Pain level)
Accept, Counter, Reject are the only options.
Great - Move forward
Look for problems in due diligence
Talk with the other side and see what is acceptable
Insulted - Tell other side you will make another one, but it is a final offer (will walk if not accepted)
If they don't want to talk - Find another business.  Do not overpay
Pay close attention to what changes and what does not
Stop for a minute and think like the buyer.  What are their key issues
If down payment changes significantly, they may have initial costs that must be paid
When you make your counter - move to valuation numbers
If you are pushed on down payment, drop interest rate (possibly interest fee for period)
Try to present in person if possible.  
Gives chance to explain offer
Speeds up the process
It is easier to reach consciences in person
If you give on something, then get something (Give and take)
Keep accountants and lawyers out of meeting if possible
Prepare for In person Counter offer
Prepare an answer for a each and every response they may have
Consider sellers mind set, how best to present so that you win
Do role reversal, if you wouldn't accept they probably will not
Practice in mirror, tape yourself, review and critique.  Have others review & Critique
You should be convincing, confident and knowledgeable (Important)
Deal with easy points first
Take detail notes of meeting
Be reasonable, patient and sensitive
If it can't be proven, you should not pay for it
Make sure the understand your points.
Go through each item thoroughly
Leave your ego aside.
When you reach an agreement on a point.  Repeat the details so everyone clear
Pay what it is worth to YOU
When you reach price threshold, be prepared for 5% more.  
Keep control of the meeting
If your tired, take a break.
Take your time when making decisions
Deal with problems quickly and effectively
After meeting, draft notes and send to everyone for review before sending info to attorney
Key things not to Do in negotiations:
Don't beat an issue to death.  If you can't agree move on and come back
Don't quote facts that you can't prove
Don't try to be someone your not
Don't think you need to give in on a point because you won the last point
Don't hold grudge.  After you agree on a point, move on.
Don't fight on every point for the sake on negotiating
Don't become emotionally attached to the business
Don't get caught up in moment.  Take a minute and step back - Are goals being meet.
Don't be insulting, interrupt or give up
Don't argue over pennies
Don't threaten to walk unless you are willing to do so.
Don't let the amount of time you spent influence your decision on the deal
Don't let attorneys, accountants take control of the deal or take a hard stance 
Holding the meeting
Set the tone - Also set where you can look face to face with seller
Opening Comments
Keep accountants and lawyers out if possible
Remember, you are prepared  GO down your agenda and take notes.
What to do once offer accepted
Request meeting with Seller
Go through details needed to complete purchase agreement - Saves re-drafts
Questions about key employees
Usually includes seller and key employees
Prepare list of questions (Sample available) and get seller approval
Allocation of assets - Have accountants negotiate if you are not familiar.
Gather all lease or contract information that will be transferred
Do what is needed to clear off any sale contingencies identified in the offer
Working with the attorney to write the purchase agreement
Provide them input and stay in control.  Don't let them blow deal and keep them focused
The Purchase Agreement
The attorney draws up a legal document that becomes the legal document related to the transaction
You should find an attorney that has experience in this field
Initially call and schedule appointment
Information needed for appointment
Key issues about working with attorneys
Financing the purchase
Types of Financing available
Debt, Most common, Requires personal guarantee
Banks and SBA loans are examples
Equity, Landor becomes part owner of company
This can be seller or Venture capitalist, family members etc
Professionals fall into this category (Doctors, Lawyers and Accountants)
Debt to Equity. If you can't pay, lender converts debt to part ownership
Usually VC.
Leasing companies can be good sources for equipment.  They buy and then lease back to you
How much to borrow for Working Capital
This is usually a line of credit.  You don't pay interest unless you use it.
Should be three months expenses assuming revenue drops by 50%
What costs are associated with various financing options
Can the BUSINESS (not you) afford the debt.
Use business as much as possible.  Probably require personal collateral
  Pledging assets - Try to get 50/50 business to personal if possible
Recourse vs non-recourse
Non-recourse.  If you default they cannot come after your personal assets.
What is SBA financing and what are the requirements
Government guarantees the loan of the bank for small businesses
Limited to $2m total lending (business and R/E)
Substantial fees up front
Down payment requirement usually 25% or more.  However, 10% must be from seller
Qualification Requirements
Business and Buyer must both qualify separately
Business Qualifications
At least three years of tax returns
Cash flow can service debt
If franchise, Franchise agreement and franchisee is evaluated
Will lend based on cash flow normally, but also will do assets
Personal Qualifications
Have direct industry or owned a business before
Restrictions on down payment - Not from Equity line
Restrictions on spouse job.  Must continue
They want collateral.  Minimum is 40% of loan.  But they will ask for everything
Two types of loans
Express loan (Under $100k)
Can have money as quick as 30 days
7(a) loan - between $100k and $2M
Takes a minimum of 2 months, most of the time 3 months
Preparing information needed for lenders
Help in writing business plan
Personal Financial Statement
SBA Lending Requirements
Names of specific lender's and who to call
Due Diligence 
What is due diligence and why is it important
Are the financial statements that you have received accurate ?
Is the Inventory in Good and Resalable condition?
What is the condition and value of the Assets?
How effective and committed are the employees?
What is the overall picture of industry and the competition?
What has the company done to market itself?
How strong is the sales team?
Will the company's contracts continue under your ownership?
What can you do to increase the Revenues and Profits?
Based upon what you learn, does the business have a viable future?
Does the business meet the criteria of The Ten Commandments?
Is this a Good business?
How long should it take? (About 20 working days)
Who can help?
Lead role.
Negotiate fee up front
Object is to confirm the financials you used to make the buy decision are accurate
Corporate and legal issues
Your Role - Understand the basic business operations (See Due Diligence Summary)
Sales - Who, what, when, where and how
Due Diligence steps.
See Due Diligence Summary?
Pulling the trigger & Closing the Deal
Pulling the trigger
Closing the Deal
The attorney will close the deal for you.  Below are the key points
The Purchase Agreement may contain some or all of these items.
Lease assignment (Real Estate and equipment)
Promissory Notes (Seller Financing)
Non-Compete for Seller
Agreement stating that buyer & seller will cooperate after the sale
Lien search and filings
Purchase price allocation
Transfer taxes and Bulk Sale Taxes
Post Purchase Priorities & Consulting
Priorities and staying focused
Clean up the facility.  Paint if possible.  
Get Organized - Clean up clutter
Make quick list of key to-do's by area (Don't make a lot of changes until you have run the business for at least 6 months
First three months usually experience decrease in revenue, don't panic  But plan to avoid this from happening
Get rid of any assets not being utilized and you have no plan to use
Develop a 30/60/90 day plan by department.
Get employee commitment on completing the plan.
Monitor and adjust plan as needed
Begin to develop Marketing Plan, Get employees involved
Once some changes implemented.  Have employee luncheon an keep morale moving positive
This is a good time for everyone to meet the new boss.  
Go back to business plan developed and make any necessary changes
Use the first 90 days to:
Show employees you will stand behind them
Get a firm understanding of the key points ("guts") of the business.
Listen to employees.  Don't promise what you can't do, but be willing to listen
Do whatever is needed to get the job done.  Stay focused and be productive
Enjoy the process
General Thoughts
About you
The business always come first. Do right by the business and it will do right by you
Find a mentor that you can bounce ideas around with
Focus on one task at a time.  Complete each task then move on.
Never get down.  Don't let fear take away your ability to make decisions
No matter how bad it gets, keep pushing.  Light is just around the corner
Develop a helping attitude.  Approach your business as a way to help others
Make it easy for customers to buy from you
Build the business and profits, don't focus on costs first.
You can save your way to solvency, but you must market your way to success.
Make it your #1 goal to make yourself a marketing guru for your business
Pay all bills on time and take advantage of discounts offered
Continue education process.  Read publications, journals, books.  Keep learning from others
Spend your money wisely.  For each expense, what revenue will it generate.
From a marketing standpoint, test, test, test, test. It's never perfect, keep learning and trying
Automate as much of the process as possible
Get involved in associations and activities that will benefit your business
Continue to build infrastructure.  You need to be able to take a vacation if you need it
Become goal-oriented.
Being right is not important, but doing the right thing is
Let passion and commitment be your dominant characteristics.
Don't let your loyalty to customers, vendors or employees keep your business from succeeding
Managing the Employees
Let employees manage and run their position like it was their business
Trust all of your employees until they give you a reason not to
When dealing with employees problems, make them as important to you as they are to them
Be appreciative of people's efforts, but only reward results.
Hire employees that are better, faster and smarter than you.