| 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) | ||||
| BizBuySell.com | ||||
| BizQuest.com | ||||
| BusinessBroker.net | ||||
| Globalbx.com | ||||
| IBBA.com | ||||
| BusinessMart.com (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 | ||||
| Resume | ||||
| Entrepreneur Experience or industry specific experience | ||||
| Acquisition Criteria | ||||
| Financials | ||||
| Your Credit Report with Ratings | ||||
| Start considering finance options now. What info they need and lending parameters | ||||
| The Seller | ||||
| SBA (Small Business Administration) | ||||
| Banks | ||||
| Asset-Based Lenders | ||||
| Factoring Companies | ||||
| Leasing Companies | ||||
| Friends & Family Members | ||||
| Angel Investors | ||||
| Professionals (your accountant, attorney or even broker) | ||||
| Suppliers | ||||
| Customers | ||||
| 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 | ||||
| DCF | ||||
| Working Capital | ||||
| Ratio Analysis | ||||
| Risk Assessment | ||||
| Estimated Institutional Financing Available, (SBA Requirements) | ||||
| Based on history, what should I expect to net after acquisition | ||||
| Valuation | ||||
| 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. | ||||
| Accept | ||||
| Great - Move forward | ||||
| Look for problems in due diligence | ||||
| Reject | ||||
| 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 | ||||
| Counter | ||||
| 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 | ||||
| HAVE FUN | ||||
| 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. | ||||
| Collateral | ||||
| 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 | ||||
| Resume | ||||
| 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? | ||||
| Accountant | ||||
| Lead role. | ||||
| Negotiate fee up front | ||||
| Object is to confirm the financials you used to make the buy decision are accurate | ||||
| Lawyer | ||||
| Corporate and legal issues | ||||
| Your Role - Understand the basic business operations (See Due Diligence Summary) | ||||
| Sales - Who, what, when, where and how | ||||
| Marketing | ||||
| Employees | ||||
| Systems | ||||
| Competition | ||||
| Customers | ||||
| Contracts | ||||
| 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. | ||||