Transcript BUSINESS VENTURE VALUATION ALTERNATIVES FOR BUYING EXISTING BUSINESS • ADVANTAGES • DISADVANTAGES EVALUATING AN EXISTING BUSINESS • WHY IS BUSINESS FOR SALE • CONDITION OF THE BUSINESS •

BUSINESS VENTURE
VALUATION
ALTERNATIVES FOR BUYING
EXISTING BUSINESS
• ADVANTAGES
• DISADVANTAGES
EVALUATING AN EXISTING
BUSINESS
• WHY IS BUSINESS FOR SALE
• CONDITION OF THE BUSINESS
• POTENTIAL FOR COMPANY’S
PRODUCTS OR SERVICES
• LEGAL ASPECTS
• FINANCIAL SOUNDNESS
CONDITION OF BUSINESS
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INVENTORY
ACCOUNTS RECEIVABLES
LEASE ARRANGEMENTS
BUSINESS RECORDS
INTANGIBLE ASSETS
LOCATION AND APPEARANCE
PRODUCTS AND SERVICES
• MARKET ANALYSIS
• CUSTOMER CHARACTERISTICS &
COMPOSITION
• COMPETITOR ANALYSIS
LEGAL ASPECTS
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LIENS
BULK TRANSFERS
CONTRACT ASSIGNMENTS
COVENANTS NOT TO COMPETE
ONGOING LEGAL LIABILITIES
BULK TRANSFERS
• SELLER PROVIDES A SIGNED, SWORN
LIST OF EXISTING CREDITORS
• LIST OF PROPERTY INCLUDED IN
SALE
• BUYER KEEPS BOTH LISTS FOR SIX
MONTHS
• BUYER GIVES WRITTEN NOTICE OF
SALE TO EACH CREDITOR MIN 10
DAYS BEFORE TAKING POSSESSION
CONTRACT ASSIGNMENTS
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PATENT, TRADEMARK, COPYRIGHT
EXCLUSIVE AGENT OR DISTRIBUTOR
REAL ESTATE LEASES
FINANCING & LOAN DEALS
UNION CONTRACTS
ONGOING LEGAL
LIABILITIES
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PHYSICAL PREMISES
PRODUCT LIABILITY CLAIMS
LABOR RELATIONS
INSURANCE COVERAGE
FINANCIAL SOUNDNESS
• INCOME STATEMENTS & BALANCE
SHEETS FOR PAST 3-5 YEARS
• INCOME TAX RETURNS FOR PAST 3-5
YEARS
• OWNER’S COMPENSATION &
RELATIVES
• CASH FLOW
BUSINESS RECORDS TO
REVIEW
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FINANCIALS
INCOME TAX RETURNS
CASH FLOW
RECORDS OF A/R
RECORDS OF A/P
LOAN AGREEMENTS WITH BANKS &
LENDERS
• EXISTING CONTRACTS WITH MAJOR
BUSINESS RECORDS
(CONT’D)
• CONTRACTS OR LEASES ON REAL
ESTATE, FIXTURES, OR EQUIPMENT
• INSURANCE POLICIES
• DOCUMENTATION ON PTCs
• INDIVIDUAL EMPLOYEES”LABOR
CONTRACTS OR UNION CONTRACTS
• BUSINESS LICENSES
• ANY LAWSUITS THE COMPANY IS
INVOLVED IN
NEGOTIATING THE DEAL
FIRST RULE: NEVER
CONFUSE PRICE WITH
VALUE
VALUE IS WHAT BUSINESS
IS WORTH
PRICE IS WHAT BUYER
AGREES TO PAY
THE PARTY WHO IS THE
BETTER BARGAINER
USUALLY COMES OUT ON
TOP
SELLER PREFERENCES
• HIGHEST POSSIBLE PRICE
• SEVER ALL RESPONSIBILITY FOR
COMPANY’S LIABILITIES
• MAXIMIZE CASH FROM DEAL
• AVOID UNREASONABLE CONTRACT
TERMS
• MINIMIZE TAX BURDEN FROM SALE
• MAKE SURE BUYER CAN MAKE
FUTURE PAYMENTS
BUYER PREFERENCES
• LOWEST POSSIBLE PRICE
• NEGOTIATE FAVORABLE PAYMENT
TERMS OVER TIME
• ASSURANCE THAT YOU ARE BUYING
THE BUSINESS YOU THINK YOU ARE
GETTING
• AVOID PUTTING SELLER IN POSITION
TO OPEN A COMPETING BUSINESS
• MINIMIZE CASH PAID UP FRONT
FIVE Ps FOR NEGOTIATING
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PATIENCE
PREPARATION
POISE
PERSISTENCE
PERSUASIVENESS
VALUATION METHODS
• BALANCE SHEET/ADJUSTED B/S
• MULTIPLE OF EARNINGS
• DISCOUNTED EARNINGS METHOD