SMALL BUSINESS MANAGEMENT Chapter Five Buying a Business
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Transcript SMALL BUSINESS MANAGEMENT Chapter Five Buying a Business
SMALL BUSINESS
MANAGEMENT
Chapter Five
Buying a Business
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Purchasing an Existing
Business
Advantages
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of Purchasing
Reduction of Risk
Reduction of Time and Setup Expenses
Reduction of Competition
Capitalization of Business Strength
Possible Assistance from Previous Owner
Easier Planning
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Purchasing an Existing
Business
Disadvantages
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of Purchasing
Physical Facilities
Personnel
Inventory
Accounts Receivable
Financial Condition
Market
Deciding on the Price
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Sources of Businesses for Sale
Classified Ads
Government
Departments
Trade Journals
Real Estate Brokers
Other Professionals
Word of Mouth
4
Evaluating a Business For Sale
Industry Analysis
– Sales and Profit Trends in the Industry
The
Previous Owner
Financial Condition of the Business
– Validity of the Financial Statements
– Evaluation of the Financial Statements
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Evaluating a Business For Sale
Condition
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of the Assets
Liquid Assets (Cash and Investments)
Accounts Receivable
Inventory
Building and Equipment
Real Estate
Goodwill
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Evaluating a Business For Sale
Quality
of Personnel
External Relationships of the Business
Conditions of the Records
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Determining the Price or Value of
a Business
Market
Value
Asset value
– Book Value
– Replacement Value
Earnings Value
– Capitalization of Earnings Method
– Times Earnings Method
Combination
Method
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The Purchase Transaction
Coverage
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purchase price, including principal and interest amounts
Payment dates - when and to whom
Detailed list of assets included in the purchase
Conditions of the Purchase - nonfinancial requirements
Provisions for noncompliance with conditions and
penalties for breaches
– Collateral or security pledged
Negotiating
the Deal
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Appendix A
Checklist
of Considerations in Purchasing a
Business
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The Industry
The Previous Owner
Financial Conditions of the Business
Condition of Assets
Quality of Personnel
Conditions of External Relationships
Conditions of Records
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Concept Checks
1.
What are the potential advantages and
disadvantages of owning a small business?
2. What are the common sources of
determining which businesses are for sale?
3. In addition to experience what key areas
should be investigated in an industry
analysis?
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Concept Checks
4.
Why is it important to investigate the
background of the previous owner?
5. What parts of the business should be
analysed to determine the financial
condition of the business?
6. Under what conditions would it be
advantageous to purchase a business even
though it isn’t financially sound?
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Concept Checks
7.
What nonfinancial aspects of the business
should be evaluated ?
8. What methods are available in
determining a price for a business which is
for sale?
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Concept Checks
9.
What steps are involved in determining
the selling price using the combination
method?
10. What areas should be included in the
purchase agreement?
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