growth by acquisition or exiting gracefully buying or selling a septic or sewer business
TRANSCRIPT
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Growth by Acquisition or Exiting Gracefully
Buying or Selling a Septic or Sewer Business
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A. Rhodes Wilson, MBA, EA, CFP®
• BS, USMA, West Point•MBA, University of South Dakota• EA, Enrolled Agent, Licensed by the IRS• ChFC®, Chartered Financial Consultant®• CFP®, Certified Financial Planner
![Page 3: Growth by Acquisition or Exiting Gracefully Buying or Selling a Septic or Sewer Business](https://reader031.vdocuments.mx/reader031/viewer/2022032703/56649d215503460f949f72ee/html5/thumbnails/3.jpg)
A. Rhodes Wilson, MBA, EA, CFP®
• BS, USMA, West Point•MBA, University of South Dakota• EA, Enrolled Agent, Licensed by the IRS• ChFC®, Chartered Financial Consultant®• CFP®, Certified Financial Planner
![Page 4: Growth by Acquisition or Exiting Gracefully Buying or Selling a Septic or Sewer Business](https://reader031.vdocuments.mx/reader031/viewer/2022032703/56649d215503460f949f72ee/html5/thumbnails/4.jpg)
A. Rhodes Wilson, MBA, EA, CFP®
• BS, USMA, West Point•MBA, University of South Dakota• EA, Enrolled Agent, Licensed by the IRS• ChFC®, Chartered Financial Consultant®• CFP®, Certified Financial Planner
![Page 5: Growth by Acquisition or Exiting Gracefully Buying or Selling a Septic or Sewer Business](https://reader031.vdocuments.mx/reader031/viewer/2022032703/56649d215503460f949f72ee/html5/thumbnails/5.jpg)
A. Rhodes Wilson, MBA, EA, CFP®
• BS, USMA, West Point•MBA, University of South Dakota• EA, Enrolled Agent, Licensed by the IRS• ChFC®, Chartered Financial Consultant®• CFP®, Certified Financial Planner
![Page 6: Growth by Acquisition or Exiting Gracefully Buying or Selling a Septic or Sewer Business](https://reader031.vdocuments.mx/reader031/viewer/2022032703/56649d215503460f949f72ee/html5/thumbnails/6.jpg)
A. Rhodes Wilson, MBA, EA, CFP®
• BS, USMA, West Point•MBA, University of South Dakota• EA, Enrolled Agent, Licensed by the IRS• ChFC®, Chartered Financial Consultant®• CFP®, Certified Financial Planner
![Page 7: Growth by Acquisition or Exiting Gracefully Buying or Selling a Septic or Sewer Business](https://reader031.vdocuments.mx/reader031/viewer/2022032703/56649d215503460f949f72ee/html5/thumbnails/7.jpg)
What We’ll Cover
• Identify Prospective Buyer/Seller• Due Diligence• Setting the Price• Pitfalls of a Sale• Typical Terms and Conditions• Structuring the Deal• Expectations At and After Closing
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Identify Prospective Buyer/Seller
• As a Buyer• Make it known you are a buyer• Associations• Competitors• Professionals
• What you want to buy• Same Business• Peripheral Business• Someone Else's Bad Fit
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Identify Prospective Buyer/Seller
• As a Seller• Make it known you are considering a sale• Don’t wait, think 3-5 years in advance• Associations• Competitors• Professionals
• What you have to sell• Know Your Business• Be Realistic
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Due DiligenceThe Process of “Getting it Right the First Time”
• Build an Advisory Team• Accountant• Banker• Lawyer• Broker
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Due DiligenceThe Process of “Getting it Right the First Time”
• Basic Questions•Why• Potential• Reputation
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Due DiligenceThe Process of “Getting it Right the First Time”
• Getting Into the Details• Financial Statements• Profit & Loss• Balance Sheet• Cash Flow Statements• Budgets and Projections
• Tax Returns• Dump Records• Franchise Reports
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Setting the Sale Price
• Four Broad Categories for Valuation• Comparable Sales• Earnings Power• Asset Worth• Industry Specific
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Setting the Sale Price
• Four Broad Categories for Valuation• Comparable Sales• Earnings Power• Asset Worth• Industry Specific
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Setting the Sale Price
• Four Broad Categories for Valuation• Comparable Sales• Earnings Power• Asset Worth• Industry Specific
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Setting the Sale Price
• Four Broad Categories for Valuation• Comparable Sales• Earnings Power• Asset Worth• Industry Specific
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Setting the Sale Price
• Capitalization of Earnings Method• Based on:• Historical Earnings• Cost of Capital
• Formula• Net Income Cost of Capital = Fair Market Value
• Example• Using Cost of Capital = 5%
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Capitalization of Earnings Example (1)
Revenues 100,000Cost of Sales ( 35,000)Gross Profit 65,000Expenses ( 35,000)Net Income 30,000
30,000 5% = 600,000
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Capitalization of Earnings Example (2)
Revenues 100,000Cost of Sales ( 35,000)Gross Profit 65,000Expenses ( 35,000)Adjustment ( 24,000)Net Income 6,000
6,000 5% = 120,000
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Setting the Sale Price
• Discounted Future Earnings Method• Based on:• Projected Future Earnings• Discount Rate
• Formula
•
• Example• Using Cost of Capital = 5%
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Discounted Future Earnings Example
Revenues 100,000Cost of Sales ( 35,000)Gross Profit 65,000Expenses ( 35,000)Net Income 30,000
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Setting the Sale Price
Affordability• $30,000 Annual Net Income • Supports $2,500/month Payment• Paid for with no Out-of-Pocket Cash Flow• Any Expense Savings = Profit
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Setting the Sale Price
Improving the Sales Price•Plan Ahead, 3-5 Years•Be Professional in Business Practices•Pay Yourself• Establish Contracts•Be Prepared
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Pitfalls of the Sale
•Verify All Information•Keep the Sale Affordable•Don’t be Over Anxious•Cash is King• Employees•Allow Adequate Transition• Expect the Unexpected
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Terms and Conditions• Financing• All Cash• Third Party Financing• Seller Note• Down Payment Percentage• Term of Loan
• Transitional Period• Non-Competition Agreement• Allocation of Purchase Price• Purchase Agreement
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The Closing
• Document Signing• Funds Transfer• Form UCC-1• Broker Release• Bill of Sale• Promissory Note• Asset Acquisition Statement, IRS Form 8594• Other Transfer Paperwork• Phone Number• Utilities
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Expectations After Closing
• Transition Assistance from Seller• Financial Adjustments•Notification of Constituencies• Employees•Vendors•Customers
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A. Rhodes Wilson & Associates, Inc.
• Phone: (215) 766-8500
• Email: [email protected]
• Address: 99 Lantern DriveSuite 201BDoylestown, PA 18901