How To Buy& Sell A Business

SCORE Chapter One — Washington DC Metro Areawashingtondc.score.org 202-619-1000

SCORE Services

SCORE, a national, non-profit Association with over 13,000 volunteers in 364 chapters, is a resource partner of the US SBA. SCORE Chapter One has 50 Mentors, with diverse business and industry backgrounds, across the D.C. Area.

SCORE offers the following services:• Low-cost workshops - washingtondc.score.org• Individual free one-on-one counseling/mentoring • Online workshops, tools, and more at www.score.org

SCORE teams provide counseling to assist you to:• Increase the value of your business• Identify and solve operating problems • Recognize and capitalize on new business opportunities • Develop business plans • Find sources and qualify for financing

Workshop Instructor

Len Briskman – SCORE Mentor

• SCORE Mentor

• Business Advisory Team Leader

• Founder & CEO of Top 100 Public Company

• Government

• Affiliated with Sunbelt Business Advisors

• lenbriskman@scorevolunteer.org

• 301-938-9049

Session Agenda

BUYING A BUSINESS

• Advantages of buying an existing business

• Disadvantages

• Comparisons to a start-up

• Buying a franchise

• Finding a business

• Steps after you find a desirable business

• Financing the purchase

• Making an offer to purchase

• Due Diligence

• Closing the purchase

Session Agenda

SELLING A BUSINESS

• Why most businesses do not sell when listed for sale

• Exit Planning mistakes

• Information a seller needs

• Selling a Franchise

• Finding a buyer

• Should you finance the sale?

• Getting the business ready to sell

• Closing the sale

• After the sale

SUMMARY

Advantages of Buying Existing Business

• Difficult start-up work has already been done

• Immediate cash flow

• Financial history

• May be easier to secure loans and attract investors

• A market for your product or services already exists

• Existing employees and managers with experience

• Ability to Add Value

Disadvantages of Buying Existing Business

• Costs more than a start-up

• May need extensive improvements

• Obtaining financing

• Seller may take cash and accounts receivables

• May need working capital line of credit

• External factors and increasing competition

• Personal guarantees may be needed

• Seller’s relationships with customers may not continue

• Zombie businesses

• Location

Advantages of a Start-up

• Lower cost

• Clean Slate

• Change the world

• Your brand

• Recognition

• Create jobs

Disadvantages of a Start-up

• High Failure rate

• Businesses with the highest failure rate, highest success rate

• Finding an ideal location

• No customers

• Your own funds

• Limited financing

• Little or no salary

• Trial & Error

Buying a Franchise

• What kind of franchise?

• Franchise Resources – SCORE Resource Partner

• What size business

• Pros & Cons of Buying a Franchise

• Lower your risks Recession resistance franchises

• Semi Absentee Retail Businesses

• Financing options

Buying a Franchise – Con’t

• Fees- Initial Franchise Fee- Ongoing royalties- Marketing fees

• Franchise Disclosure Document• Buying an existing franchise

Finding a Business

• What kind of business?

• Your experience

• What’s available and how do I find one?

• Referrals – Friends & Family

• Employee Buyout

• Internet – Biz/Buy/Sell

• Brokers

• Investment bankers

• Attorneys

• Accountants

Qualify as a Buyer

• Required by brokers, investment bankers, and other third party

intermediaries

• Bio, financial information including net worth

• Should qualify for external financing – banks, financial

institutions, SBA – “Rule of Thumb”

• Broker shows businesses for which you qualify

• Third Party should assist you in selecting the right professional

relationship (banker, lawyer, accountant, etc,

if necessary)

Next steps after I find a desirable business

• Sign NDA

• Review Business Profiles

• Key Information: Financial statements, cash flow, assets,

employees, age of company, asking price

• Pay close attention to lifestyle of the business owner, gross

income, and cash flow

• Visit the business

• Do not discuss the purpose of your visit with anyone at the

business

Next steps after I find a desirable business

• Meet with owner/seller

• Take tour, list questions

• Seek fact finding – not negotiations regarding price or

terms of sale

• Gain all information to write a purchase offer

• Write an offer if interested

• May need third party valuation

Financing the Purchase

Financing Sources:

• Buyer’s resources

• Friends, family

• SBA guaranteed financing – Valuation is required if purchase price

is more than $350,000

• Banks – Need Business Plan

• Financial Institutions

• Owner takeback

• Investors – angel investors, equity investors

Make an Offer to Purchase

• Subject to negotiations. Helps to have a third party negotiate for

you as it can be rather emotional

• Asset or stock purchase

• Include contingencies such as due diligence, financing

• If offer is accepted, have attorney draw up purchase agreement.

Include non-compete

• Make sure financing is in place

• Deposit – should be held in escrow

Due Diligence

• Use accountant or experienced third party

• Detailed review of financials, receivable ageing, good

and saleable inventory, lease, employee contracts,

benefits

• Meet with landlord for assignment of lease

• Tax returns – 3 years

Due Diligence

• Financial Statements – 3 years

• List of liabilities to be assumed

• Status of equipment

• Customers and vendors

• Seller’s role after closing, training, consulting – all

should be spelled out in Purchase Agreement

Closing

• Customer Lists

• Vendor lists

• Lease Assignment Title to assets

• Payment to seller

• Commissions to third party

SELLING A BUSINESS

• Why Most Businesses Do Not Sell When Listed

for Sale

• Unrealistic value

• Customer concentration

• Lack of cash flow

• Unreported cash

Exit Planning Mistakes

• Bad timing

• Being reactive – waiting for the best deal

• Not considering all your sale options

• Being distracted – run the company

• Not knowing your value

• Where to next

• Tax implications

• It takes time

Information a Seller Needs• Same as what a buyer needs• Tax returns – 3 years• Financial Statements – 3 years• Lease(s) to be assumed• List of assets• Depreciation list• Sales tax returns – 3 years• Accounts receivable ageing• Disclosure of liabilities to be assumed• Licenses/Patents• Customer list

How Most Businesses are Sold

• Existing family members

• Existing Employees

• Brokers – 20%

• Investment bankers – larger businesses

• Referrals

• Strategic buyers – Same industry, competitors,

Benefits to seller

• Internet – Biz/Buy/Sell

• Direct by Seller

Getting the Business Ready to Sell

• May take two or more years before it is listed

• First, fix the business, improve profitability, increase revenues, cut expenses, dispose of non-core entities

• Retain only valuable, dedicated employees

• Cultivate a culture of leadership

• Need for discretion – employees, customers, vendors

• May take 9 to 18 months to find a qualified buyer

SUMMARY - QUESTIONS

Len Briskman

len.briskman@scorevolunteer.org

301-938-9049