AA BUSINESS SALES
MIKE SHAKERI
MIKE SHAKERI
Frequently Asked Questions by Buyers:
_________________________________
Why should I buy a business rather than start one?
The failure rate in small business is enormous in the start-up phase and
the first three years. The existing business has demonstrated that there
is a need for that product or service in a particular location. Financial
records are available along with other information on the business.
Most sellers will stay and train a new owner and most will also supply
financing. Finding someone who will teach you the intricacies of running
a business and who is also willing to finance the sale can make all the
difference.
_____________________________________________________
Why should I go to a Business Broker?
Selecting the right, experienced broker for YOU is of utmost
importance. Your broker will carefully study your strengths and
shortcomings, experience, needs, likes and dislikes and will provide
you with a selection of different and, in many cases, unique businesses,
including many that you would not be able to find on your own, that
better suit you.
Business brokers are also an excellent source of information about
businesses and the business buying process. They are familiar with the
market and can advise you about trends, pricing and what is happening
locally. Your business broker will handle all of the details of the
business sale and will do everything possible to guide you in the right
direction.
___________________________________
How Are Businesses Valued?
There are literally dozens of formulas used for valuing businesses, but
there are three primary components for determining value: (1) Fair
Market Value of Assets (inventory,equipment,etc); (2) The ability of a
business to generate earnings (often times it is necessary to compare
the true earning power of a business by "adjusting" the income
statement of the business for discretionary expenses of the seller...we
call this revised calculation the "Adjusted Profit"); and (3) Demand
(Certain types of businesses such as manufacturing companies will
usually command a higher purchase price than retail firms with similar
earnings).
___________________________________
Goodwill
Sale The sale of a business showing sales and profit is considered a
goodwill sale. The fixtures and equipment are included in the sale
unless otherwise specified. The sales and profit of the business must be
proven to a buyer by the review of the seller's books and records. This
is the seller's responsibility to provide the buyer with the
documentation. In a goodwill sale you will see many times that the
profit is an adjusted amount. Many business owners will charge
personal use items against the financial statement. These are items the
seller deducts from the profits, but are not used in the conduct of the
business. These items are what is called 'add backs'. They are added
to the net profit to show an 'adjusted net profit'. Most goodwill sales
are priced at a multiple of the adjusted net. Multiples will vary
according to the quality and ongoing track record of the business.
___________________________________
Asset Sale F/F/E (Asset - Furniture, Fixtures, Equipment)
The sale of a business under the caption asset f/f/e is for a business that
the seller has put on the market whereas they cannot prove profits - or
there is no profit, or it is a break-even. Many of these offerings can be
excellent values for a buyer with the vision to change or turn a business
around. Many times the asset f/f/e price of the business is substantially
less than if you were to go and buy the fixtures & equipment, do the
build out and start from scratch. You will also enjoy some ongoing
sales from the previous owner. Be advised there is no book and
record review. You are buying the business as is
_____________________________________________________
Books & Records Review
The most critical part of the sale of any business being sold as goodwill
is the books & records. The current business owner's responsibility is
to prove to a buyer the profit and adjusted profit of the business. This
is usually done after an agreed-upon price and terms have been
completed between buyer and seller. This is to be sure the buyer will
qualify to buy the business under terms and conditions suitable to the
seller. Note: no escrow is opened and no buyer's deposit is at risk until
the books & records contingency has been removed. The books and
records can consist of federal and state tax returns and state sales tax
returns. Prepared financial statements - check registers and bank
statements referring to the business. Again it is the seller's responsibility
to provide the documentation to prove sales and profits, and the
buyer's responsibility to perform due diligence to his/her satisfaction.
The broker/agent will assist in seeing that the proper documents are
provided - but will not participate in the due diligence.
_________________________________
Why should I buy a business rather than start one?
The failure rate in small business is enormous in the start-up phase and
the first three years. The existing business has demonstrated that there
is a need for that product or service in a particular location. Financial
records are available along with other information on the business.
Most sellers will stay and train a new owner and most will also supply
financing. Finding someone who will teach you the intricacies of running
a business and who is also willing to finance the sale can make all the
difference.
_____________________________________________________
Why should I go to a Business Broker?
Selecting the right, experienced broker for YOU is of utmost
importance. Your broker will carefully study your strengths and
shortcomings, experience, needs, likes and dislikes and will provide
you with a selection of different and, in many cases, unique businesses,
including many that you would not be able to find on your own, that
better suit you.
Business brokers are also an excellent source of information about
businesses and the business buying process. They are familiar with the
market and can advise you about trends, pricing and what is happening
locally. Your business broker will handle all of the details of the
business sale and will do everything possible to guide you in the right
direction.
___________________________________
How Are Businesses Valued?
There are literally dozens of formulas used for valuing businesses, but
there are three primary components for determining value: (1) Fair
Market Value of Assets (inventory,equipment,etc); (2) The ability of a
business to generate earnings (often times it is necessary to compare
the true earning power of a business by "adjusting" the income
statement of the business for discretionary expenses of the seller...we
call this revised calculation the "Adjusted Profit"); and (3) Demand
(Certain types of businesses such as manufacturing companies will
usually command a higher purchase price than retail firms with similar
earnings).
___________________________________
Goodwill
Sale The sale of a business showing sales and profit is considered a
goodwill sale. The fixtures and equipment are included in the sale
unless otherwise specified. The sales and profit of the business must be
proven to a buyer by the review of the seller's books and records. This
is the seller's responsibility to provide the buyer with the
documentation. In a goodwill sale you will see many times that the
profit is an adjusted amount. Many business owners will charge
personal use items against the financial statement. These are items the
seller deducts from the profits, but are not used in the conduct of the
business. These items are what is called 'add backs'. They are added
to the net profit to show an 'adjusted net profit'. Most goodwill sales
are priced at a multiple of the adjusted net. Multiples will vary
according to the quality and ongoing track record of the business.
___________________________________
Asset Sale F/F/E (Asset - Furniture, Fixtures, Equipment)
The sale of a business under the caption asset f/f/e is for a business that
the seller has put on the market whereas they cannot prove profits - or
there is no profit, or it is a break-even. Many of these offerings can be
excellent values for a buyer with the vision to change or turn a business
around. Many times the asset f/f/e price of the business is substantially
less than if you were to go and buy the fixtures & equipment, do the
build out and start from scratch. You will also enjoy some ongoing
sales from the previous owner. Be advised there is no book and
record review. You are buying the business as is
_____________________________________________________
Books & Records Review
The most critical part of the sale of any business being sold as goodwill
is the books & records. The current business owner's responsibility is
to prove to a buyer the profit and adjusted profit of the business. This
is usually done after an agreed-upon price and terms have been
completed between buyer and seller. This is to be sure the buyer will
qualify to buy the business under terms and conditions suitable to the
seller. Note: no escrow is opened and no buyer's deposit is at risk until
the books & records contingency has been removed. The books and
records can consist of federal and state tax returns and state sales tax
returns. Prepared financial statements - check registers and bank
statements referring to the business. Again it is the seller's responsibility
to provide the documentation to prove sales and profits, and the
buyer's responsibility to perform due diligence to his/her satisfaction.
The broker/agent will assist in seeing that the proper documents are
provided - but will not participate in the due diligence.
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |