Buying Bus.Presentation

Joe Cacopardo

laskaCOMPANY

www.laskacompany.com

Joe Cacopardo

laskaCOMPANY

www.laskacompany.com

The Secrets of Buying & Selling a Small Business

The Secrets of Buying & Selling a Small Business

Workshop GoalWorkshop Goal

No Secrets by the End of The No Secrets by the End of The WorkshopWorkshop

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What Potential Buyers What Potential Buyers Need To KnowNeed To Know

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Over 25,000,000Over 25,000,000

Approximately Approximately 20%20%

Receptive to SellingReceptive to Selling

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laskaCOMPANYlaskaCOMPANY

Reasons Owners Want to SellReasons Owners Want to Sell

RetirementRetirement

Burn-OutBurn-Out

DivorceDivorce

HealthHealth

Cash OutCash Out

Other Business Other Business InterestsInterests

Re-LocationRe-Location

Death of the OwnerDeath of the Owner

Any number of Any number of Simple ReasonsSimple Reasons

Business BrokersBusiness Brokers

Do You Need One?Do You Need One?

““Yes……… Yes……… ButBut””

The But is Related to Understanding the The But is Related to Understanding the Business Broker’s Role Business Broker’s Role

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laskaCOMPANYlaskaCOMPANY

Business BrokerBusiness Broker

Business Brokers Almost Always Business Brokers Almost Always Represents the SellerRepresents the Seller

Seller Pays their CommissionSeller Pays their Commission

Fiduciary Duty to the SellerFiduciary Duty to the Seller

No Multiple Listing Service in IdahoNo Multiple Listing Service in Idaho

Business BrokerBusiness Broker

Access to Businesses For SaleAccess to Businesses For Sale

Details about the BusinessDetails about the Business

Majority of Businesses in Idaho are Sold Majority of Businesses in Idaho are Sold through Brokersthrough Brokers

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Business BrokerBusiness Broker

Buffer Between Buyer and SellerBuffer Between Buyer and Seller

Paperwork is AstoundingPaperwork is Astounding

Closing the DealClosing the Deal

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Buyers Need To KnowBuyers Need To Know

Identify the Type, Size and Location of the Identify the Type, Size and Location of the Business you Want to Purchase Business you Want to Purchase

Know How Much Money to Put DownKnow How Much Money to Put Down

Know Where the Down Payment/Purchase Know Where the Down Payment/Purchase Money Will Come From Money Will Come From

Professionals Should Be Lined Up Professionals Should Be Lined Up

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Buyers Need To KnowBuyers Need To Know

Making an Offer is not Buying….. Get the Making an Offer is not Buying….. Get the Process Started Process Started

Keep the Negotiating & Communications Moving Keep the Negotiating & Communications Moving Forward Forward

Get the Signed Purchase Agreement into Get the Signed Purchase Agreement into Escrow Escrow

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What Potential Sellers What Potential Sellers Need To KnowNeed To Know

Timing is Everything!Timing is Everything!

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First and Foremost StepFirst and Foremost Step

Determining ValueDetermining Value

Basic Factors that Influence ValueBasic Factors that Influence Value Value of Hard Tangible AssetsValue of Hard Tangible Assets Value of Intangible AssetsValue of Intangible Assets Amount of Re-Cast Cash FlowAmount of Re-Cast Cash Flow Growth RateGrowth Rate How Long in BusinessHow Long in Business

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MultiplesMultiples

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From the introduction to the Rules From the introduction to the Rules of Thumb by Tom Parkerof Thumb by Tom Parker

““A Rule of Thumb is a homemade recipe for A Rule of Thumb is a homemade recipe for making a guess. It is an easy-to-remember making a guess. It is an easy-to-remember guide that falls somewhere between a guide that falls somewhere between a mathematical formula and a shot in the mathematical formula and a shot in the dark……..dark……..Multiples/Multiples/Rules of Thumb are a Rules of Thumb are a kind of tool”kind of tool”

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MultiplesMultiples

Earnings before, interest, taxes depreciation and Earnings before, interest, taxes depreciation and amortization (EBITDA)amortization (EBITDA)

Earnings before interest and taxes (EBIT)Earnings before interest and taxes (EBIT)

Seller’s Discretionary Earnings (SDE)Seller’s Discretionary Earnings (SDE)

% of Annual Sales% of Annual Sales

Many OthersMany Others

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So What is the So What is the Definition ofDefinition of

Fair Market Value?Fair Market Value?

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Definition of Fair Market ValueDefinition of Fair Market Value

““What any seller is willing to sell their What any seller is willing to sell their business for and what any buyer is willing business for and what any buyer is willing to pay”.to pay”.

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Scenario #1Scenario #1

My business is well established and is profitable

Option:Price the business at the highest possible value based on sound valuation methods that will satisfy all requirements of the final test to a prospective buyer.

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Scenario #2Scenario #2

My business has no earnings, however it does provide me with a salary and a few tax benefits.

Options:Sell the business for the current fair market value of the assets plus a small amount of goodwill.

The buyer is “buying a job” and will probably not want to pay much goodwill for an equivalent advanced salary.

Buyer may have a hard time finding financing for this case.

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Scenario #3Scenario #3My business does not have net income, does not provide me asalary and there doesn’t appear to be any value of goodwill, but the doors are still open.

Options:Sell the business as a going concern for the current fair marketvalue of the assets…maybe a new owner will have good ideasto improve profitability.Almost impossible to find financing for this case; seller mayhave to carry a promissory note.Close business; liquidate assets by auction, etc.

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Scenario #4Scenario #4

My business is only one year old; can I sell it?

Same as Scenario #3

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Deal BreakersDeal Breakers

Neglecting the Operation of the BusinessNeglecting the Operation of the Business

Placing too High a Price on BusinessPlacing too High a Price on Business

Not Preparing Far Enough in Advance……Not Preparing Far Enough in Advance……

No PlanningNo PlanningNot Anticipating the Buyer’s RequestNot Anticipating the Buyer’s Request

Wanting to Retire Immediately After the Wanting to Retire Immediately After the Business is SoldBusiness is Sold

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Deal BreakersDeal Breakers

Being Inflexible in Structuring the Being Inflexible in Structuring the Transaction…..Seller CarryTransaction…..Seller Carry

Negotiating Every ItemNegotiating Every Item

Allocating too Much Time for the Selling Allocating too Much Time for the Selling ProcessProcess

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laskalaskaCompanyCompany

Joe CacopardoJoe Cacopardo877 Main St.877 Main St.

Boise,ID. 83702Boise,ID. 83702208.331.1116208.331.1116

[email protected]@laskacompany.com