Growth by Acquisition or Exiting Gracefully

Buying or Selling a Septic or Sewer Business

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

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

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

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

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

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

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

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

Due DiligenceThe Process of “Getting it Right the First Time”

• Build an Advisory Team• Accountant• Banker• Lawyer• Broker

Due DiligenceThe Process of “Getting it Right the First Time”

• Basic Questions•Why• Potential• Reputation

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

Setting the Sale Price

• Four Broad Categories for Valuation• Comparable Sales• Earnings Power• Asset Worth• Industry Specific

Setting the Sale Price

• Four Broad Categories for Valuation• Comparable Sales• Earnings Power• Asset Worth• Industry Specific

Setting the Sale Price

• Four Broad Categories for Valuation• Comparable Sales• Earnings Power• Asset Worth• Industry Specific

Setting the Sale Price

• Four Broad Categories for Valuation• Comparable Sales• Earnings Power• Asset Worth• Industry Specific

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%

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

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

Setting the Sale Price

• Discounted Future Earnings Method• Based on:• Projected Future Earnings• Discount Rate

• Formula

•

• Example• Using Cost of Capital = 5%

Discounted Future Earnings Example

Revenues 100,000Cost of Sales ( 35,000)Gross Profit 65,000Expenses ( 35,000)Net Income 30,000

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

Setting the Sale Price

Improving the Sales Price•Plan Ahead, 3-5 Years•Be Professional in Business Practices•Pay Yourself• Establish Contracts•Be Prepared

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

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

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

Expectations After Closing

• Transition Assistance from Seller• Financial Adjustments•Notification of Constituencies• Employees•Vendors•Customers

A. Rhodes Wilson & Associates, Inc.

• Phone: (215) 766-8500

• Email: wilson@arwwealthmanagement.com

• Address: 99 Lantern DriveSuite 201BDoylestown, PA 18901