How To Buy
& Sell A Business
SCORE Chapter One — Washington DC Metro Area
washingtondc.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
• 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
• Financing options
• Fees:
- Initial franchise fee
- ongoing royalties and
- 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
• Internet – Biz/Buy/Sell
• Brokers
• Investment bankers
• Attorneys
• Accountants
• Friends & Family
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
• 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
• 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
301-938-9049