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BUSINESS VENTURE VALUATION

VIEWS: 4 PAGES: 19

									BUSINESS VENTURE
   VALUATION
 ALTERNATIVES FOR BUYING
    EXISTING BUSINESS
• ADVANTAGES
• DISADVANTAGES
EVALUATING AN EXISTING
      BUSINESS
• WHY IS BUSINESS FOR SALE
• CONDITION OF THE BUSINESS
• POTENTIAL FOR COMPANY’S
  PRODUCTS OR SERVICES
• LEGAL ASPECTS
• FINANCIAL SOUNDNESS
    CONDITION OF BUSINESS
•   INVENTORY
•   ACCOUNTS RECEIVABLES
•   LEASE ARRANGEMENTS
•   BUSINESS RECORDS
•   INTANGIBLE ASSETS
•   LOCATION AND APPEARANCE
 PRODUCTS AND SERVICES
• MARKET ANALYSIS
• CUSTOMER CHARACTERISTICS &
  COMPOSITION
• COMPETITOR ANALYSIS
         LEGAL ASPECTS
•   LIENS
•   BULK TRANSFERS
•   CONTRACT ASSIGNMENTS
•   COVENANTS NOT TO COMPETE
•   ONGOING LEGAL LIABILITIES
      BULK TRANSFERS
• SELLER PROVIDES A SIGNED, SWORN
  LIST OF EXISTING CREDITORS
• LIST OF PROPERTY INCLUDED IN
  SALE
• BUYER KEEPS BOTH LISTS FOR SIX
  MONTHS
• BUYER GIVES WRITTEN NOTICE OF
  SALE TO EACH CREDITOR MIN 10
  DAYS BEFORE TAKING POSSESSION
    CONTRACT ASSIGNMENTS
•   PATENT, TRADEMARK, COPYRIGHT
•   EXCLUSIVE AGENT OR DISTRIBUTOR
•   REAL ESTATE LEASES
•   FINANCING & LOAN DEALS
•   UNION CONTRACTS
         ONGOING LEGAL
           LIABILITIES
•   PHYSICAL PREMISES
•   PRODUCT LIABILITY CLAIMS
•   LABOR RELATIONS
•   INSURANCE COVERAGE
  FINANCIAL SOUNDNESS
• INCOME STATEMENTS & BALANCE
  SHEETS FOR PAST 3-5 YEARS
• INCOME TAX RETURNS FOR PAST 3-5
  YEARS
• OWNER’S COMPENSATION &
  RELATIVES
• CASH FLOW
    BUSINESS RECORDS TO
          REVIEW
• FINANCIALS
• INCOME TAX RETURNS
• CASH FLOW
• RECORDS OF A/R
• RECORDS OF A/P
• LOAN AGREEMENTS WITH BANKS &
  LENDERS
• EXISTING CONTRACTS WITH MAJOR
    BUSINESS RECORDS
        (CONT’D)
• CONTRACTS OR LEASES ON REAL
  ESTATE, FIXTURES, OR EQUIPMENT
• INSURANCE POLICIES
• DOCUMENTATION ON PTCs
• INDIVIDUAL EMPLOYEES”LABOR
  CONTRACTS OR UNION CONTRACTS
• BUSINESS LICENSES
• ANY LAWSUITS THE COMPANY IS
  INVOLVED IN
NEGOTIATING THE DEAL

  FIRST RULE: NEVER
 CONFUSE PRICE WITH
        VALUE
VALUE IS WHAT BUSINESS
       IS WORTH

 PRICE IS WHAT BUYER
    AGREES TO PAY
 THE PARTY WHO IS THE
  BETTER BARGAINER
USUALLY COMES OUT ON
         TOP
   SELLER PREFERENCES
• HIGHEST POSSIBLE PRICE
• SEVER ALL RESPONSIBILITY FOR
  COMPANY’S LIABILITIES
• MAXIMIZE CASH FROM DEAL
• AVOID UNREASONABLE CONTRACT
  TERMS
• MINIMIZE TAX BURDEN FROM SALE
• MAKE SURE BUYER CAN MAKE
  FUTURE PAYMENTS
   BUYER PREFERENCES
• LOWEST POSSIBLE PRICE
• NEGOTIATE FAVORABLE PAYMENT
  TERMS OVER TIME
• ASSURANCE THAT YOU ARE BUYING
  THE BUSINESS YOU THINK YOU ARE
  GETTING
• AVOID PUTTING SELLER IN POSITION
  TO OPEN A COMPETING BUSINESS
• MINIMIZE CASH PAID UP FRONT
    FIVE Ps FOR NEGOTIATING
•   PATIENCE
•   PREPARATION
•   POISE
•   PERSISTENCE
•   PERSUASIVENESS
  VALUATION METHODS
• BALANCE SHEET/ADJUSTED B/S
• MULTIPLE OF EARNINGS
• DISCOUNTED EARNINGS METHOD

								
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