Business Valuation Guidebook Overview

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					                         GRIG Business Valuation Guidebook




  Business Valuation Guidebook
            Overview



                   Ventures Team
               Sunday, 27 February 2005



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                              GRIG Business Valuation Guidebook



                          Purpose


To provide an overview of GRIG’s first Business
Valuation Handbook and solicit input from
partners.

To provide procedural checklists to help conduct
screening for potential deals.


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                                GRIG Business Valuation Guidebook



                         References
• How to Buy & Sell a Business by Garrett Sutton, 2003
  Edition

• www.successDNA.com

• Millionaire Women Next Door by Thomas J. Stanley2003

• GRIG Succession Plan

• GRIG 2004 Annual Meeting Presentation

• www.loopnet.com

• Franchise Consultant Debrief (Ventures Team)

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                                  GRIG Business Valuation Guidebook


                                 Agenda
•   Objectives
•   Points to Consider
•   Team Strategy
•   Overview of Franchises and Existing Businesses
•   Screening Criteria
•   Common Mishaps in Selling Business Acquisitions
•   Summary
•   Next Step
•   Conclusion/Comments




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                                    GRIG Business Valuation Guidebook

                              Handbook
                              Objectives
•    Ensure all necessary steps are being taken to protect GRIG and Co-
    Investors assets

•    Work with Team Leaders to ensure efficiency of operations and processes
    are in place

•    Continue to educate the Ventures Team and GRIG on franchising and
    business acquisition

•    Review various ownership structures using some current franchises and
    businesses currently available




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                                    GRIG Business Valuation Guidebook


                          Considerations
•   Trust is earned. Understanding the deal. Identify Partners Bias.

•   Execution of deals against basic fundamentals- Warren Buffet

•   Don’t overextend the group; Maintain a healthy cash position

•   Ownership of ideas, group inability to execute

•   Management quality is as important as business fundamentals. Conduct
    internal due diligence. Conduct a risk analysis of potential deals.




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                                     GRIG Business Valuation Guidebook


                          Ventures Strategy

•   Test new evaluation process

•   Invest in a cash generating business

•   Analyze opportunities to participate in joint deals with small business
    owners




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                                    GRIG Business Valuation Guidebook


                            Golden Krust
5Ws (Who, What, When, Where and Why)

•   Premier Quick Service bakery/restaurant
•   Product:: Jamaican-style beef patties, Jerk chicken and Caribbean cuisine
•   Located mainly in New York and Los Angeles
•   Potential for growth in southeastern states

Fees involved
• Initial Franchise Fee: $25,000
• 4% Royalties of gross sales monthly
• Total cost:: $148,150-$380,000
* * Will need to provide own financing.



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                                    GRIG Business Valuation Guidebook


                         Zyng Asian Grill

5Ws (Who, What, When, Where and Why)

•   Pan Asian Grill
•   Product:: Noodle dishes of Thai, Korea, Singapore, Vietnam and Japan
•   Located mainly in Canada and International Airports in the U.S.
•   Potential for growth in all states

Fees involved
• Total cost:: $300,000-$350,000

** Will need to provide own financing.


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                                     GRIG Business Valuation Guidebook


                                    Zaxby’s

5Ws (Who, What, When, Where and Why)

•   Quick Service Restaurant
•   Product : Chicken wings, fingers, salads and fries
•   Located mainly in Georgia (122), South Carolina (38), Florida (25)
•   Potential for growth in Tennessee(14), Kentucky(3), Alabama(22)

Fees involved
• Total cost:: $300,000-$350,000

** Will need to provide own financing.


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                                    GRIG Business Valuation Guidebook


                    Moving and Storage

5Ws (Who, What, When, Where and Why)

•   Existing Business started in 1990
•   Service: self-storage; moving
•   Located in Fayetteville, GA; 10 employees
•   Potential for growth by increasing corporate accounts

Fees involved
• Total cost: Asking $250,000
• Gross: $585,467
• Cashflow: $70,000
** Financing available through current owners.


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                                   GRIG Business Valuation Guidebook


                       Coin Laundromat

5Ws (Who, What, When, Where and Why)

•   Existing Business started in 1990
•   Service: attended Coin Laundromat
•   Located in Knoxville, TN; 4 employees
•   Potential for growth by development of a new “drop-off and fold” feature,
    increase in business accounts, industrial workers, governmental accounts;
    snack machines
• Seller does not work in the business
Fees involved
• Total cost: Asking $54,000
• Gross: $122,966
• Cashflow: $30,000
** Thirty days of training available through current owner.
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                                   GRIG Business Valuation Guidebook


                      Screening Criteria

•   Is the business in a growth industry?
•   Gaining market share?
•   If buying an existing business, what is the cashflow?
•   Customer base? Assets?
•   Return of investment? Comparison to industry averages.
•   Outline advantages over competitors. (For example, Zaxby’s vs.
    Hooters)
•   Other revenue streams?
•   Number of customers that make up 80% of sales.
•   Retention rate of customer base?
•   What is the exist strategy? Conduct a risk analyses.


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                                            GRIG Business Valuation Guidebook


                         Synopsis of Business Broker’s Services
                                             (1 of 4)


The 20 Step Buying Process for TRANSWORLD (Atlanta, GA):

    Commitment
    Commitment to purchase a business at a price and terms consistent with the marketplace.
    Disclosure
    Sign an agreement promising to maintain confidentiality for all the information provided to us on
    the business in question.
    Background Information
    Provide broker with information about us, such as a resume and financial statement. The more
    they know about us, the more likely they can match us with a business that potentially fits our
    needs.
    Review
    GRIG and a TRANSWORLD associate discuss and review various types of businesses and
    select some that appeal to us.
    They would carefully explain the terms and conditions of the offer to the Seller and decision
    makers.




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                                          GRIG Business Valuation Guidebook


                        Synopsis of Business Broker’s Service
                                            (2 of 4)



Showing
The TRANSWORLD associate shows us the businesses we are interested in and issues the
important factors of each.
Meeting
Meeting with GRIG, the Seller and the TRANSWORLD associate. This gives us the chance to
ask detailed questions we may have about the business, and to describe our qualifications to the
Seller.
Offer to Purchase
We write, with the assistance of the business , an offer for the business we like. Our offer will be
a "contingent offer" meaning it is non-binding until all our conditions have been met by the Seller.
Typically, earnest money is provided by us at this time to demonstrate your seriousness to the
Seller.
Present Offer
TRANSWORLD presents our offer to the Seller
Background
TRANSWORLD gives the Seller our background and financial information, our experience and
point of view in arriving at the offering price, terms and conditions. Favorable background
information about us will result in favorable consideration.



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                                        GRIG Business Valuation Guidebook


                      Synopsis of Business Broker’s Service
                                         (3 of 4)



Explanation
TRANSWORLD carefully explains the terms and conditions of the offer to the Seller and decision
makers.
Acceptance
The Seller accepts the offer as it is written or writes a counter offer.
Mutual Acceptance
When GRIG and Seller agree to all terms and conditions of the sale, the offer becomes a
Purchase and Sale Agreement.
Inspection
We meet with Seller at TRANSWORLD’s office or place of business to examine the financial
records of the business. Hold and answer session.
Contingency Removal
We would then remove all contingencies in the agreement. It is now a binding agreement.
Lease Assignment
TRANSWORLD would work with the landlord to get an assignment of the current lease or a new
lease for us.




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                                        GRIG Business Valuation Guidebook


                      Synopsis of Business Broker’s Service
                                         (4 of 4)



Open Escrow
TRANSWORLD provides all necessary documents to the transferring agent so they can
prepare the closing papers.
Lien Search
In most states, the escrow attorney performs a lien search on the business to identify any
secured creditors, if any.
Inventory
Arrangements are made for us and the Seller to count and price the inventory (if required).
Closing
All parties meet to sign documents.
Transitional Training
In order to insure a smooth and successful transition of ownership, it is customary that the
Seller continue to work with the new Owner in the business for a period of time following the
closing date. This period varies depending upon the size and complexity of the business
purchased.




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                                          GRIG Business Valuation Guidebook


                         Common Mishaps
                                             (1 of 4)



    Lack of deal structure expertise
When the seller has limited knowledge about the available alternatives for structuring the deal, he
is at a definite disadvantage! And probably a costly one. Items such as leverage buy-outs, leases,
royalties, earn-outs, consulting agreements, non-compete contracts can add immeasurable value
and security to both buyer and seller alike.

    Failure to adjust the net owner benefit
If you are to determine a proper value, the balance sheet and income statements must be recast.
Items such as owner's salary, depreciation, interest and fringe benefits may be added or
subtracted depending on the circumstances. The adjusted income statement will reflect the actual
owner benefit in order to help determine the market value.

    Failure to maintain confidentiality
Confidentiality is vital to the selling of a business. If employees know that you are selling and
changes are coming, they may seek other opportunities. Competitors may use this information as a
selling tool. Vendors may not continue to extend favorable terms. Profitability and market value
may be reduced.




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                                            GRIG Business Valuation Guidebook


                          Common Mishaps
                                               (2 of 4)

  Failure to secure qualified buyers
Knowing how to qualify a buyer is critical. TRANSWORLD pre-qualifies each buyer to avoid a
negotiation that is doomed to fail. This saves you time and money. It can eliminate hundreds of
wasted hours and misdirected efforts.

    Failure to continue to run your business
It is important to maintain your business at peak operating capacity. The performance and
productivity of your business is what you are really selling. The time taken from your business to
sell it will have a toll on the business and as a direct result lower its market value.


   Failure to properly adjust for economic conditions and owner's ability
Generally speaking, the higher the skill level required to operate the business, the more difficult it
will be to sell it. The value tends to increase when the owner can be replaced easily. The value
also may increase when an industry is in a growth stage. For many industries there are specific
valuation methods that are highly subject to the owner's duties in the company as well as outside
economic conditions.

   Failure to provide credible information
A potential buyer will want information about your customer base, competition, financial history and
industry characteristics, such as size, growth potential and areas of opportunity. This information
must be provided in a salable format and in a way to ensure your confidentiality.

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                                           GRIG Business Valuation Guidebook


                          Common Mishaps
                                              (3 of 4)


    Poor negotiating techniques
In many deals, poor negotiating techniques can cost the seller considerably in terms of selling
price, terms and other opportunities. Many times a deal will fail to close because of poor
negotiation or communication between parties.


    Failure to place the proper value on your business
A business has value to a buyer because of its anticipated earnings from its established resources
and a demonstrated successful track record. Proper evaluation is crucial, enhancing the chances
of selling your business.


    Failure to consider alternative investments
All buyers have alternative investment options. To make your business attractive, you must show a
return on investment greater than stocks, bonds, real estate or other similar business opportunities.
You should be prepared to offer seller financing.




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                                           GRIG Business Valuation Guidebook


                          Common Mishaps
                                              (4 of 4)



   Failure to prepare for proper due diligence
Due diligence issues are very important to the selling process. These issues can have a major
impact on the closing of a business sale. It is imperative to be prepared and organized. You must
be able to defend and substantiate representations made during the selling process.


    Failure to seek professional assistance and consultation
There are legal, financial. marketing and other vital considerations that must be addressed in the
selling process. Many decisions in the selling process should not be made without the advice of the
right professionals. A wrong decision could lead to a fatal mistake!




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                                GRIG Business Valuation Guidebook



                          Summary

•   Objectives
•   Points to Consider
•   Team Strategy
•   Overview of Franchises and Existing Businesses
•   Screening Criteria
•   Common Mishaps in Selling Business Acquisitions




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                               GRIG Business Valuation Guidebook



                         Next Steps
• Stay with plans of using business broker in
June 2005
• Evaluate the results for the Partner Survey

• Determine ownership structure

• Continue to get educated on business acquisitions
through presentation, mentors (franchise owners) and
interviewing business brokers



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                            GRIG Business Valuation Guidebook



                     Conclusion

“ Educating ourselves on business
acquisition and lessons learned within the
industry will reduce of risk of unscrupulous
deals and increase our probability of
acquiring a business that produces positive
cashflow.”




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