1. SMALL BUSINESS MANAGEMENT Chapter 5 Buying a Business

2. Purchasing an Existing Business • Advantages of Purchasing • Reduction of ________ • Existing ________ records • Less planning • ________ employees • Reduction of Time and Setup Expenses • Reduction of ________ • Capitalization of Business Strength • Possible Assistance from Previous Owner • Easier Planning • Existing ________ / suppliers • Necessary equipment • ________ price

3. Purchasing an Existing Business • Disadvantages of Purchasing • Physical ________ • Personnel • Inventory • Accounts Receivable • Financial ________ • Market • Deciding on the Price • Poor ________ image • Modernization required • Purchase pr ________ ice based on inaccurate data • Poor ________ location

4. Sources of Businesses For Sale • Classified Ads • Government ________ • Trade Journals • Real Estate Brokers • Other Professionals • Matchmakers • Accountants • Lawyers • Other ________ business owners • Word of ________

5. Why is owner selling? • Owner’s ________ for selling the business • Old age or ________ • Desire to relocate in a different section of the country • Opportunity to start another business • Decision to accept a position with another company • ________ of the business • Discontinuance of an exclusive sales franchise • ________ of the industry and lack of growth potential

6. Evaluating a Business For Sale • Industry Analysis • Sales and ________ Trends in the Industry • The ________ Owner • Financial Condition of the Business • Validity of the Financial Statements • ________ of the Financial Statements

7. Evaluating a Business For Sale • Condition of the Assets • ________ ________(Cash and Investments) • Accounts ________ • Inventory • Building and ________ • Real Estate • Goodwill

8. Evaluating a Business For Sale • Quality of Personnel • External ________ of the Business • Conditions of the ________

9. Determining the Price or Value of a Business • Market Value • Asset value • Book Value • Replacement Value • Earnings Value • Capitalization of Earnings Method • Times Earnings Method • Combination Method • Analytical Method • Historical Method

10. The Purchase Transaction • Coverage • purchase price, including principal and interest amounts • payment ________ - when and to whom • detailed list of assets included in the purchase • conditions of the purchase - nonfinancial requirements • provisions for noncompliance with conditions and penalties for breaches • collateral or ________ pledged • Negotiating the ________

11. Concept Checks • 1. What are the potential advantages and disadvantages of owning a small business? • 2. What are the common sources of determining which businesses are for sale? • 3. In addition to experience what key areas should be investigated in an industry analysis?

12. Concept Checks • 4. Why is it important to investigate the background of the previous owner? • 5. What parts of the business should be analysed to determine the financial condition of the business? • 6. Under what conditions would it be advantageous to purchase a business even though it isn’t financially sound?

13. Concept Checks • 7. What nonfinancial aspects of the business should be evaluated ? • 8. What methods are available in determining a price for a business that is for sale?

14. Concept Checks • 9. What steps are involved in determining the selling price using the combination method? • 10. What areas should be included in the purchase agreement?

15. Appendix A • Checklist of Considerations in Purchasing a Business • The Industry • The Previous Owner • Financial Conditions of the Business • Condition of Assets • Quality of Personnel • Conditions of External Relationships • Conditions of Records