SELLING AND BUYING A BUSINESS

JOHN POSTCertified SCORE Mentor

The Sell Process Outline

• Three Years of IRS statements – 1065 or C• Sellers Discretionary Earnings (SDE)– Recasting Analysis; Value/Listing Price

• Marketing Description – 3 levels• Advertising - BizBuySell.com, etc.• Qualifying Buyers – Experience, Resources• NDA; Negotiations• Purchase and Sales Agreement• Due Diligence

The Buy Process Outline

• Research- BizBuySell.com, etc.• Three Years of IRS statements – 1065 or C• Sellers Discretionary Earnings (SDE)– Recasting Analysis

• The Opportunity?• Offer; Negotiations• Purchase and Sales Agreement

Recasting the P&LITEM P&L ADJUST RECAST - - - -Operating profit 500,000 - 500,000 EXPENSES Payroll 300,000 - 300,000Salary (owners) 65,000 65,000 0 Benefits 40,000 25,000 15000 Interest 5,000 5,000 0 Auto 25,000 10,000 15000 Telephone 4,000 2,000 2,000 Rent 18,000 - 18,000 TOTAL EXPENSE 439000 107000 PROFIT 61,000

SDE 168,000 (FULL CASH FLOW)

Purchase Components

• Buyer Deposit - 10 – 15 % $10,000• Buyer Cash – 10 – 15 % 10,000• Bank Loan – 40 – 60 % 50,000• Seller Loan* – 25 – 30% 30,000• Sale/Purchase Price $100,000

* 3-5 years @ 8%

TIPS

• Think like your buyer/seller• Transition training and consulting• Retain customers; get list• Don’t trust the books• Value the business at 30-40% revenue and/or 2X SDE• Easier to buy than to start • Buyer pro forma – what do you need to live on?