Acquisition of a business Flashcards
Estimate of the worth or price of the company
-Call volume
Future outlook
-Demographics
Valuation
Statistical study of human population with respect to
-Size and density
-Distribution
-Composition
-Income
-Competition
-HR
Demographics
What are some things that can change with the new owner?
-GPL
-Business model
-Business plan
-Call volume trends
-Renovations/ improvements
-New suppliers
What are the steps of an aquisition
- Finding the opportunity
- Securing financing
- Valuation
What are some ways to find the opportunity to acquire a business
-Previous employers
-Sales reps
-Educators
-Word of mouth
-Trade publications
-Agents and brokers
What do business brokers do?
Bring together buyers and sellers of a business
What do agents do?
The same as brokers, but agents have a duty to either the buyer or the seller
Which is easier to get an SBA loan or a conventional loan? Which has a higher interest rate?
And SBA loan is easier to get but has a higher interest rate. And requires more paperwork
What is occurring when determining valuation?
A buyer is determining the purchase price
What is a letter of intent
Outlines offer, price, terms and conditions
Required to acquire financial information for a business to know how much to offer
-Lawyers, accountants, advisors, approved parties
Confidentiality agreement
Exercise reasonable care in the evaluation of a business opportunity
-Finances
-Contracts and leases
-Licenses, inspections, and permits
-Zoning requirements
-Environmental concerns
Due diligence
What are the four approaches when doing a valuation of tangible assets?
- Replacement value approach
- Liquidation value approach
- Market value approach
- Earnings valuation approach (most common)
Tangible asset approach: insurance concept used to settle claims
Book value of all assets is summed
-Fair market value
Replacement value approach
-Fair market value: similar products in similar conditions
Tangible asset approach: anticipated value of an asset
Sum the “or best offer” price for all assets
-Would be realized in case of liquidation of the business
Liquidation value approach
Tangible asset approach: determine value based upon previous sales of similar business
-Compare call volume, location, number of employees
Market value approach
Tangible asset approach: focuses on estimating; future projection of income is used
-Most common
-Typically over a 5-10 year period
-Businesses can cost different amounts based on “when” it is bought
Earnings valuation approach
What is considered when doing a valuation of intangible assets?
- Patent
- Copyright
- Trademark
- Goodwill
Registered right of an inventor to make, use, and sell an invention
-Machine
-process
-manufacture
chemical composition
-combination
Patent
How long is a patent good for?
20 years (United States Patent and Trademarks office)
Registered right of a creator to reproduce, publish, and sell the work of a person or entity
-Literary works, music, ect
Copyright
How long does a copyright last?
The creator’s life +70 years after death
Protection of a distinct name, sign, symbol
-Feds grant exclusive rights to use for a specific time
-Name
-term
-symbol
-design
-color
-combination
Trademark
Enables a business to earn a profit in excess of the normal rate of profit earned by other business of the same kind
-Name of a funeral home
Goodwill
