Acquisition of a business

Question 1

Estimate of the worth or price of the company
-Call volume
Future outlook
-Demographics

Answer 1

Valuation

Question 2

Statistical study of human population with respect to
-Size and density
-Distribution
-Composition
-Income
-Competition
-HR

Answer 2

Demographics

Question 3

What are some things that can change with the new owner?

Answer 3

-GPL
-Business model
-Business plan
-Call volume trends
-Renovations/ improvements
-New suppliers

Question 4

What are the steps of an aquisition

Answer 4

1. Finding the opportunity
2. Securing financing
3. Valuation

Question 5

What are some ways to find the opportunity to acquire a business

Answer 5

-Previous employers
-Sales reps
-Educators
-Word of mouth
-Trade publications
-Agents and brokers

Question 6

What do business brokers do?

Answer 6

Bring together buyers and sellers of a business

Question 7

What do agents do?

Answer 7

The same as brokers, but agents have a duty to either the buyer or the seller

Question 8

Which is easier to get an SBA loan or a conventional loan? Which has a higher interest rate?

Answer 8

And SBA loan is easier to get but has a higher interest rate. And requires more paperwork

Question 9

What is occurring when determining valuation?

Answer 9

A buyer is determining the purchase price

Question 10

What is a letter of intent

Answer 10

Outlines offer, price, terms and conditions

Question 11

Required to acquire financial information for a business to know how much to offer
-Lawyers, accountants, advisors, approved parties

Answer 11

Confidentiality agreement

Question 12

Exercise reasonable care in the evaluation of a business opportunity
-Finances
-Contracts and leases
-Licenses, inspections, and permits
-Zoning requirements
-Environmental concerns

Answer 12

Due diligence

Question 13

What are the four approaches when doing a valuation of tangible assets?

Answer 13

1. Replacement value approach
2. Liquidation value approach
3. Market value approach
4. Earnings valuation approach (most common)

Question 14

Tangible asset approach: insurance concept used to settle claims
Book value of all assets is summed
-Fair market value

Answer 14

Replacement value approach
-Fair market value: similar products in similar conditions

Question 15

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

Answer 15

Liquidation value approach

Question 16

Tangible asset approach: determine value based upon previous sales of similar business
-Compare call volume, location, number of employees

Answer 16

Market value approach

Question 17

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

Answer 17

Earnings valuation approach

Question 18

What is considered when doing a valuation of intangible assets?

Answer 18

1. Patent
2. Copyright
3. Trademark
4. Goodwill

Question 19

Registered right of an inventor to make, use, and sell an invention
-Machine
-process
-manufacture
chemical composition
-combination

Answer 19

Patent

Question 20

How long is a patent good for?

Answer 20

20 years (United States Patent and Trademarks office)

Question 21

Registered right of a creator to reproduce, publish, and sell the work of a person or entity
-Literary works, music, ect

Answer 21

Copyright

Question 22

How long does a copyright last?

Answer 22

The creator’s life +70 years after death

Question 23

Protection of a distinct name, sign, symbol
-Feds grant exclusive rights to use for a specific time
-Name
-term
-symbol
-design
-color
-combination

Answer 23

Trademark

Question 24

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

Answer 24

Goodwill