Talking to Sellers and Understanding the Business, Normalizing Financials, Assets vs. Shares Flashcards
What types of things do we want to learn about the business?
- Operational questions (Walk me through your daily routine)
- History of the business
- Legal/financial troubles
- Product liability
- Product development
- Competition
- Labor
What method makes it easy to ask logical questions to learn about a business?
We ask questions following the operations of the business.
What are the differences between an Entrepreneur and an Investor?
- When we buy a business, we are an investor.
- When we start a business, we are an entrepreneur.
- How are business buyers different from starters when it comes to risk?
- Entrepreneurs are risk tolerant, investors are risk averse.
List things to remember when speaking to sellers.
- Most have not bought their business
- Most have never sold a business
- Most expect that you will have the same desire to work really hard like
they did when they started the business - Most are technicians, not businesspeople (in the Michael Gerber E-Myth sense of
the word)
What are the three types of financials?
- Investor relations
- Internal reporting
- Taxes
What is important to remember about financial statements?
Financial statements of small businesses don’t mean much but are a starting point for analysis.
When you consider buying a business, what are you buying?
Cash Flow
What is the difference between buying a company’s assets vs. its shares?
Shares = Ownership interest in a company
Asset = Tangible and intangible stuff owned by the company (equipment, inventory, IP, Media)
What is a Business?
- Location
- HR/People
- Capital
These things together produce a cash flow.
What is a Business?
- Location
- HR/People
- Capital
These things together produce a cash flow.
Is a corporation the same as a business?
No
Will you always get all the components you need to run a business when you buy from a seller?
No
When we are recasting (normalizing) financial statements, what should we ask ourselves?
What would the results have been if I had bought this company last year and run everything completely by the book?
What is the difference between EBITDA and SDE?
EBITDA is the money available to an investor after the main manager has been paid.
SDE is the total cash flow available to an owner operator.
When are problems in a target business a good thing?
Problems in a business operation are wonderful for buyers if the business is profitable with those problems.
What does the acronym SWOT stand for?
SWOT: Strengths, weaknesses, opportunities, and threats.
