SMALL BUSINESS
MANAGEMENT
Chapter 5
Buying a Business
Purchasing an Existing Business
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Advantages of Purchasing
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Reduction of ________
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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
Purchasing an Existing Business
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Disadvantages of Purchasing
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Physical ________
Personnel
Inventory
Accounts Receivable
Financial ________
Market
Deciding on the Price
Poor ________ image
Modernization required
Purchase pr ________ ice based on inaccurate data
Poor ________ location
Sources of Businesses For Sale
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Classified Ads
Government ________
Trade Journals
Real Estate Brokers
Other Professionals
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Matchmakers
Accountants
Lawyers
Other ________ business owners
Word of ________
Why is owner selling?
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Owner’s ________ for selling the
business
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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
Evaluating a Business For Sale
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Industry Analysis
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Sales and ________ Trends in the
Industry
The ________ Owner
Financial Condition of the Business
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Validity of the Financial Statements
________ of the Financial Statements
Evaluating a Business For Sale
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Condition of the Assets
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________ ________(Cash and
Investments)
Accounts ________
Inventory
Building and ________
Real Estate
Goodwill
Evaluating a Business For Sale
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Quality of Personnel
External ________ of the Business
Conditions of the ________
Determining the Price or Value of a
Business
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Market Value
Asset value
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Earnings Value
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Book Value
Replacement Value
Capitalization of Earnings Method
Times Earnings Method
Combination Method
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Analytical Method
Historical Method
The Purchase Transaction
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Coverage
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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 ________
Concept Checks
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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?
Concept Checks
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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?
Concept Checks
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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?
Concept Checks
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9. What steps are involved in
determining the selling price using
the combination method?
10. What areas should be included
in the purchase agreement?
Appendix A
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Checklist of Considerations in
Purchasing a Business
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The Industry
The Previous Owner
Financial Conditions of the Business
Condition of Assets
Quality of Personnel
Conditions of External Relationships
Conditions of Records