How To Buy A Business Leaked Bonus Chapter

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“How to buy a Business and Sell a
Business successfully”
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Presented by –
L & K Business Brokers
Brooklyn,N.Y. 11242


“The Absolute Simplest Guides on How To Buy a
Business Successfully Training Package”

It should come as no surprise, that more often than not first‐time business

buyers enter into transactions at a definite disadvantage.  There are several

factors that contribute to this predicament.  The first thing the potential

buyer should know is that sellers are not above telling lies if it means closing

the deal.   Most sellers know they can take advantage of an inexperienced

buyer by hiding facts that, if revealed, would negate a pending sale.   Not to

mention the fact that business brokers that work on the listing side tend to

favor the seller over the buyer.  So, if your goal is to someday own a

profitable, on‐going business, then it should be worth a little bit of your time

to get a few tips to learn how to avoid the common pitfalls that most

inexperienced buyer make.

The information contained in this book is geared exclusively for buyers.
Compiled from direct observations made over many years of direct first‐

hand experience relating to the buying and selling of on‐going businesses.


The material offered will be presented in a simple and easy‐to‐understand

Question & Answer format so that buyers and sellers, regardless of their level

of experience, can enter into any transaction on a level playing field.

Some of the topics that will be covered are:

1) The importance of learning the

real reason the seller wants to get rid of his business;

2); Making sure to keep

your emotions out of the equation and not let enthusiasm for a business

displace common sense;

3) How to make a realistic assessment of the seller’s

business savvy;

4) How to know if the financial statements presented give a
true and accurate portrait of the business being offered for sale;

5) Determining the real market value of assets and inventory;

6) How to negotiate a lower price if you determine the asking price is
inflated;

7) How to analyze current data involving web‐traffic to predict future
relevant trends that could affect the business in question;


8) How to get the most out of the business broker without giving away too
much of your strategy and

9) Learning about alternative means to facilitate the transaction.  In this way
you will know how and where to look for help when considering purchasing a
business.

But keep in mind that the information contained in this book should not be

regarded as either legal or financial advice.  As you read through this book,

keep in mind that the material presented should be regarded solely as an

informed opinion.

Furthermore, the author cautions the reader that he does not assume any

responsibility for errors and omissions concerning the information contained

in this book, or any differing conclusions drawn from the subject matter.

CHAPTER 1:  How To Know The Right Time to Buy A Business?

Buying a business requires the ability to make complex decisions without the

added influences of fear and emotional excitement.  If this is your first time

contemplating the purchase of an on‐going business, it's very tempting to

think of what your life would be like if suddenly you were the boss.

There is a certain sense of freedom that comes with owning your own


business because you realize that you will be making money for yourself

rather than for someone else.  Yet, you can’t help wondering if the business

really has the ability to make money; and there’s financing the purchase and

capitalizing your business to consider; not to mention worrying whether or

not you paid too much.   These are all perfectly normal responses.

  However, a lot is riding on the decisions you ultimately make.  And if you’re

like most people the stakes are too high to make a mistake.

If you could predict what’s going to happen tomorrow, then there would be nothing

to worry about.  But we all know that won’t happen.   So the next best thing is to go

into each and every transaction armed with the right knowledge.  That way, at least,

you can mitigate your chances of failure and take the first step in controlling your
own destiny.

In business, as in life, timing is everything.   So, once you feel that you are

ready to purchase an on‐going business, the first step is to decide on the type

of business you intend to buy.  There will always be many businesses to


choose from at any given time, but a good rule of thumb is to go with what

you know.  You may be familiar with a particular business because a friend or

family member owns something similar.  But is that the right choice for you?

Many factors should go into your decision.  The following list is just a small

sampling of the kind of questions you should ask yourself:

• How many employees will be required to maintain the business?
• Are you up to the physical demands of the job?
• Can you handle the added workload?
• Does the job require a lot of travel?
• Are you good at interacting with customers?
• Am I capable of managing my staff?

Each business will present a unique set of questions.   And the way you

answer those questions will give you an indication if the business is the right

fit for you.  But in the end, the decision boils down to one basic question:

Could you see yourself being happy operating this business a few years down

the line.   Answer “Yes” and this may be the right business for you (so long as

the rest of the criteria you check out makes sense).  Answer “No” and it’s a
good bet that you better start looking at something else.

Remember to keep an open mind when you look at different businesses.

Don’t become so set on a buying a particular type of business that you fail to


consider a different business, in your price range, that produces the type of income

that you’re looking for.   Statistics indicate that over half the buyers in the market

end up owning a business in a category different than the one they initially
considered.

Once you know what kind of business you want to own, the next step is to

figure out the size of the business you should buy.   This is determined by the

amount of money you have to invest.  Typically, the down payment needed

for buying a business ranges from approximately 20% to 50% of the
purchase price.

Looking at a hypothetical scenario ‐ assuming that you feel comfortable

investing $50,000 for the purchase of an existing business – we can get a

better idea of the principles at work in deciding on the size of the business

you are in the market for.   After deducting 20% for working capital, you will

have $40,000 to offer as a down payment.   Considering down payment

requirements, the maximum price range you should be looking at will top out

at $200,000.   Going with an average down payment of 30% the maximum

purchase price would be closer to $130,000.


Now you’ve got a handle on the size of the business you should be looking

for, and once you start checking what’s available, you’ll find that there are

many businesses for sale, in this price range, that will be able to produce a
reasonable profit for their owners.

You’re ready to buy something; and you know the size of the business you

can afford; the next step is finding the right business.  A good place to start

your search is on the Internet.  Close to 90% of business brokers list their

inventory online.

You can be certain that if you search on all business brokerage sites, there’ll

be a high percentage of overlap.  But often you may be able to find businesses

listed for sale on these other sites that are not listed on a site such as
www.bizbuysell.com.

But don’t stop at the Internet.  Other ways to find businesses for sale include

networking with friends and relatives, and contacting local business

professionals –attorneys, accountants, and bankers, etc.  Then, once you see a

business that meets your criteria, contact the broker offering the listing in

order to get more details.  When doing your preliminary research the more


information you can get regarding a particular business, the better.

After you’ve identified the business that you would like to purchase, the next

step is to get your financing in order.  The first stop for most people seeking a

loan to buy a business is generally their local bank.   However, typically banks

are not eager to make business acquisition loans.  In most instances they will

find some reason to decline the loan application.   Less than 10% of new
business owners secure their financing through banks.

Often the solution rests on a family member, typically an elder in a family will

lend the down payment, or in some cases the entire amount needed, to a

promising member of the family's younger generation.

In some cases, The Small Business Administration (SBA) ‐ an agency of the

Federal government – is able to provide for business acquisition loans

through its network of approved lenders. This program is known as the SBA

7(a) program. The SBA generally does not make direct loans, but rather the

agency guarantees the loan made thru an approved lender.

Although it may not be an option in all cases, on occasion, the owner of the business

you wish to buy may finance a portion of the purchase price for the buyer.   While


some sellers are not in a financial position to offer owner‐financing, when a seller is

willing and able, it is a convenient way to solve the problem of financing.

Two other possible sources for the down payment and working capital are to

borrow money from your 401K or from the equity in your home.

Presuming that you’ve made it this far, the next step is to analyze the

business.  Remember, confidentiality is critical to the successful transfer of a

business.  If word gets out that a business is for sale, several things may

happen as a result.  First, key employees may start looking for other jobs –

fearing that a new owner may not retain them.  Also, customers may begin

shopping elsewhere.  And even suppliers may start getting nervous.  All in all,

none of these things are beneficial to a prospective buyer.   This is why, in all

likelihood the broker will ask you to sign a non‐disclosure agreement stating

that you will not disclose the fact that the business is for sale – except to your
professional advisors.

If you’re working with a business broker, generally he will provide you with a

one‐page fact sheet (or profile) on the business that you are interested in


purchasing.  This initial profile will summarize all the salient points of the

business –including gross revenue and owner’s cash flow.   As negotiations

progress you may request or be given additional information from the owner

or broker regarding various aspects of the business.

Using the broker‐provided fact sheet, one of the most important things to

consider is the operation’s annual cash flow.  Because, after all is said and

done, when you purchase a business what you’re really buying is the ability

of that business to produce cash.  The amount of cash left over after

deducting all expenses necessary to run the business from the total revenue

is considered cash flow – and is a good indicator of the financial “health” of a

specific business.  Cash flow is available to the business owner to pay any

debts incurred when he bought the business and for his own personal use.

Many people tend to confuse cash flow with net profit (as reflected on a
businesses annual income tax return).

In an effort to reduce their taxable income, most business owners allocate

some expenses through the business that are not, by definition, purely

business expenses.  Tax liability may be reduced by this practice, but it may


also obscure the true earnings generated by a business.

At some point the business broker will set up a meeting between the buyer

and seller.  Odds are the broker will be present at the meeting to facilitate the

exchange of information and answer questions.  This is not a purely social

get‐together; it is one of the final steps in determining whether to go forward.

Bring a list of questions and feel free to ask anything you want.  But

remember, it’s important that the initial meeting remain informal and

cordial.  This is the time that both parties will have an opportunity to check
each other out.

If you are serious about going forward, before you formalize your offer, it is

important to figure out what the business is worth.  You already know what the

broker’s asking price is; however, it’s now time to do the math.   One way is to have

an independent appraisal made. Certain situations (such as larger merger‐

acquisitions, large loan applications, management performance tracking, estate

planning, divorce or potential IRS issues) require a formal business appraisal. Bear

in mind that the appraisal of privately held businesses is not an exact science.  So

before you go to the expense and time a proper appraisal will take, there are basic


economic guidelines and rules‐of‐thumb that can be used for a quick evaluation to
approximate the value of a business:

• Value: as a percentage of annual revenue:
Almost all privately held businesses with annual sales under $3 million will
sell in the range of 20% to 80% of annual revenue.  Determining the percentage in
order to come up with a legitimate selling price for a specific business depends, in
great part, on the type of business under consideration. Convenience stores
represent the low‐end and dry cleaners are at the high‐end.

• Value: as a multiple of Cash Flow.
Seeking to approximate the value of a business by applying a multiple to the
cash that a business generates is a more reliable method.  This scenario
allows for businesses to sell for up to 7 times Cash Flow.  Again, determining
the factor of multiplication depends on the type of business.

However you determine the value of the business you want to purchase,

remember you are the final arbiter of what a business is worth to you.

Guidelines cannot take into account any special considerations or future

plans that a new owner might have for the business.  What a particular

business might be worth to one person might be completely different to
someone else.

As the prospective buyer, you were asked to make certain assumptions based

on the information provided to you.  But, as pointed out earlier, it is not

always easy to determine if this information is accurate or even factual.  So to


protect yourself against errors and omissions when you make an offer to

purchase the business based on the business profile be sure to add the

following contingency caveat to the contract: "This offer to purchase said

business is contingent upon buyer’s inspection of all the books and records of

the business and the buyer’s satisfaction with the information contained

therein."  [Make sure the above wording is included verbatim.]  By adding

this exact wording to the contract, you are fully protected against any

misrepresentations.  If during your inspection of the books and records you

discover that the numbers furnished were not correct, then you have the

perfect legal right to terminate the contract and walk away with no further

obligation.  And any earnest money deposit, held in trust, should be

promptly refunded.  It is all part of the due diligence that you should perform
before closing the deal.

Due diligence is legalese for "checking things out".  In this way, once you’ve

verified the accuracy of the information that’s been furnished and are

satisfied that there are no serious, undisclosed problems with the business,

you have done your due diligence.  You should check whatever appropriate


sources necessary to be certain there are no undisclosed problems that could

affect the business in an adverse way.  Some of the areas to consider during

your due diligence may involve questions about key employees; as well as

legal, regulatory, and environmental issues.  Don’t forget about the lease.

You need to be aware of any problems that exist and make sure they are
handled to your satisfaction before you purchase the business.

Of course, there are other possible contingencies. The wording for them must

also be included in the offer to purchase.  But keep in mind that the owner is

free to counter the offer at some figure between his original asking price and

your initial offer.  At this point you can either accept his offer or continue to

negotiate until a number is reached that is acceptable to both parties.  If

everything checks out, you are ready to go to the closing table.   Most people

find this to be the easiest step.  At this point it should be a no‐brainer. You’ve

already done all the work.  At closing the parties deal with any outstanding

issues such as the pro‐rating of rent and other expenses; the turning over

keys; and the time and method by which the employees will be informed of

the transaction.  It’s customary for the buyer and seller to mutually choose a

closing agent and split the costs.  However, it is not unusual for one party to


insist on using his own lawyer to host the closing.  But then that party should

be responsible for his own lawyer’s fees.  It is always a good idea for both

parties to retain legal counsel to look after his or her best interests at  the
closing.

If you want to continue reading you must take action now, all things positive
come from taking action.

We wish you the best and we know you will
make the best decision of your life and We look
forward to speaking with you soon,

L & K Business Brokers
Brooklyn , Ny 11242

If you want to arm yourself with the best time tested
and proven methods of buying a business successfully the
first time out the gate, you will need to
Come and get your exclusive fast track to buying a
business and selling a business successfully training
package immediately before it is gone forever!


How To Buy A Business Leaked Bonus Chapter

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