bargain potential your knowledge can be beneficial
potential pitfalls of buying an existing business
failure to disclose
business may be a poor fit
use due dillagence
investment requirements
buying someone elses problems
bought business problems
dissatisfied customers, suppliers, employees, or creditors
plant or equipment obsolete or inefficient
lack of innovation or market trends
patents no longer valid
business broker
a company or individual that buys or sells businesses for a fee
due dilligence
the exercise of reasonable care in the evaluation of a business opportunity
due dilligence proccess
identify real reason owner is selling
lack of sufficient cash flow
unprofitability
staffing
change in industry or market conditions
new competitors
litigation
nondisclosure agreement
a legal document enumerating the type of information that is to remain confidential
asset valuation
a method that analyzes the inderlying value of the firms assets as a basis for negotiating price
four standards of asset valuation
book value
adjusted book value
liquidation value
replacement value
earnings valuation
a method that assesses the value of the firm based upon a stream of earnings that is multiplied either by an agreed-upon factor (the capitalization factor) or by the p/e ratio (for a publicly traded company)
earnings valuation process
historical earnings
future earnings under current ownership
future earnings under new ownership
cash flow valuation
a method of calculating the worth of a business by using projected future cash flows and the time value of money
how to determine the value of a business
assset valuation
earnings valuation
cash flow valuation
consider value of nonfinancial factors
arrive at offer and max price before entering negotiations
family business
a firm that has two or more members of the same family managing and or working in it, that is owned or operated for the benefit of that family's members
identify and evaluate purchase opportunities
identify personal goals and objectives to create best match
use resources available to identify prospective purchases
due dillegence for most complete and accurate information