growth by acquisition or exiting gracefully buying or selling a septic or sewer business
TRANSCRIPT
Growth by Acquisition or Exiting Gracefully
Buying or Selling a Septic or Sewer Business
A. Rhodes Wilson, MBA, EA, CFP®
• BS, USMA, West Point•MBA, University of South Dakota• EA, Enrolled Agent, Licensed by the IRS• ChFC®, Chartered Financial Consultant®• CFP®, Certified Financial Planner
A. Rhodes Wilson, MBA, EA, CFP®
• BS, USMA, West Point•MBA, University of South Dakota• EA, Enrolled Agent, Licensed by the IRS• ChFC®, Chartered Financial Consultant®• CFP®, Certified Financial Planner
A. Rhodes Wilson, MBA, EA, CFP®
• BS, USMA, West Point•MBA, University of South Dakota• EA, Enrolled Agent, Licensed by the IRS• ChFC®, Chartered Financial Consultant®• CFP®, Certified Financial Planner
A. Rhodes Wilson, MBA, EA, CFP®
• BS, USMA, West Point•MBA, University of South Dakota• EA, Enrolled Agent, Licensed by the IRS• ChFC®, Chartered Financial Consultant®• CFP®, Certified Financial Planner
A. Rhodes Wilson, MBA, EA, CFP®
• BS, USMA, West Point•MBA, University of South Dakota• EA, Enrolled Agent, Licensed by the IRS• ChFC®, Chartered Financial Consultant®• CFP®, Certified Financial Planner
What We’ll Cover
• Identify Prospective Buyer/Seller• Due Diligence• Setting the Price• Pitfalls of a Sale• Typical Terms and Conditions• Structuring the Deal• Expectations At and After Closing
Identify Prospective Buyer/Seller
• As a Buyer• Make it known you are a buyer• Associations• Competitors• Professionals
• What you want to buy• Same Business• Peripheral Business• Someone Else's Bad Fit
Identify Prospective Buyer/Seller
• As a Seller• Make it known you are considering a sale• Don’t wait, think 3-5 years in advance• Associations• Competitors• Professionals
• What you have to sell• Know Your Business• Be Realistic
Due DiligenceThe Process of “Getting it Right the First Time”
• Build an Advisory Team• Accountant• Banker• Lawyer• Broker
Due DiligenceThe Process of “Getting it Right the First Time”
• Basic Questions•Why• Potential• Reputation
Due DiligenceThe Process of “Getting it Right the First Time”
• Getting Into the Details• Financial Statements• Profit & Loss• Balance Sheet• Cash Flow Statements• Budgets and Projections
• Tax Returns• Dump Records• Franchise Reports
Setting the Sale Price
• Four Broad Categories for Valuation• Comparable Sales• Earnings Power• Asset Worth• Industry Specific
Setting the Sale Price
• Four Broad Categories for Valuation• Comparable Sales• Earnings Power• Asset Worth• Industry Specific
Setting the Sale Price
• Four Broad Categories for Valuation• Comparable Sales• Earnings Power• Asset Worth• Industry Specific
Setting the Sale Price
• Four Broad Categories for Valuation• Comparable Sales• Earnings Power• Asset Worth• Industry Specific
Setting the Sale Price
• Capitalization of Earnings Method• Based on:• Historical Earnings• Cost of Capital
• Formula• Net Income Cost of Capital = Fair Market Value
• Example• Using Cost of Capital = 5%
Capitalization of Earnings Example (1)
Revenues 100,000Cost of Sales ( 35,000)Gross Profit 65,000Expenses ( 35,000)Net Income 30,000
30,000 5% = 600,000
Capitalization of Earnings Example (2)
Revenues 100,000Cost of Sales ( 35,000)Gross Profit 65,000Expenses ( 35,000)Adjustment ( 24,000)Net Income 6,000
6,000 5% = 120,000
Setting the Sale Price
• Discounted Future Earnings Method• Based on:• Projected Future Earnings• Discount Rate
• Formula
•
• Example• Using Cost of Capital = 5%
Discounted Future Earnings Example
Revenues 100,000Cost of Sales ( 35,000)Gross Profit 65,000Expenses ( 35,000)Net Income 30,000
Setting the Sale Price
Affordability• $30,000 Annual Net Income • Supports $2,500/month Payment• Paid for with no Out-of-Pocket Cash Flow• Any Expense Savings = Profit
Setting the Sale Price
Improving the Sales Price•Plan Ahead, 3-5 Years•Be Professional in Business Practices•Pay Yourself• Establish Contracts•Be Prepared
Pitfalls of the Sale
•Verify All Information•Keep the Sale Affordable•Don’t be Over Anxious•Cash is King• Employees•Allow Adequate Transition• Expect the Unexpected
Terms and Conditions• Financing• All Cash• Third Party Financing• Seller Note• Down Payment Percentage• Term of Loan
• Transitional Period• Non-Competition Agreement• Allocation of Purchase Price• Purchase Agreement
The Closing
• Document Signing• Funds Transfer• Form UCC-1• Broker Release• Bill of Sale• Promissory Note• Asset Acquisition Statement, IRS Form 8594• Other Transfer Paperwork• Phone Number• Utilities
Expectations After Closing
• Transition Assistance from Seller• Financial Adjustments•Notification of Constituencies• Employees•Vendors•Customers
A. Rhodes Wilson & Associates, Inc.
• Phone: (215) 766-8500
• Email: [email protected]
• Address: 99 Lantern DriveSuite 201BDoylestown, PA 18901