Owners Discretionary Earnings Defined

Owners Discretionary Earnings Defined

$889,003

$

$

LIABILITIES

LIABILITIES

Fiscal Years Ending:

Net Sales:

$ Growth

% Growth


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Confidential Memorandum

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Sample - "Confidential Memorandum"

NOTE:

When you’re interested in selling or buying a business, questions relating to the sale of the business must be answered. This is necessary in order to determine the “Fair Market Value” or range of values for your company

THE FOLLOWING DOCUMENTS MAY BE NEEDED OR BE MADE AVAILABLE (Consult with Broker for documents necessary):

· FINANCIAL RECORDS

o HISTORICAL FINANCIAL STATEMENTS (for the most recent three fiscal years)

o FEDERAL TAX RETURNS (or the most recent three tax reporting years *

o INTERIM FINANCIALS (for the most recent reporting period)

o SCHEDULE OF ALL INDEBTEDNESS OF THE BUSINESS

o ACCOUNTS RECEIVABLE AGING REPORT

o INVENTORY INFORMATION

o SUMMARY OF JOBS-IN-PROGRESS REPORT

· COMPANY ASSETS AND REAL ESTATE

o ASSETS NOT APPEARING ON THE BALANCE SHEET

o LIST OF ASSETS TO BE INCLUDED IN THE SALE

o LIST OF ASSETS TO BE EXCLUDED FROM THE SALE

o LEGAL DESCRIPTION OF ANY REAL PROPERTY INCLUDED IN THE SALE

o APPRAISALS ON BUSINESS REAL ESTATE AND/OR EQUIPMENT (within the past 5 years)

o COPY OF LEASE

· EMPLOYEE RELATED

o ORGANIZATIONAL CHART (Job Description and Rates of Compensation)

o ANY EMPLOYMENT CONTRACTS, REPRESENTATIVE AGREEMENTS, ETC.

o COPIES OF ANY PENSION AND/OR PROFIT SHARING PLANS

o BUY/SELL AND/OR SHAREHOLDER AGREEMENT

· CONTRACTS, POLICIES, MARKETING, ETC.

o COPIES OF ALL INSURANCE POLICIES

o BROCHURES, ADVERTISEMENTS, YELLOW PAGE ADS, ARTICLES, MAPS, ETC.

o LIST OF ANY CONTRACTS FOR SERVICES

o COPIES OF ANY PATENTS, COPYRIGHTS, TRADEMARKS, OR CONTRACTS OF VALUE

* SBA and/or other lenders will require at least three years of tax returns.

1. Client Name:

Bob Client

Title:

President/Owner

Name of Business:

Accounting Service & Taxes, Inc

Address:

Manatee Ave West

City:

Bradenton

State:

Zip:

34205

Business Phone:

123-4567

Fax:

941-1234567

For information contact:

Contact Name:

Robert Servian

Title:

Broker

Address:

1133 Fourth Street

City:

Sarasota

State:

Zip:

34236

Business Phone:

941 388-1272

Fax:

941 388-1021

2a. Please provide the following for all those owning greater than 10% of the company. *(Should equal 100%)

Name	Title	% Owned*
Seller	President/Owner	100

2b. Common Shares Outstanding:

n/a

Shares repurchased? Yes

n/a

Price/Share:

$n/a

Repurchased Date:

n/a

Buy/Sell Agreement? Yes

n/a

Any Options Outstanding?

n/a

To Whom?

n/a

2c. What function does the owner currently perform that will need to be replaced by someone other than the buyer?
	None


3. What back-up is there for key positions?
	3 Key employees have functional experience and can perform
	all job responsibilities.

4. Company Legal Name and D/B/A:		Accounting Service & Taxes. Inc.

5. Has the company had a name change? Yes				No	X	If yes, explain.

6. Date business began:

1993

7. Business year end:

12/31


8a. Are you the founder of the business?	Yes	X	No


8b. If no, how long have you owned the business?	n/a


9. Is the founder still involved with the company?	yes	If no, explain.


10. State of Incorporation:	Florida	11. Date of Incorporation:	1993


COMPANY LEGAL STATUS		BUSINESS CATEGORY				SIC CODE
	Sole Proprietorship		Agriculture		Primary:		8721
	Partnership		Forestry and Fishing	Secondary:
	Limited Partnership		Distribution
	Subchapter “S”		Contract Construction
	“C” Corporation		Manufacturing
	Limited Liability Corporation		Wholesale
	Non-Profit Corporation		Retail
	Other:		Information Technology/Software
	Other:	X	Finance, Insurance, & Real Estate
	Other:		Transportation, Communication, & Utilities
	Other:		Service
	Other:		Accommodation & Food Services

12. Provide a brief review of the company history:
	A very profitable accounting practice with a well-established client list is now available. This firm has an excellent opportunity for continued growth in its area. 50% of the revenue is from monthly or quarterly accounting for clients, with the other 50% from client tax preparation

13. Describe products and/or services:
	Accounting Services: Including bookkeeping, monthly reporting, Quarterly reporting, Business Consulting, financial planning, and tax preparation. firm specializes in retirement planning and has a full department that specializes in IRS audits.

14. How many years at current location?		9	Has the company moved or expanded facilities?	n
If yes, explain.

15. Provide breakdown for recent FYE of product /services by sales volume in dollars and in %.

Product/Service	Sales Volume in Dollars	Sales Volume in %
Accounting Services	$189,255	21
Consulting	$377,248	42
Tax Services	$322,500	37
TOTAL	$889,003	100%

16. Primary Target Market?
	Individuals, small business, and corporations with a special focus on retired executives.

17. Rate the market trend for this product:

(ENTER A NUMBER 1=DECLINE 2=FLAT 3=GROWTH)

18. How long has this industry or product been widely known?

(ENTER A NUMBER 1=NEW 2=10 YRS OR LESS 3=OVER 10 YRS)

19. How many different competitors are in the company’s trade area?

(ENTER A NUMBER 1=NONE 3=A FEW 5=MANY OR NEXT DOOR)

20. Methods of Marketing:

Radio	Outside Representatives	X	Yellow Pages	X
Television	Employee Sales Staff		Direct Mail
Newspaper	Telemarketing		Internet Web Site
Trade Journals	Ongoing Contracts	X	No Advertising
Other Marketing:

22. Copyrights/Trademark? Yes	No	X	If yes, explain.

23. Cyclical or Seasonal Factors? Yes	No	X	If yes, explain.

24. Describe how you sell and distribute your product and/or service:
	Word of Mouth and referrals are the primary source of business. Salesman targets retired executives.

25. Approximate number of customers:

500

How many customers would account for 25% of the revenues?

Is the customer base local, regional, national, or global?

Local


26. Potential clients to target for future opportunities:		Small business consulting
	Expand Financial Planning Department

27. What are your company’s advantages and disadvantages in the market?
	Main advantage is the mix of General Accounting and Tax Preparation. Location is excellent in a high growth area. Reputation is excellent. Staff includes experts in financial planning

28. Company’s Employee Information:

Total Employees	11	Hospitalization Yes	x	No
Full Time Employees	10	Pension Plan Yes		No	X
Part Time Employees	1	Life Insurance Yes	x	No
Union Employees	n/a	Other
Avg. Length of Employment	5 years

29. Rate the local labor market trend for this product/service.

(ENTER A NUMBER 1=COMPETITION 5=UNEMPLOYMENT)

30. Rate the strength of unions in this area and industry.

(ENTER A NUMBER 1=NONE 5=STRONG)

31. Days and hours business operates: AM:

9:00

PM:

5:00

Other:

Monday – Friday:

Monday – Sunday:

Other:


32. Facilities: Rent	X	Lease		Own		Lease/Purchase		Yearly Rent/Lease Amt:	$ 22,912

Leaseable Square Feet:

100

Type of Building

Freestanding

Does rent include insurance, maintenance, and taxes? Yes

n/a

If no, will rental rate to buyer include these amounts? Yes

n/a

If yes, what will be the new annual rent?

$n/a

If facility is currently leased, what is the lease expiration date?

06/31/05

Options:

If the owner of the business owns the real estate, how much rent will be charged to a new owner?

$n/a

33. Market value of real estate included in the sale:

$ n/a

Was the value established by appraisal?

Will Owner finance?

# of Years:


34. Are there any tax liens?		No	X	If yes, explain.


35. Are there any law suits existing or pending?	x	No	If yes, explain.

36. Seller will train buyer without charge for the following period of time:

30 Days

38. Reason for selling:		Semi-retire, but will stay on as a consultant

39. Other assets included in the sale (other than those identified on the balance sheet shown on page 11):

	None

40. Items excluded from the sale:		None

41. List below all leased equipment where leases need to be assumed by a buyer.

Description	Monthly Payment	Final Payment Due Date
None	$
	$
	$
	$

42. List below any debt that must be cleared or assumed to sell the business.

Description	Monthly Payment	Final Payment Due Date
None	$
	$
	$
	$

43. How many family members, relatives, and/or partners, INCLUDING THE OWNER,

are actively working in the business?

44. Given an individual with reasonable skills and little direct knowledge of this business,

how long would it take to learn enough to manage this business?

(ENTER A NUMBER 1=HOURS 2=DAYS 3=WEEKS 4=MONTHS 5=YEARS )

45. When starting a business of this type, how many months would it take to show a

profit after deducting a reasonable salary for yourself or a manager?

(ENTER A NUMBER OF MONTHS)

46. What is your liability exposure level? (Consider both EPA and physical danger to employees.)

(ENTER A NUMBER 1=MINIMAL 2= SAFTEY IS DISCUSSED 3= HAZARDOUS)

47. What is the local economic trend?

(ENTER A NUMBER 1=DECLINE 2=FLAT 3=GROWTH)

48. What is the regional economic trend?

(ENTER A NUMBER 1=DECLINE 2=FLAT 3=GROWTH)	3

OWNER’S DISCRETIONARY EARNINGS - WORKSHEET

PERIOD ENDING: FYE:	12/31/02	INTERIM:
INFORMATION SOURCE: TAX RETURN:	x	FINANCIAL STATEMENTS:


1. Operating Pre-Tax Profit (Loss) or EBT (Earnings Before Taxes) 1.	$70,321

2. Owner Salaries, Perks, and Benefits*

Add Backs:

A.	Owner’s Salary	A.	$75,000
B.	Other Family Salaries	B.
C.	Owner’s Vehicle	C.	$2,867
D.	Owner’s Insurance	D.	$6,538
E.	Owner’s Medical	E.
F.	Owner’s Payroll Taxes	F.
G.	Owner’s Travel and Entertainment	G.	$3,359
H.	Non-Essential Telephone	H.
I.	Non-Essential Utilities	I.
J.	Non-Essential Legal	J.
K.	Non-Essential Accounting	K.
L.	Donations	L.
M.	Other	M.	$3,564

2. *Total Owners Add Backs (sum of A thruM)

$91,328

3. Depreciation and Amortization	3.
4. Interest Expense	4.	$10,350
5. Extraordinary Expense /Non Recurring	5.
6. Rent (add for overcharge/subtract for no charge or undercharge)	6.
7. Other (Describe)	7.
8. Total Net Add Backs to add to Pre-Tax Profit (sum of 2 thru 7)	8.	$101,687

9. SELLER’S DISCRETIONARY CASH FLOW (sum of 1 plus 8)	9.	$176,999

The term “owners discretionary earning” has been defined by the International Business Brokers Association as a substitute for such terms as Owners Discretionary Cash, Owners Cash Flow, and Owners Benefit. These terms are not fully descriptive and have different meanings in accounting, financial, and appraisal professions. The IBBA definition for Owner’s Discretionary Earnings is as follows:

The earnings of a business enterprise include:

Net Profit (loss) before Taxes

Owners Total Compensation

Depreciation & Amortization

Interest Expense

Expenses that are unnecessary to the operation of the business (Perquisites)

Income Taxes

Nonrecurring Expenses

ASSETS & LIABILITIES INCLUDED IN THE SALE

NET BOOK VALUE* FAIR MARKET

ASSETS PER B/S ADJUSTMENTS VALUE

Current Assets:

Accounts Receivable	$0	$0	$
Inventory	$50,000	$0	$50,000
Other:	$	$0	$
Total Current Assets	$ 50,000	$0	$50,000

Fixed Assets:

Leasehold Improvements	$1,725	$0	$1,725
Furniture and Fixtures	$27,789	$0	$27,789
Equipment (machinery and tools)	$2,282.23	$0	$2,282
Vehicles	$n/a	$n/a	$n/a
Building(s)	$n/a	$n/a	$n/a
Land	$n/a	$n/a	$n/a
Other:	$40,695	$0	$40,695
Total Fixed Assets	$72,491.34	$0	$72,491

TOTAL ASSETS

$ 72,491

$72,491

Accounts Payable	$	$0	$
Bank Debt	$	$0	$
Other:	$	$0	$

TOTAL LIABILITIES

EQUITY

$72,491

*Net Book Value equals Historical Cost less any Accumulated Depreciation.

Adjustments increase or decrease to Fair Market Value.

HISTORICAL FINANCIAL SUMMARY

Fiscal Years Ending:	2002	2001	2000

Net Sales:	$ 889,000	$805,000	$755,00

$ Growth	N/A	$84,000	$ 50,000
% Growth	N/A	10.4 %	6.6 %

Owner’s Discretionary Earnings

$177,000

$168,000

$162,000

PRICE AND TERMS

Price with Estimated Terms:

Purchase Price $

$430,000

Down Payment $

$215,000

Terms: Final Terms and Down Payment are to be negotiated.

Terms may include Seller, SBA, or Other types of Financing

Note to Seller or Other (Principal Amount) $

210,000

Annual Payment (Principal and Interest) $

51,087

Interest (Percentage)

Terms (Months or Years)

Assets to be Transferred with Business

Description		Amount
All		$
See Attached Schedule A		$
		$
		$
		$
		$
	TOTAL:	$222,491

Liabilities to be Assumed or Refinanced by Purchaser

Description		Amount
None		$0




	TOTAL:	$0

JUSTIFICATION FOR PURCHASE PRICE

Most valuation experts agree that the Owner’s Discretionary Earnings must be sufficient to pay the annual debt service of buying the business, a living wage for the buyer, a risk free return on the down payment, and a % of the fixed assets that may need to be replaced on an annual basis (this adjusts for the full depreciation expense that was added back to the Owner’s Discretionary Earnings on the worksheet).

Owner’s Discretionary Earnings

177,000

(See Owner’s Discretionary Earnings Analysis)

Less: Annual Debt Service

51,087

(See Price and Terms - Annual Payment)

Less: Owner’s/Management Salary

30,000

(Annual Salary)

Less: Return on Down Payment

7,500

(See Price and Terms-

% Annual Return on Down Payment

Less: Capital Expenditures

15,000

(% of Fair Market Value of Fixed Assets)

CASH FLOW REMAINING

66,432

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If yes, explain.