Buy Your Own Business With Other People′s Money

<p>INTRODUCTION xi</p>
<p>CHAPTER 1 The Good and the Bad of Owning Your Own Business 1</p>
<p>The Fictions and the Facts about Owning a Business 2</p>
<p>Fiction Number One: No Boss 2</p>
<p>Fiction Number Two: Short Work Hours 3</p>
<p>Fiction Number Three: You Will Have Lots of Money 4</p>
<p>Fiction Number Four: You Will Enjoy the</p>
<p>Prestige of Owning a Local Business 5</p>
<p>Do the Advantages of Entrepreneurship Outweigh the Disadvantages? 6</p>
<p>Decide on the Type of Business That Is Best for You 6</p>
<p>Determine Your Preference or Need as to Geographic Area 7</p>
<p>Consider the Hours of Operation 8</p>
<p>Experience and Knowledge Are Important 8</p>
<p>Pick a Business You Enjoy 9</p>
<p>Creating Your Experience 10</p>
<p>CHAPTER 2 How Much to Pay (Borrow) to Buy a Business 11</p>
<p>How Much Is the Seller Asking? 11</p>
<p>What Do Similar Businesses Sell For? 12</p>
<p>What Is the Value of the Business s Assets? 13</p>
<p>Value the Assets at Their Book Value 14</p>
<p>The Book Value of Equipment 14</p>
<p>The Book Value of Accounts Receivable 15</p>
<p>Inventory 16</p>
<p>Patents and Copyrights 17</p>
<p>The Book Value of Other Assets 17</p>
<p>The Asset Called Goodwill 18</p>
<p>The Capitalization of Earnings 19</p>
<p>How to Determine the Real Net Income of a Business 19</p>
<p>Determine the Price of a Business Based on Its Earnings (Income) 24</p>
<p>Capitalization of Earnings and Return on Investment 26</p>
<p>The Sales Multiplier 28</p>
<p>Third–Party Information 29</p>
<p>Solicit Information from Employees of the Business 29</p>
<p>Check the Bank Statements 30</p>
<p>When Real Estate Is Part of the Business 31</p>
<p>In Summary, the Eight Methods of Valuing a Business 32</p>
<p>CHAPTER 3 Sources of Money for Your Business 35</p>
<p>Borrow the Purchase Price from the Seller 35</p>
<p>The Business for Sale Ads 36</p>
<p>The Seller s Motivation to Sell 38</p>
<p>Enticing the Business Owner to Sell to You 40</p>
<p>Find Cash Inside the Business 41</p>
<p>The Equipment Owned by the Business 42</p>
<p>Intangible Assets 44</p>
<p>Accounts Receivable 44</p>
<p>Excess Inventory 45</p>
<p>Actual Cash in the Business 46</p>
<p>Personal Assets That Can Generate Cash 47</p>
<p>Obtaining Money from Commercial Banks 48</p>
<p>Choose a Bank That Is Small–Business Oriented 50</p>
<p>Have the Requisite Experience 51</p>
<p>Buy a Business That Has Loyal Customers or Clients 52<br /> <br /> Buy a Business That Is in the Right Location 52</p>
<p>Prepare Projections of Income and Expenses of the Business 52</p>
<p>Your Presentation to the Bank 53</p>
<p>Loans from Suppliers 55</p>
<p>The Shortcut Buy Out Your Boss Using His or Her Money 57</p>
<p>Buy a Franchise, but Not with the Franchisor s Money 58</p>
<p>Friends and Relatives as a Source of Borrowed Funds 58</p>
<p>The Government The Small Business Administration (SBA) 69</p>
<p>To Summarize 61</p>
<p>CHAPTER 4 Do You Want Partners? 63</p>
<p>Why You Might Have One or More Partners 63</p>
<p>The Partner Has Money 64</p>
<p>The Partner Has Expertise That You Lack 67</p>
<p>The Partner Has Contacts 67</p>
<p>The Partner s Personality Complements Yours 68</p>
<p>The Seller of the Business Can Be Your Temporary Partner 69</p>
<p>The Part–Time Family Business Has Grown Up 70</p>
<p>Your Down–and–Out Relative Needs a Job 70</p>
<p>You Want to Include Your Best Friend in Your Deal 71</p>
<p>People Who May Help You Find Potential Partners 71</p>
<p>Stay Out of Trouble with the Government(s) 75</p>
<p>Companies in the Business of Being a Partner 78</p>
<p>Venture Capitalist 79</p>
<p>Small Business Investment Company (SBIC) 79</p>
<p>The Form That Your Partnership Should Use 80</p>
<p>The Business Form Choices 81</p>
<p>General Partnership 81</p>
<p>Limited Liability Company (LLC) 82</p>
<p>Corporation 83</p>
<p>What If You Go It Alone, without a Partner? 84</p>
<p>More Information on Forms of Doing Business 85</p>
<p>CHAPTER 5 Technicalities of Buying a Business 87</p>
<p>Buy Just Certain Assets of the Business 87</p>
<p>Cash 88</p>
<p>Accounts Receivable from Customers 88</p>
<p>Other Accounts Receivable 89</p>
<p>Inventory 89</p>
<p>Equipment 89</p>
<p>Bulk Sales Law 90</p>
<p>Assume the Liabilities of the Business When You Buy the Assets? 90</p>
<p>The Seller Takes on Risks, Too 91</p>
<p>Using the Business Debts in Your Negotiation 92</p>
<p>Buy the Business as One Package A Corporation 92</p>
<p>APPENDIX A The Business Plan 95</p>
<p>What Is a Business Plan? 95</p>
<p>Why Every Business Needs a Business Plan 96</p>
<p>What Is the Format of a Business Plan? 97</p>
<p>Using Professional Assistance in Preparing a Business Plan 99</p>
<p>Help in Reading This Sample Business Plan 100</p>
<p>APPENDIX B Finding Investors and Navigating the Regulations 131</p>
<p>Securities and Exchange Commission Brochure 132</p>
<p>Active Capital Frequently Asked Questions 149</p>
<p>What Is Active Capital? 149</p>
<p>Who Needs Active Capital? 149</p>
<p>Who Manages Active Capital? 149</p>
<p>How Is Active Capital Different from Other Internet–Based Investment Programs? 150</p>
<p>Can Any Investor Enroll with Active Capital? 151</p>
<p>Can Any Entrepreneur Enroll with Active Capital? 151</p>
<p>How Much Does It Cost to Enroll with Active Capital? 152</p>
<p>How Do Active Capital Fees Compare to Go It Alone Costs? 153</p>
<p>How Much Capital Can Be Raised Using Active Capital? 153</p>
<p>How Much Does Active Capital Itself Lend or Invest? 154</p>
<p>Do I Need a Lawyer to List on Active Capital? 154</p>
<p>If I Fill Out My Form but Do Not Post It Right Away, Do I Need to Sign Up Again? 155</p>
<p>After I Have Filled Out All My Forms, May I Change My Answers? 155</p>
<p>Must I Notify Active Capital After I Have Made a Deal? 155</p>
<p>Can I Use Active Capital If I Am a Canadian or Other Non–U.S. Company? 156</p>
<p>Can I Get Other Forms of Non–Equity Financing through Active Capital? 156</p>
<p>How Do I Learn When Potential Investors Read My Plan? 156</p>
<p>How Many Investors May Review My Plan? 157</p>
<p>Do All Investors Demand to Play a Role in Each Company? 157</p>
<p>How Can Lawyers or Accountants or Consultants Register on Active Capital? 158</p>
<p>Can I Register on Active Capital if I Have Filed for a Public Stock Offering with the SEC or</p>
<p>Have Not Blue Skyed in Every State in Which I Am Seeking Investment? 158</p>
<p>State Securities Regulations Administrators 159</p>
<p>APPENDIX C Small Business Administration Loan Programs 167</p>
<p>Basic 7(a) Loan Program 168</p>
<p>What SBA Seeks in a Loan Application 169</p>
<p>Eligibility Criteria 170</p>
<p>Small Business Size Standards 170</p>
<p>Eligible Businesses 173</p>
<p>Business Types and Applicants with Additional Considerations 173</p>
<p>Ineligible Businesses 176</p>
<p>Use of Proceeds 177</p>
<p>Ineligible Use of Proceeds 178</p>
<p>Availability of Funds from Other Sources 179</p>
<p>Character Considerations 179</p>
<p>Other Aspects of the Basic 7(a) Loan Program 179</p>
<p>Maximum Loan Amounts (Updated as of 10/1/2004) 180</p>
<p>Interest Rates Applicable to SBA 7(a) Loans 180</p>
<p>Percentage of Guaranty on 7(a) Loans 181</p>
<p>SBA Fees for 7(a) Loans 181</p>
<p>Fees Associated with SBA Loans 181</p>
<p>Combination Financing 182</p>
<p>Prohibited Fees 182</p>
<p>Prepayment Penalties 183</p>
<p>APPENDIX D SBA Forms 185</p>
<p>INDEX 217</p>