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Unit 5 – Buying a Business

Learn where to find businesses for sale, evaluate acquisitions, determine prices, and more. Explore the pros and cons of buying an existing business.

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Unit 5 – Buying a Business

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  1. Unit 5 – Buying a Business Entrepreneurship 110 Mrs. Melanson

  2. Friday, October 28 HOMEROOM INFO • Friday: Period 3 Midterms • Monday: NO MIDTERMS – Halloween Assembly (no masks) • Tuesday: Period 4 Midterms • Wednesday: Period 5 Midterms

  3. Today We Will... Start presenting the Midterm Projects

  4. Monday, October 31 HOMEROOM INFO • Today Halloween Assembly – 6 period day: • 1, 2, 3, Assembly, Lunch, 4, 5 • Thursday – Religion/Study Hall • Post-Secondary Visit Grade 12 11:25-12:15 • Post-Secondary Visit Grade 11 1:40-2:30 • Thursday Evening - Red and White Basketball Game

  5. Today We Will... Review the Midterm Continue presenting the Midterm Projects

  6. Tuesday, November 1 HOMEROOM INFO • Thursday – Religion/Study Hall • Post-Secondary Visit Grade 12 11:25-12:15 • Post-Secondary Visit Grade 11 1:40-2:30 • Thursday Evening - Red and White Basketball Game

  7. Today We Will... Continue presenting Midterm Projects Hand out Unit 5 Checklist Introduce LG 5.1: Where can I find a business to buy? Begin Assignment 5.1

  8. Buy an existing business Where can you find a business to buy? 2. Local newspapers and trade associations 3. Business brokers and real estate Agents 4. Lawyers, accountants and other professionals 1. Current job contacts 5. Your personal network Evaluate all the aspects of the potential acquisition Determine an appropriate price Purchase assets of business Purchase shares of business LG 5.1: Where can I find a Business to Buy?

  9. LG 5.1: Where can I find a Business to Buy? • Current Job Contacts • May include present or potential competition of your current employer, suppliers, customers, and perhaps your current employer. FOR EXAMPLE:

  10. LG 5.1: Where can I find a Business to Buy? • Direct Independent Contact: • Local Newspapers, Internet Sites and Trade Associations http://canada.businessesforsale.com/canadian/search/Businesses-for-sale-in-New-Brunswick http://telegraphjournal.canadaeast.com/classifieds/employment/classifieds.php?c=6&t=52&pub=2&period=-1&keyword http://www.constructioncanada.com/Associations.htm

  11. LG 5.1: Where can I find a Business to Buy? 3. Business Brokers and Real Estate Agents http://cbibusinessbrokers.com www.mls.ca

  12. LG 5.1: Where can I find a Business to Buy? 4. Confidential Advisors • These include Lawyers, Accountants, Bankers. They are often aware of what businesses are or may soon be available for sale.

  13. LG 5.1: Where can I find a Business to Buy? 5. Your personal network

  14. Assignment – Buy an Existing Business • Select a business to purchase (from sites). (Value 1) • Where is the business located? (Value 1) • What product or service does the business sell? (Value 1) • List three reasons why is the business a good fit for you? (Value 3) • Are there competitors near the existing business, if so please list them? (Value 1) • Describe how you would improve the price, product/service, marketing to improve the business? (Value 3) • STOPPED HERE – TUES, NOV 1 & WED, NOV 2

  15. Thursday, November 3 HOMEROOM INFO • Today: Thursday – Religion/Study Hall • Post-Secondary Visit Grade 12 11:25-12:15 • Post-Secondary Visit Grade 11 1:40-2:30 • Tonight- Red and White Basketball Game • Friday Night: Football Game (permission slips for bus)

  16. Today We Will... Continue presenting Midterm Projects Entrance Slip Self-evaluation Check Hand out Unit 5 Checklist Introduce LG 5.2: Pros and Cons of Buying an Established Business LAST CHANCE: Missing Assignments and finish yesterday’s assignment/Small Business Article from Globe and Mail

  17. Entrance Slip Name two of the five places/people that you can use to find a business to buy

  18. Self-Evaluation Check Give yourself feedback on how well you feel you understand Learning Goal 5.1: Where can I find a Business to Buy?

  19. Group Activity In your groups, think of as many pros and as many cons as you can to buying a business that has already been established. WINNING GROUP GETS A TREAT

  20. LG 5.2: Pros and Cons of Buying an Established Business PROS • Buying a business can reduce the risk. • An existing business is a proven entity. • It can be easier to get financing for an existing business. • Buying a going concern with a good past history increases the likelihood of a successful operation for the new owner. • An established business has a proven location for success • The established firm already has a product or service that is presently being produced, distributed or sold.

  21. LG 5.2: Pros and Cons of Buying an Established Business MORE PROS • A clientele has already been developed for the product or service. • Financial relationships have already been established with banks, and other sources of financial support. • The equipment needed for production is already available. • Its limitations and capabilities are known in advance. • An existing firm can often be acquired at a good price. • The owner may be forced to sell the operation at a low price relative to the value of the assets in the business.

  22. LG 5.2: Pros and Cons of Buying an Established Business CONS Physical facilities may be old and obsolete Employee relationships may be poor Present employees may be unproductive Inventory may contain a large amount of “dead” stock

  23. Friday, November 4 HOMEROOM INFO • Tonight: Football Game (permission slips for bus)

  24. Today We Will... Work on Market Projects and Business Plans. Market Research (see Business Plan PowerPoint)

  25. Monday, November 7 HOMEROOM INFO • Tuesday, Nov. 8th: School bus safety and Post Secondary Presentation – 6 period day, double 1st . • Josten’s: Tuesday, Nov. 8th and Wednesday, Nov. 9th lunch hour - $60 deposit required, 6-8 weeks the rest is due • Presentation: Apply to post-secondary institutions and applying for scholarships/bursaries – Tuesday, Nov. 8th, 7 pm • Waterloo University: Lunch hour in the Guidance Center, Tuesday, Nov. 8th • Mt. Allison University: 9 am, Wednesday, Nov. 9th – sign up at the Guidance Center • Report Cards – Wednesday, Nov. 9th • Remembrance Day Ceremony: Thursday, Nov. 10th, 6 period day • UNBSJ: Last period, Thursday, Nov. 10th – sign up at the Guidance Center • Taco, Movie, Swim – Thursday, Nov. 10th $10 – sign up with Mr. Gaudet by 3:30 tomorrow

  26. Today We Will... Entrance Slip Continue LG 5.2: Pros and Cons of Buying a Business Introduce LG 5.3: Why is the Business for Sale? Continue LG 5.1 Activity Introduce LG 5.4: Ratio Analysis

  27. Entrance Slip What are two advantages to buying a previously existing business?

  28. LG 5.2: Pros and Cons of Buying an Established Business CONS Physical facilities may be old and obsolete Employee relationships may be poor Present employees may be unproductive Inventory may contain a large amount of “dead” stock

  29. LG 5.2: Pros and Cons of Buying an Established Business CONS CONT’D Financial condition and relations with financial institutions may be poor You may inherit any ill will that may exist You have less freedom to define the nature of the business

  30. Brainstorm What are some reasons why a business may be for sale?

  31. LG 5.3: Why is the Business for Sale? YOU SHOULD BE CONCERNED IF: Needs more financing than the owner can raise Current market for the firm’s products is depressed Competitors are moving in with more effective products or methods Plant and equipment are worn out or obsolete Is no longer able to compete successfully Is contending with new government regulations that are creating some difficulties Key employees are leaving the firm to set up a similar business

  32. Assignment – Buy an Existing Business Step 1: Think of the business that you chose last week. Step 2: List two pros and two cons of buying that business (LG 5.2) Step 3: Write down three questions that you would want to ask the current owner to figure out why they are selling their business (LG 5.3) STOPPED HERE – MON, NOV. 7

  33. Tuesday, November 8 HOMEROOM INFO • TODAY: School bus safety and Post Secondary Presentation – 6 period day, double 1st (10:10-10:52) • Josten’s: TODAY and Wednesday, Nov. 9th lunch hour - $60 deposit required, 6-8 weeks the rest is due • Presentation: Apply to post-secondary institutions and applying for scholarships/bursaries – TONIGHT, 7 pm • Waterloo University: Lunch hour in the Guidance Center, TODAY • Mt. Allison University: 9 am, Wednesday, Nov. 9th – sign up at the Guidance Center • Report Cards – Wednesday, Nov. 9th • Remembrance Day Ceremony: Thursday, Nov. 10th, 6 period day • UNBSJ: Last period, Thursday, Nov. 10th – sign up at the Guidance Center • Taco, Movie, Swim – Thursday, Nov. 10th $10 – sign up with Mr. Gaudet by 3:30 tomorrow

  34. Today We Will... Have you handed in LG 5.1 Activity (it’s summative) Introduce LG 5.4: Ratio Analysis

  35. Buy an existing business Where can you find a business to buy? 2. Local newspapers and trade associations 3. Business brokers and real estate Agents 4. Lawyers, accountants and other professionals 1. Current job contacts 5. Your personal network Evaluate all the aspects of the potential acquisition Determine an appropriate price Purchase assets of business Purchase shares of business LG 5.1: Where can I find a Business to Buy?

  36. LG 5.4: Ratio Analysis

  37. LG 5.4: Ratio Analysis Purpose: • To identify aspects of a business’s performance to aid decision making • Quantitative process – may need to be supplemented by qualitative factors to get a complete picture QUANTITATIVE?? QUALITATIVE??

  38. A) Liquidity Liquidity – the ability of the firm to pay its way Solvent – the ability of the firm to pay its debts.

  39. A) Liquidity

  40. Acid Test • (Current assets – stock) : liabilities • 1:1 seen as ideal • The omission of stock gives an indication of the cash the firm has in relation to its liabilities (what it owes) • A ratio of 3:1 therefore would suggest the firm has 3 times as much cash as it owes – very healthy! • A ratio of 0.5:1 would suggest the firm has twice as many liabilities as it has cash to pay for those liabilities. This might put the firm under pressure but is not in itself the end of the world!

  41. FOR EXAMPLE: Cadbury (Current assets – stock) : liabilities

  42. Current Ratio • Looks at the ratio between Current Assets and Current Liabilities • Current Ratio = Current Assets : Current Liabilities • Ideal level? 1.5 : 1 • A ratio of 5 : 1 would imply the firm has $5 of assets to cover every $1 in liabilities • A ratio of 0.75 : 1 would suggest the firm has only 75 cents in assets available to cover every $1 it owes • Too high – Might suggest that too much of its assets are tied up in unproductive activities – too much stock, for example? • Too low - risk of not being able to pay your way

  43. FOR EXAMPLE: Cadbury Current Ratio = Current Assets : Current Liabilities STOPPED HERE – TUES, NOV. 8/11

  44. Wednesday, November 9 HOMEROOM INFO • Josten’s: TODAY lunch hour - $60 deposit required, 6-8 weeks the rest is due • Remembrance Day Ceremony: Thursday, Nov. 10th, 6 period day • UNBSJ: Last period, Thursday, Nov. 10th – sign up at the Guidance Center • Taco, Movie, Swim – Thursday, Nov. 10th $10 – sign up with Mr. Gaudet by 3:30 tomorrow

  45. Today We Will... • Missing Summative Assignments • Continue LG 5.4: Ratio Analysis • Finish Liquidity Ratio Calculations and Answer Questions (Acid Test and Current Ratio). • Learn about more measurements of performance

  46. Add this to your calculations from yesterday… What measure of performance do the Acid Testand the Current Ratio assess? What does the Acid Test ratio tell you about Cadbury? Would it be smart to purchase Cadbury based on these results? Which ratio do you trust more? Why? In what situation could the Current Ratiocome in handy?

  47. B) Investment/Shareholders

  48. B) Investments/Shareholders Provides information for potential investors/shareholders. Earnings per share What is the extent of the risk? What is the likely return on investment?

  49. C) Gearing

  50. C) Gearing Gearing – information on the relationship between the exposure of the business to loans as opposed to share capital

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