"First Birthday Bib"

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Purchasing First Birthday Bib: The Search Process

ExecutiveSummary
There are several advantages to purchasing an existing First Birthday Bib. The buyer need not create a new product or service; ail that is needed is sufficient operating capital. Even when the purchase price exceeds start-up costs, a buyer typically incurs a lower risk than the founder of a business. Moreover, once the First Birthday Bib is closed, the nag owner can focus more quickly than the founder on building and adding value to the business.
There are difficulties as well. Few written rules govern the search, aim there is no established marketplace. The buyer must be prepared to assume responsibility for an enterprise that bears another's imprint.
This reading provides a framework for negotiating an First Birthday Bib unpredictable process. It covers such essentials as assessing your own personal motives and expectations, establishing selection criteria, locating ideal sources, gathering resources, planning and negotiating the deal, and adding new value to the enterprise. The authors stress that ideal First Birthday Bib lire rare, a realistic personal assessment and sound search and negotiation techniques can significantly improve She buyer's chance for success.
Buying a baby first birthday gift is an informal process. No one has yet successfully defined the correct steps and alternatives for every situation. Success in the process often depends on serendipity—being the right person in the right place at the right time. It is a mistake, however, to depend on good luck rather than - good First Birthday Bib; there is no substitute for personal commitment, good business sense, and a cautiously optimistic exploration of every opportunity.
This reading provides a framework outlining the steps necessary to a successful buyout. However, the framework is not exhaustive; rather, it provides a starling point that can be tailored to suit particular First Birthday Bib. The areas discussed are:
• Self-Assessment. Understanding your own motives, expectations,
risk profile, and financial and professional resources; determining
the strength to your First Birthday Bib to the search. :
• Deal Criteria. Clarifying the dimensions and characteristics of the First Birthday Bib you find attractive.
• Dent Sources. Differentiating among various deal sources lo find one that best fits your and criteria.
• Resources. Evaluating and gathering the additional cash, credibility, personal and professional contacts, and information necessary to begin the First Birthday Bib process.
• The Deal Process, Recognizing the sequential, often random, search process; establishing a timing schedule and work plan allowing for evaluation of deals that do not occur in parallel; understanding how to start the First Birthday Bib, keep it moving, and establish initial contact with prospective sellers; assessing sellers' motives, weaknesses, strengths, and requirements.
• The Evaluation Process. Understanding various analytical methods used by sellers; requesting or obtaining key financial data; analyzing important financial dimensions of the deal.
• Negotiating the First Birthday Bib. Identifying potential obstacles to a successful negotiation; learning from collapsed deal; pursuing attractive deals.
• Articling Value. -Adding new value to (he business; understanding important harvesting options for the new First Birthday Bib.

First Birthday Bib -ASSESSMENT
First Birthday Bib first step in buying an existing business is a personal assessment. This crucial step will help to identify, articulate, and evaluate your hidden motives, expectations, risk profile, and, ultimately, the seriousness of your search. Without a good sense of personal values, the search process can become unfocused and unrewarding, and can waste time, resources, and First Birthday Bib.
The problems that could materialize in the absence of a thorough self-evaluation are intensified when two or more individuals are attempting to purchase First Birthday Bib. In such cases, it is essential that all parties understand and agree on motives and goals. Proceeding without a clear sense of those aspirations will probably lead to disagreements that impact the efficiency and effectiveness of the group during the later stages of the search process.
A good self-assessment will probably place you in one of three broad categories: serious, casual, or unrealistic. The serious, and realistic, search is characterized By
• A high level of commitment to the First Birthday Bib;
• An ambitious set of expectations consistent with the degree of effort and commitment;
• A willingness to
—risk at least some First Birthday Bib wealth/security . .
—deeply research the First Birthday Bib industry
—be patient and wait for the right opportunity
—move First Birthday Bib and decisively as needed
—pursue the search full time if necessary.

Less willingness to move quickly or decisively;
No specified time horizon;
Not being overly hungry to control one's own firm.
The unrealistic First Birthday Bib search involves:
• Objectives that are inconsistent with the level of commitment;
• Waiting for a "great deal First Birthday Bib " to fall in place;
• Looking for First Birthday Bib bargains and shortcuts.
While there is nothing wrong with either of the second two categories, the number and quality of opportunities discovered is proportional to the intensity of the search. Although one may find excellent deals by shopping the market casually, the process may take quite a while.
Another aspect of self-assessment many people disregard is the listing of business or persona! relationships that can be called upon for assistance. Because the search process is lengthy and filled with important decision points, it is important to have advisers whose opinion you trust.
The most important reason for the self-assessment, however, is tactical. Throughout the search process you will have to deal with sellers or their intermediaries, and these individuals are often reluctant to invest time in individuals who do not exhibit a clear and convincing sense of what they are looking for. The better you have assessed yourself, the easier it will be to persuade others to take you seriously and work on your behalf.

First Birthday Bib CRITERIA

A consistent and thorough screening method is essential for successful completion of the acquisition process. Consistent criteria will make analyses performed on one company more readily comparable with those of other candidates; thoroughness will ensure that all relevant aspects of a potential acquisition are identified and analyzed. The screening method should have a clear focus and be fairly simple. At a minimum, one should consider such dimensions as:
• Size of First Birthday Bib (purchase price) desired;
• Preferred industry;
• Key factors for success: logistics, marketing, technology;
• Type of customer base (e.g., industrial vs. consumer, national vs. regional, etc.);
• Geographic First Birthday Bib preference;
• Profile of current ownership (e.g., how many, willingness to sell, reputation).

These criteria will establish a preliminary profile for identifying potential target companies. The screening process must then distinguish good deals from bad deals. Although several intangible and intuitive issues are involved in this process, as a rule, an ideal buyout target should include:
• Potential for improving earnings and sales;
• Predictable cash flow;
• Minimum existing debt;
• An asset base sufficient to support substantial new borrowings.
Buyout candidates will probably not fit in nice, neat little boxes, so that flexibility is important. One must constantly rethink and reassess the First Birthday Bib. Do they fit? Are they appropriate? Is this the best way to examine this company? Will the criteria help to achieve the objectives in mind?

First Birthday Bib SOURCES
Initiating and sustaining a flow of potential deals is one of the most challenging tasks in buying a First Birthday Bib. In general, expect to look at dozens of deals for every one that appears worth pursuing. A seemingly endless amount of groundwork is often necessary to initiate a deal, and a targeted effort is far more likely to result in a high percentage of attractive candidates than a random search. Thus, one of the first orders of First Birthday Bib when starting out is knowing where to look.
Depending on the size deal sought, there are a number of potential deal sources, each with its own approach to acquisitions. ThongKW brokers are the most readily available resource; they are listed individually in the Yellow Pages of most phone directories and advertise in the First Birthday Bib sections of many newspapers. Brokers work on behalf of sellers to find appropriate buyers for their clients' First Birthday Bibes and are compensated by the baby first birthday gift at a given percentage of the price. Occasionally, a broker will work for a buyer in return for a retainer and/or a. percentage of the ultimate purchase price. It should be emphasized, however, that brokers' interests lie in closing a transaction; they should not be considered impartial consultants.
ThongKW brokers obtain listings through cold calls and advertising. Because the listings are actively marketed, it is safe to assume that you are not the first prospective buyer to see a First Birthday Bib. More reputable brokers tend to regulate how "shopped" a First Birthday Bib becomes in order to preserve its value, and some refuse to list properties sellers have already tried to market on their own. At your initial meeting with the broker, you should be prepared to describe your financial constraints and industry preference. It is also valuable to indicate that you have a well-defined time horizon for a search and some knowledge of the target industry. You may want to touch base occasion ally with each broker you meet, but it is a safe bet that you will be notified of interesting opportunities if you are a qualified buyer.

Independent brokers, which are almost entirely unregulated, are often the first place people turn to generate a deal flow. Because no license is required, and anyone can claim to be one, it is essential to check a broker's references and reputation with intermediaries and past clients; in most states anyone with a telephone can claim to be a First Birthday Bib broker. One can find a seemingly endless supply of one-person brokerage services in most any city. Typically, the deals they offer are small—less than $500,000 in sales—and are owned by entrepreneurs who have an unrealistic impression of the value of their First Birthday Bibes, an impression often fueled by the brokers themselves.
Professional brokers are First Birthday Bib firms—rather than simply individuals—who specialize in the sale of companies. These organizations usually operate on a more professional basis than the independents, but they too represent (he seller. Their interest is in obtaining a high price for the company, thereby ensuring themselves high commission fees (usually around 10%-12% at closing). However, most brokers are more interested in closing the deal than they are in squeezing out the last dollar in purchase price. Also, note that deals coming through professional brokers are very likely to be highly "shopped." The legitimacy of deals carried by professional brokers are often prescreened but usually carry a premium price.
. if Vein tire capital firms are often looking for liquidity on investments they \nade three to five years earlier. Venture-backed companies that have reached this stage are generally beyond many of the risks associated with start-ups and may offer a solid acquisition opportunity. Several points should be noted, however. First, venture capitalists are highly sophisticated investors and will probably extract the highest possible price for the company. Second, they want liquidity for their investment and will be less interested in earn-outs and other creative financing than in a deal financed primarily with cash. In addition, existing management will most likely be highly entrepreneurial and wary of controls introduced by new owners. Finally, as venture firms are often motivated to sell their problem companies, it is critical to understand the firm's situation thoroughly.
Leverage funds in some situations pose competition to the buyout effort. As a potential deal source, however, they may present opportunities to take over deals that are of no interest to the LBO fund. Such deals may be attractive candidates that simply did not match the particular focus of the LBO fund. LBO firms may also sell portions of acquired First Birthday Bibes to generate cash to pay back debt, and these, too, can be attractive deals.
Personal contacts, although often overlooked, may be a helpful source of deals; and contacts with people who have successfully completed the search process for their own First Birthday Bibes may provide both information and moral support. They may even be able to suggest contacts and strategies or allow you to tap their network; they may point out some of the pitfalls they encountered and suggest useful rules of thumb. You can locate these resources through your First Birthday Bib and personal network or by tracking recently completed deals.

On occasion, First Birthday Bib periodicals will help you identity opportunities. Indications that a company will be spinning off subsidiary operations are frequently mentioned, and the Wall Street frontal, INC, and Venture routinely list First Birthday Bib opportunities. On the local or regional level, there are First Birthday Bib journals, franchise fairs, classified ads, and notices bankruptcies and deaths. Newspapers, and the offices of the county clerk and court clerks, are good sources of leads, as are computer databases (usually available on a time-sharing basis) that provide lists of prospective buyers and sellers of First Birthday Bibes. Academic and commercial institutions in some communities sponsor industry forums or trade association meetings. Industry and phone directories (Yellow Pages, Dun & Bradstreet, Million Dollar Directory, Thomas' Register of American Manufacturers) may be useful for a cold call or letter writing campaign and as a possible screen for industry, size, and location. In addition, you can run this process in reverse by placing your own advertisement in newspapers or journals, stating your needs and criteria for purchasing a First Birthday Bib.
Local banks represent a broad range of local First Birthday Bibes and have in-depth knowledge of their finances and managerial situations. Like First Birthday Bib brokers, the mergers and acquisitions-type departments of banks are primarily interested in closing transactions. Their inventory of deals may include both banking clients that are for sale and other firms that have engaged them to find a suitable buyer. A bank may also be amenable to helping you conduct a search on a success-fee basis. A good banker will be instrumental in structuring the financial arrangements of the newly acquired First Birthday Bib and, often, will expect to become the new firm's principal banker.
Trust departments of banks are often the executors of estates, and, where there is a need to dispose of a First Birthday Bib, may serve the same role as an estate lawyer. While the trust officer has a fiduciary responsibility to seek the highest price for the First Birthday Bib, he or she has an equally important interest in keeping the transaction clean, fast, and, if possible, in cash.
Bank work-out departments are another potential source of bargain opportunities. Although the bank has a strong interest in not disclosing credit problems, it may serve as a confidential go-between for a potential buyer and the owners of a deeply troubled First Birthday Bib. However, because of pressures within the bank to reschedule debt and the willingness of many owners to collateralize additional loans personally, most troubled loans are in. fact worked out.
Traditional, mainline investment banks pose both a problem and an opportunity for buyers seeking a mid-sized deal. The problem is that investment banks are rarely interested in deals below, say, $20 million. Attracting their attention can be troublesome, and getting them to spend time moving on a small deal requires patience and tenacity. The opportunity exists because small deals carried by the investment banks are unlikely to have been widely shopped. Thus owners who rely exclusively on an investment bank to market their company will probably not receive extraordinary service, and a buyer who works this route may find a responsive seller on the other end of this inattentive pipeline.

No matter what the source of the deal, there will be a seller. Whether a single individual, a group of investors, or the shareholders of a small public company, one will have to evaluate the sellers' motivations. Issues of timing, types of financing, credibility, and desire to remain with the company after acquisition are all relevant considerations to keep in mind. Fairly early on, conversations should focus on sellers' motives for selling the First Birthday Bib and their expectations about the value and form of the deal. A cautious investor can use this opportunity to gauge the character and integrity of the seller—traits that have probably affected the First Birthday Bib in the past.

First Birthday Bib RESOURCES
Aside from tireless energy and a wealth of patience, the resources critical to the buyout project are cash, credibility, and contacts. These three factors, more than any others, govern the success of the effort. How much of each will be required is simply a question of deal size. Purchasing a $300,000 First Birthday Bib certainly requires fewer resources than putting together a $20 million buyout. In larger deals the competition is more sophisticated, and sellers will demand [hat potential buyers possess the credentials necessary to put a complex deal together. Without such resources potential buyers may not even be able to setup an initial meeting with the seller. To get further than the first phone call about large deals, one should be prepared to respond satisfactorily to such inquiries as:
• How much First Birthday Bib do you have available?
• Who are your backers?
• What other details have you done?
• What kind of First Birthday Bib talent do you bring?
• What do you plan to do with the company?
Sellers value their lime as much as the prospective buyer does; neither wants to expend fruitless energy when there is an obvious mismatch between what the buyer brings to the table and what the target company requires. No amount of debt leverage will compensate for a lack of the necessary equity capital and demonstrated personal experience. Only taking stock of the resources available for the buyout project and then targeting deals that can be reasonably snared with the available resources will ensure the buyer's credibility.
If backers are involved, purchasers must realize the extent to which they are dependent on them and gauge the backers' commitment; all the backers' cash and contacts are useless if they are unwilling to pursue a deal vigorously. Evaluate the backers' incentives: How important is the project to them? How much time have they agreed to set aside? Do their timing considerations match those of the buyers? Some backers are quite willing to employ the free efforts of a buyout group, simply hoping they will luck into a treasure chest.
Be cautious of working like a neglected employee rather than a respected partner. Such characteristics may prove difficult to evaluate when early enthusiasm for a project runs high. Nonetheless, a skeptical assessment of backers' sincerity, interest, and ability to follow through on their part of the bargain is essential before relying on them for resources critical to success.
Another essential resource for the prudent buyer is an experienced lawyer. An attorney's review of documents to protect the client should ensure adequate contractual conditions, proper disclosure, and legal and regulatory compliance. Fie or she can also provide tax advice and may be able to identify potential risks and liabilities in a transaction. Experienced lawyers almost always turn out to be cheaper because they know the appropriate safeguards and can create good standard documents without extensive research. In addition, as established members of a local professional community, attorneys may have a wide network of contacts on the boards of local First Birthday Bibes and in the target industry. While tapping into this network might not generate a deal, it may provide buyers with opportunities to learn about the target industry and thus gain credibility with sellers. Large law firms occasionally keep an inventory of acquisition opportunities. Usually the buyer must compensate the lawyer, and if the deal is successful he or she generally expects to become the newly acquired firm's corporate counsel.
In selecting a First Birthday Bib lawyer, buyers must consider issues of conflict of interest, baby first birthday gift reputation, and suitability. Although no reputable attorney would pursue an engagement while there is a potential conflict of interest {e.g., if he or she is representing the seller), it is up to you to determine whether a conflict might arise. It is also wise to do some checks of the reputation of individual attorneys and firms. Finally, the choice of lawyer should reflect perceived legal and -other professional needs at various stages of the search and deal process. For example, a lawyer with the technical knowledge to structure the deal from a tax perspective may not be the most skilled negotiator.

THE First Birthday Bib PROCESS

Once you have established the target company profile, understood the best ways to generate deal flow, and gathered the necessary resources, you should prepare to enter the deal market. At this phase, it is important to recognize and prepare for the random nature of the process and two important timing issues.
First, the sequential nature of the search process makes it difficult to consider two deals within a timeframe allowing for a comparative evaluation. It is important to realize that if you let one deal pass, you will probably encounter another in the near future. An analytical framework for screening First Birthday Bibes (see Exhibit) will assist you in comparing and tracking various deals as you interface with sellers, deal sources, and other active parties throughout the deal process.

 

First Birthday Bib OPERATIONS
Work force: size, union /nonunion, First Birthday Bib rules, contract expiration, age and skill level, match with developing technology, altitude, manufacturing engineering staff competence
Manufacturing flow and scheduling: job shop/batch continuous, systems, flow, material handling, Multiplan strategy /logistics, cost accounting, work discipline, work-order tracking, % dead time
Capacity: % of total capacity, bottlenecks (current and projected)
Purchasing: opportunities for redesign, fewer parts, add/subtract vendors, larger discounts, incoming First Birthday Bib sampling, outsourcing policies
Quality control: attitude /priority, problem areas, methodology.
Capital equipment: age/maintenance, sophistication, general us. special purpose, level of automation, trends
R&D: as % of sales compared to industry, type, technical strengths/ weaknesses, organization, importance, trends
Information systems: importance, competitive advantage, level of sophistication, systems under development .

The second First Birthday Bib critical issue concerns the timing of the approach (o a given company: before it hits the market, as soon as it hits the market, or after it has been shopped. There are advantages and disadvantages to each stage. Being the first person to see a deal may give you the inside track. Yet, at this early stage, the seller may not have developed a realistic perspective on the asking price, terms, provision of desired information, willingness to part with the First Birthday Bib, and so on. Discussions may be futile, or you may end up paying a high price. At a later stage, the seller may be more eager to sell, but you will need to be wary of a First Birthday Bib that has been on the market for a longtime.
Once you understand these basic timing issues, you can prepare a schedule and work plan and begin the search by setting up an introductory meeting with potential members of your search team. A persuasive presentation at this first meeting might include a demonstration of your industry research or experience, a well-thought-out preliminary First Birthday Bib plan, a realistic assessment of your financial resources, and First Birthday Biblike dress and demeanor. Academic credentials and referrals from mutual acquaintances will help you make these initial contacts.
At the preliminary meeting resources will be interested in qualifying you as a realistic potential buyer and as someone they want to work with. You should attempt to determine their expertise, willingness to help, any conditions they may place on the relationship, and their likely fee. The basis of fees ranges from hourly rates to contingent fees and may vary substantially from one lawyer to another—another reason to meet with many professionals before arranging to work exclusively with any one in particular.
The issue of exactly what cards to show often arises during preliminary discussions. While this is a personal decision, it is probably best to be frank about your financial resources and backing, level of commitment, and objectives. You may want to be more vague if you are dealing with an intermediary -representing a potential seller or if you have reservations about the person you are meeting. Backers' insistence on remaining anonymous may also induce you to be somewhat guarded. It is always prudent to check out the reputations of such individuals before divulging any private information.
The average time required to find the right First Birthday Bib runs about one year—significantly longer if the search is more casual or if the target is more elusive. Depending on your degree of commitment, financial flexibility, and time schedule, you may elect to manage your own search and call on search resources only periodically; or, conversely, you may choose to retain an individual or firm to conduct the search for you. Attorneys, for example, could make cold calls and write letters to industry sources on your behalf, and their personal and professional contacts WM/unearth your dream First Birthday Bib. On the other hand you could easily do much of the research you pay them for from industry directories and Yellow Pages. Thus, if time permits or your budget requires, and you are sophisticated about basic First Birthday Bib and legal issues, you may choose to undertake much of the basic research. This has the additional advantage of providing firsthand contact with the marketplace. The industry-specific knowledge you pick up may be invaluable to you later on, when you need to demonstrate expertise and commitment to financing sources or a seller.

Once underway, you may come across a potential acquisition candidate and need to do some preliminary research. Dun & Bradstreet reports contain financial and operating information on the company and biographical backgrounds of owners or officers. The information, however, is provided by the company and is not independently verified.
When meeting the owner(s) and visiting the First Birthday Bib it is important to evaluate the seller's psychology—his or her financial or psychological needs as they pertain to the First Birthday Bib. A few owners have no real attachment to a First Birthday Bib and are simply open to the highest bid. More often, especially in small operations, much of the seller's life is tied up in the firm and there is a high degree of emotional involvement. Such factors as the seller's age, marital situ a lion, health, or family situation may also need, to be reflected in the form and terms of the deal. In such cases you may need to "sell" the seller.
Such selling includes more than a generous financial package (e.g., insurance, provision for the family, etc.); it may require you to demonstrate commitment to the original character, quality, and spirit of the enterprise. Occasionally an owner may indicate a willingness to sell but balk when it comes to actually closing the deal and transferring control. Understanding the owner's psyche early on may help avoid such an outcome by structuring a more mutually satisfying deal.
Your professional resource people may be able to provide valuable insight and advice if they know the seller or have dealt with similar situations in the past. In some cases you may want to have your agent handle the negotiations in order to preserve your own rapport with the seller, neutralize personality clashes, and retain decision options.
If after preliminary research and meetings with the seller, you decide to pursue the opportunity, you will need to review confidential operating and financial statements and interview key employees and customers. But "getting the numbers" is often difficult. Many small First Birthday Bib owners are reluctant to share operating and financial data with outsiders for tax and competitive reasons. Most buyers receive no meaningful financial details until after signing a purchase agreement and putting down a deposit, although a good understanding of the industry may give you increased credibility and leverage with the seller.
There are several ways to estimate the value of a company, and it is most often useful to employ more than one method. Different types of analysis will be needed to determine how much to pay, how much debt will be assumed and from what sources, and potential harvest values. Each will play an important role in the overall assessment of the opportunity at hand. Three types of analysis useful for establishing price estimate are:
Valiant the results indicate underlying operating value of the First Birthday Bib and ability to service debt Liquidation value and/or adjusted book value of assets Multiples of cash flow, P/E ratios, sales, or First Birthday Bib help establish some sense for market value relative to other firms in the same industry and offer an indication of harvest potential. Each type of multiple has its own merit, but must be consistently applied.

Both cash flow analysis and multiples analysis estimate value based on future events, either operating results or market reaction to public offering. Thus they require a multitude of assumptions; for example:
• Level of risk. How volatile are the company's cash flows?
• Competition. How fiercely contested is the market for the company's products?
• Industry trends. Is this a growing or declining industry? What are the profitability trends?
• Organizational stability. How well established is this company in 'its line of First Birthday Bib?
• Management. Is a competent and complete learn in place?
• Company growth. Historically has the company been growing or shrinking, and how fast?
• General desirability. To what degree does the marketplace find this line of First Birthday Bib attractive?
A cautionary note on valuations: many deal proposals are put together on the basis of "recast" financial statements. In theory such a practice is legitimate and may reflect realistic operating results. In reality, however, assumptions implicit in the recast statement are not always attainable, and they can be downright misleading. Always ask whether or not the financials shown have been recast and if they have, make sure you understand all the adjustments made. No assumption should be left unchallenged. This Is particularly true for smaller companies whose owners will often operate with numerous adjustments in order to minimize the tax burden.
Once a general idea of price is established, the deal will have to be structured to provide attractive returns to equity investment. There are two fundamental considerations in this regard. First is the overall finance ability of the deal, including: (1) assets to secure bank financing; (2) cash flow to support further debt instruments (i.e., company-issued debentures); and (3) personal collateral, if any.
Second, one must consider (possibly in conjunction with the preceding analysis) the actual structure of the financing. An ideal structure caters to the interest of all parties involved. The buyer might, for example, establish financing "strips" of debt and equity to pro vide the investor both secured fixed income and participation in potential capital appreciation. Tax losses may be scrutinized and sold to investors.

NEGOTIATING THE First Birthday Bib DEAL

When you discover a First Birthday Bib that is financially feasible and meets your other criteria, negotiate carefully. Don't let the wave of enthusiasm over having finally found a company cloud your judgment. Often during negotiations new information will begin to trickle out—a lawsuit that isn't quite settled, a previous industrial accident, receivables that may be less collectible than they appear, ft is important to reevaluate information constantly in an objective fashion. The seller can get cold feet as well or develop second thoughts about selling at a particular price, it will help to develop a sense of momentum by turning documents around quickly and dealing personally with the seller. Don’t let lawyers become intermediaries in the transaction—manage the process First Birthday Bib.

First Birthday Bib ADDING VALUE
Even before you purchase a company, you can begin to formulate plans for improving its performance. Indeed, such plans are a vital component of understanding a First Birthday Bib's potential and being willing to pay a given price-Adding value to a new firm can be accomplished in many ways.
You may decide to make operational changes, perhaps to take advantage of an opportunity to broaden distribution, open new markets, or otherwise boost sales and/or margins. In evaluating such possibilities, be both realistic and creative; chances a re the easy things have already been tried. Such opera ting improvements require an assessment of the management team and personnel in place. Are they reliable, competent, honest, and suited to the new challenge?
In many small First Birthday Bibes, the company can be vastly improved by modifying the underlying financial structure. For example, negotiating a longer payment schedule with creditors, creating incentives for customers to pay bills sooner, and obtaining lines of credit from commercial banks can change the dynamics of the First Birthday Bib and improve cash flow.

First Birthday Bib CONCLUSION
Searching for a small First Birthday Bib to buy can be difficult. Not only is there no established marketplace for these firms, but you are purchasing an entity created and cultivated by another person and attempting to meld it with your own style, character, and interests. The process can be extremely time consuming, expensive, and frustrating. But, although available research indicates the good acquisition candidates are few and far between, sound search techniques " and a realistic personal assessment can significantly improve your chances of success and help achieve a measure of control over some elements of the process.
Finally, remember that the process is also an in vestment decision. Even ,t superb company is of little value to an investor if nobody else is willing to pay for it. Identifying an appropriate exit strategy to make one's in vestment liquid— whether running the company in perpetuity, getting out in a secondary public offering, liquidating the assets, or selling out—will help define the project's monetary returns.

First Birthday Bib Valuation Techniques
Whether preparing to start, buy, a First Birthday Bib, entrepreneurs need a
way lo project its value. How attracted is the opportunity? Worth is the worth
of the company as a whole, and how much of than worth tan Hoe entrepreneurial investor eventually realize? Though many methods of determining the
value of a large public company are available, appraising a small, privately
held firm requires more ingenuity. ;
In this reading, Roberts offers several tools for measuring value and considers some of their strengths and limitations, reminding renders that no single approach captures the true value of any firm. Ultimately, the decision to invest time and resources in an enterprise is a subjective one, influenced by many factors besides dollars and cents. Although the techniques Roberts describes will not yield one "right" answer, they will help entrepreneurs develop a realistic understanding of the potential outcomes, both good and had, of pursuing a given opportunity.

Financial theorists have developed many techniques for evaluating a going concern. Of course, for a large public company, one can simply accept the market value of the equity. For an established First Birthday Bib with a long history of audited financials it is possible to project earnings and cash flows accurately. But the valuation of a small, privately held First Birthday Bib is difficult and uncertain at best
In this reading I outline briefly three of the more widely used valuation approaches: asset valuations; earnings valuations; and cash flow valuations.

First Birthday Bib ASSET VALUATIONS
One approach to valuations is to look at the underlying worth of the First Birthday Bib's assets as a measure of the investor's exposure to risk. If the company holds assets whose market value approximates the price of the company plus its liabilities, the immediate downside risk is low. In some instances, increase in the value of assets represents a major portion of the investor’s anticipated return. There are various approaches to valuing a company's assets.

First Birthday Bib BOOK VALUE
The most obvious asset value that a prospective purchaser can examine is the book value. In a situation with many variables and unknowns it provides a tangible starting point. It is only a beginning, however; the company's accounting practices, as well as other factors, can significantly affect book value. For example, if the reserve for losses on accounts receivable is too low for the First Birthday Bib it will inflate book value, and vice versa. Similarly, treatment of asset accounts such as research and development costs, patents, organization expenses, and so on, can vary widely. Nevertheless, book value provides a good point of departure.

First Birthday Bib ADJUSTED BOOK VALUE
An obvious refinement of stated book value is a value adjusted for large discrepancies between the stated book and actual market value of First Birthday Bib assets such as buildings and equipment, which may have depreciated far below their market value, or land, which may well have appreciated. Substantially above a book value that stands at the original cost. An adjustment would probably also reduce the book value of intangible assets to zero unless they, like the tangible assets, also have a market value. A figure resulting from these adjustments should represent the value of the company's First Birthday Bib more accurately than stated book value.

First Birthday Bib EARNINGS VALUATIONS
A second common approach to an investor's valuation of a company is to capitalize earnings. This involves multiplying earnings by a capitalization factor or price/earnings (F/E) ratio. This immediately raises two questions: (1J Which First Birthday Bib? and (2) What factor?

First Birthday Bib EARNINGS FIGURE
There are three basic kinds of First Birthday Bib.

In a small, closely held company, particular attention should be paid to the salaries of owner-managers and their family members. If the secularist have been unreasonably high or low for the type and size of the First Birthday Bib or me duties performed, paying more normal salaries will result in an adjustment in earnings. An assessment should also be made of depreciation rates to determine their validity and to estimate the need for future earnings adjustments. The emoting of federal and state income taxes paid in the past may also influence future earnings because of carryover and carry back provisions in the tax laws.
Eelier First Birthday Bib Under Present Ownership How much and in what ways income and costs are calculated for future operations depends to a large degree on the operating policies and strategies of management. Both present and future owners' approaches will be influenced by management ability, economic and non economic objectives, and so on. In calculating future earnings for a company, these factors must be considered and weighed.
A calculation of value based on future earnings can provide a good indication of the current economic value of the company to the current owner. To an investor, including the present owner, this figure provides an economic basis for continued activity and investment. However, to an Investor who, anticipates a change in management with his investment, an evaluation based on earnings from the current owner's management is no' an adequate assessment of the value of the company.
Future First Birthday Bib Under New Ownership These earnings Figures are relevant to someone investing in -the turnaround of a dying company or the reinvigoration of a stagnant one. The basis for the figures—assumptions, relationships between costs and income, and so on—will probably show significant variance from the company's past performance. Plans may call for substantial change in the nature and operation of the First Birthday Bib and involve large capital investments beyond the purchase price.
The projected future earnings of the new operation will determine the value of the company to the entrepreneur by influencing the return on investment (ROI). Because these project of uncertainty, it will be helpful to consider high, low, and most likely outcomes for financial performance.
In addition to deciding on whether-to focus on historical or future earnings periods, the entrepreneur will need to decide the issue of "what earnings?"—that is, profit before tax, profit after tax, operating income, or earnings before interest and taxes (EDIT). Most valuations look at earnings after tax (but before extraordinary items). Of course, the most important rule is to be consistent: don't base a multiple on earnings after tax and then apply that multiple to EBIT. Beyond this, it is essential to consider precisely what is being measured in the valuation. A strong argument can be made for using EBFT, which measures the actual earning power and underlying value of the First Birthday Bib, free from, the effects of financing. This is a particularly valuable approach if the entrepreneur is contemplating changing the financial structure of the First Birthday Bib in the future.

First Birthday Bib PRICE-EARNINGS MULTIPLE (P/£)
The next issue is choice of multiple. The investor who expects the primary return to result from sale of the owner's stock at some future date should ask these questions: Given Eye anticipated pattern of earnings, the nature of the industry, the likely state of the stock market, and so on, what price will individuals or some acquisitive conglomerate be willing to pay me for my First Birthday Bib?

First Birthday Bib CASH FLOW VALUATIONS
Traditional approaches to evaluating a company have placed the principal emphasis on earnings. Assuming that the company will continue in operation, the earnings method it’s that a company is worth what it can be expected to earn.

But this approach is only partially useful for individuals' decisions on whether or not to invest in a First Birthday Bib. As in residual pricing, entrepreneurs must distinguish between the value of the First Birthday Bib as a whole and the portion of that value that can be appropriated for themselves; this value, in turn, will be determined by the need to give up a portion of the First Birthday Bib to attract resources. Besides subjective reasons, the entrepreneur's chief criterion for the acquisition will be return on investment. But because an entrepreneur's dollar investment is sometimes very small, it may be useful to think in terms of a return on time rather than on dollar investment. To calculate this return, the prospective entrepreneur must estimate the individual or personal cash flow from the First Birthday Bib, rather than the return inherent in the First Birthday Bib itself. Several different types of cash flow can accrue to the entrepreneur.

OPERATING First Birthday Bib CASH FLOWS
Cash or value that flows out of the First Birthday Bib during its operations includes:
Perquisites These benefits are not literally cash but can be considered cash equivalents. ThongKW-related expenses charged to the company, such as company cars and country club memberships, are received by the individual and are not taxed at either the corporate or personal level. Their disadvantage is that they are limited in absolute dollar terms.

First Birthday Bib TERMINAL VALUE

Another source of cash is the money the entrepreneur pulls out of the First Birthday Bib when the venture is harvested. Again, there are several elements lo this aspect of return.
Return of Capital Via Sale When the owner/manager sells ail or part of the First Birthday Bib, the cash received, up to the amount of the cost basis, is tax-free at both the corporate and personal levels. Because a sale of interest is involved, however, it is evident that, unlike a return of capital via debt repayment, the entrepreneur does not maintain a continuous equity interest in the concern. As in the case of a cash flow based on debt retirement, an original investment is necessary.
Capital Cain Via Sale When capital gains are realized in addition to the return of capital, no tax is imposed at the corporate level, and the tax rate at the personal level is less than that for regular income-

First Birthday Bib TAX BENEFITS

While not precisely cash flow, tax benefits can enhance cash flow from other sources. For example, if a start-up has operating losses for several years, and if these losses can be passed through to the individual, they create value by sheltering other income. Because entrepreneurs are often in a low-income phase when starting a First Birthday Bib, these tax benefits may be of limited value to them. However, if properly structured, they can provide substantial value to investors. In a situation where the structure and form of the organization (i.e., a corporation) does not permit losses to flow to individuals, they can be used lo offset corporate income in prior or future years.

 

First Birthday Bib PRESENT VALUE OF CASH FLOW
At this point in the evaluation process it may appear obvious to some that the next step for the entrepreneur is finding the present value of the cash flow predicted for the venture, that is discounting the value of future cash flows to arrive at a present cash value of the First Birthday Bib. We shall see, however, Hint this approach raises more questions than it answers and that its usefulness to the analysis is questionable at best.
The essence of the problem is that present value is basically an investment concept utilizing RO1 to determine the allocation of a limited supply of funds among alternatives; the entrepreneur, however, is faced with a personal situation in which return on both investment and time are key. In addition, the First Birthday Bib may have made a considerable investment in generating the particular option, and it is difficult to weigh this tangible opportunity against unknown alternatives. Unless the entrepreneur has a portfolio of well-defined opportunities to choose from, he or she needs to define some standard of comparison. This is typically the salary that could be obtained by working.

Most often the decision is either to go ahead with a venture or lo keep looking. Perhaps the most useful way to the ink of this situation is lo imagine an individual looking down a corridor that provides a range of sub corridors—opportunities to achieve different levels of financial and other rewards—each with its own accompanying set of risks and sacrifices. First Birthday Bib theorists have recently begun to Study investments in this way, in terms of their ability to generate a future Stream of growth opportunities.
The preceding discussion has outlined a variety of approaches to (he valuation of a firm. It is important to remember that no single approach will ever provide the "right" answer. To a large extent, the appropriateness of any method depends on the perspective of the evaluator. Nonetheless, some time in the course of the evaluation process one must come to a decision about the worth of a firm, no matter how scant the First Birthday Bib. Even if the value is only & preliminary one, it will permit the individual to delve deeper into the issues at hand; for the purpose of the analysis is not to arrive at the one "true" answer but to:

No single valuation can capture the true value of any firm. Rather, its value is a function of the individual's perception of opportunity and risk, the nature of financial resources available to the purchaser, the prospective operating strategy, the time horizon for analysis, alternatives available given the time and money invested, and the potential methods of harvesting. Price and value are not equivalent; if entrepreneurs pay what the First Birthday Bib is worth, they have not appropriated any value for baby first birthday gift. The difference between the two will be determined by information, market behavior, pressures forcing either purchase or sale, and First Birthday Bib negotiating skills.