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© Copyright 2002-2003. All rights reserved.
Page 44
How To Investigate Any Business Opportunity
and leases the building at 5 percent of net sales, with a minimum payment of $ 1,000 a month. The cur-
rent lease will expire in about 4 years.
The preliminary discussion. Rombaugh has been well impressed with Critser and agrees to furnish
necessary financial information. In their discussion to date, Rombaugh has stated that he feels the busi-
ness is worth about $100,000 for the purchase of inventory, fixtures, equipment, and goodwill. He will
retain all accounts receivable, but he is willing to allow the new owner an 8 percent fee for outstanding
accounts receivable collected after the transfer of ownership has been completed.
He also wants to keep a few assets for which he has a sentimental attachment, such as a massive roll-
top desk purchased when the store was first opened. Rombaugh will assume responsibility for payment
of liabilities outstanding at the time of sale.
Critser, on the other hand, feels that the business is worth somewhat less than $ 100,000. It is obvious
to him through casual inspection that some of the inventory is worth less than the original purchase
price, and he doubts the value that Rombaugh would place on goodwill. He also notes that some of the
display equipment is outmoded and needs replacement.
Before accepting or rejecting Rombaugh's price, Critser suggests that he be permitted to make his own
evaluation of the business on the basis of past financial records and an appraisal of the assets. Rom-
baugh agrees. Following are the major elements of Critser's investigation and appraisal :
Past sales
XXX1 - $220,000
XXX2 - 228,800
XXX3 - 238,000
XXX4 - 247,600
XXX5 - 257,600
Forecast sales - XXX6
$265,000 - Critser's estimate of sales, which includes a somewhat smaller increase than the average of
3.2 percent per year between XXX1 and XXX5.
$268,676 - Rombaugh's estimate based on the average.
Five-year operating statement
XXX1 XXX2 XXX3 XXX4 XXX5
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