University Cycle Works is a subchapter S corporation, and is currently owned by Han Delbar. Hubert "Hub" Freewheeler, current assistant manager of University Cycle Works, is purchasing University Cycle Works from Delbar, acquiring existing inventory, and assuming outstanding accounts payable and dating program debts to suppliers, location lease, customer base and information, and University Cycle Works' business name and goodwill. The business will continue to be a subchapter S corporation. Exchange of ownership will occur on July 1, of this year.
To establish an accurate accounting of existing inventory and outstanding debts, the prior year's closing inventory and year end financial statement as reviewed by the business' CPA were used as benchmarks. The sales, orders placed, deliveries received, and accounts payable payments made have been tracked each month, and a trial balance of these will be run June 15 to establish the final purchase price for inventory on hand, and the amount of Accounts Payable assumed. The figures presented here are conservative, realistic estimates used for planning purposes.
The current owner, Han Delbar, has sold the business to Hub for $140,000. To help determine this price, a business valuation specialist was hired. This professional priced existing store fixtures, tools, and mobile leasehold improvements. These included bicycle wall racks, display cases, track lighting, repair and assembly tools, supply cabinets and storage shelving, air compressor, etc., and are part of the purchase price.
The value of the existing company, its reputation, assumption of the business name, existing client base, etc. is recognized as part of the purchase. It appears as a start-up expense in the following table as Down Payment. The balance appears as a long-term liability. Additional payments shall be made monthly.
Inventory, accounts payable, and invoices were tracked for five months to determine an accurate price of current inventory and amounts of accounts payable assumed.
A deposit equal to one month rent was required by the landlord as assurance in continuing the current lease to the new owner. It appears as a short-term asset.
Hub is investing some of his own money, partially a home equity loan, in the company. An additional amount is being invested, as short-term interest free loans, by family members. This plan calls for these loans to be repaid in the first year.
University Cycle Works is located in Metroburg, a major city on the east/west Interstate. Metroburg is also home to the main univeristy campus. Outdoor recreation is very popular in the area; there are bicycle friendly country roads leading to parks and lakes, as well as an extensive array of mountain biking trails for the more adventurous.
Located in the first block off campus, University Cycle Works is in a premier location to be the major supplier of bicycles, accessories, and repair services to university students and staff. The street is locally known as "the Beach," and is the major student thoroughfare to and from campus. Parking for cars is scarce around campus, therefore bicycles and feet are the preferred mode of transportation.
The store is 2,000 sq. ft. of interior space with covered outside space adjacent to the heavily trafficked sidewalk. Used bicycles are displayed in this space. One or two new bikes are displayed as well as a visual draw. All are secured with lock and cable. As a service to all cyclists, a hose from the air compressor and a pressure gauge are present under the overhang next to the sidewalk. This primes the pump for quite a bit of spontaneous walk-in business.