Every generation needs a revolution - an entrepreneurial revolution
Rizal Philippines
August 26, 2016
I was on a meeting Tuesday afternoon with the representative of a primary and secondary (with Senior High) in a MM city. In the meeting were: the President of the Company, a lawyer, a banker, and two representatives of the seller
Some issues:
1. The price is P50 million. The appraised value of the property is P70 million. So this is a good asset buy. However, the school does not make money.
From a net income approach valuation, the price of the school is zero.
The audited financial statement says it makes a revenue of P24 million a year, or P2 million a month (misleading because the tuition payment is quarterly). The direct cost is P21 million a year, and GA expenses is P4 million. We learned from additional information given that part of the monthly expenses is interest payments made to dozens of the creditors of the School Director who amassed some P74 million in private debt (as no banks would lend to a school asset - they could not foreclose) Without the debt service, the school could be profitable earning some P12 million a year.
2. Manner of payment:
Friday, August 26, 2016
A thousand things could be learned from doing things yourself
Every generation needs a revolution - an entrepreneurial revolution
Rizal Philippines
August 25, 2016
This post thanks the 20 doctors who climbed their Everest writing a business plan. Indeed while they suffered (probably) and struggled with the business model, objectives, sales estimate, writing the long details of the enterprise delivery system, and financials, they would have learned hundreds of thing just planning a business. And even more when they build the business.
With the new deadlines of the school for grade submission, having enough time for writing the business plan is next to impossible. That was why I declined teaching assignments before.
This class is an experiment of having the student write the bp co terminus with the end of semester. With this strategy I have to focus on teaching writing the business plan, and scrap other items needed to be learned in entrepreneurship.
I could not stand too the idea of having pure scholastic approach to entrepreneurship eg. having just reports and exams which are sterile means of teaching the course.
I am sure that those who established their own hospitals working on the loan with bank, constructing this, agonizing with many problems, recruiting the staff fighting the competition are the real students and graduates of this course. Well I salute also those who are brave and determined to write the business plan
"I heard and I forgot,
I saw and remembered,
I experienced and I understand" Old Chinese proverb.
Rizal Philippines
August 25, 2016
This post thanks the 20 doctors who climbed their Everest writing a business plan. Indeed while they suffered (probably) and struggled with the business model, objectives, sales estimate, writing the long details of the enterprise delivery system, and financials, they would have learned hundreds of thing just planning a business. And even more when they build the business.
With the new deadlines of the school for grade submission, having enough time for writing the business plan is next to impossible. That was why I declined teaching assignments before.
This class is an experiment of having the student write the bp co terminus with the end of semester. With this strategy I have to focus on teaching writing the business plan, and scrap other items needed to be learned in entrepreneurship.
I could not stand too the idea of having pure scholastic approach to entrepreneurship eg. having just reports and exams which are sterile means of teaching the course.
I am sure that those who established their own hospitals working on the loan with bank, constructing this, agonizing with many problems, recruiting the staff fighting the competition are the real students and graduates of this course. Well I salute also those who are brave and determined to write the business plan
"I heard and I forgot,
I saw and remembered,
I experienced and I understand" Old Chinese proverb.
Sunday, August 21, 2016
Buying a business is like analyzing, reviewing a strama paper.
Every generation needs a revolution - an entrepreneurial revolution
Rizal Philippines
August 21, 2016.
Everything is so sudden. While I do not have the formal mandate yet that I would be an executive director of a holding company, a thick folder was sent to me to study the viability of buying a school. (Elem to Senior High School) There was a communication that contains a letter of intent to sell and the suggested closing is end of the month.
I reviewed the documents and found out that most of the information are for a loan transaction: appraisal of the real property and FS (which I think looked funny) If ever there is a valuation report, it has to be valuation of the business based on the FS? They do not add up. Well the FS shows a school that is losing money.
If the purpose of the exercise is to buy the business, a lot more data is needed. It is like a strama paper. The objectives have to be defined and the strategy of how to make the school profitable, how to achieve ROI has to be defined. A due diligence study has to be made before cogent decision can be made.
I did not realize that I am comfortable and at home in this kind of work.
These are the excerpts of my thoughts/communication to the Chairman of the Holding company:
Rizal Philippines
August 21, 2016.
Everything is so sudden. While I do not have the formal mandate yet that I would be an executive director of a holding company, a thick folder was sent to me to study the viability of buying a school. (Elem to Senior High School) There was a communication that contains a letter of intent to sell and the suggested closing is end of the month.
I reviewed the documents and found out that most of the information are for a loan transaction: appraisal of the real property and FS (which I think looked funny) If ever there is a valuation report, it has to be valuation of the business based on the FS? They do not add up. Well the FS shows a school that is losing money.
If the purpose of the exercise is to buy the business, a lot more data is needed. It is like a strama paper. The objectives have to be defined and the strategy of how to make the school profitable, how to achieve ROI has to be defined. A due diligence study has to be made before cogent decision can be made.
I did not realize that I am comfortable and at home in this kind of work.
These are the excerpts of my thoughts/communication to the Chairman of the Holding company:
Allow me to say some of my humble thoughts/comments on the paper which I read:
1. The bulk of the information is for a loan transaction ie, the collateral and financials
2. I could see a lot of discrepancy in the financial statements: eg. the income statement, the expenses (vs the worksheet)
Have they made 100% correct representation on the data presented po
Why are they selling? Maybe they are not making money or enough
However, I understand the plan is to buy the business and more information is needed to determine the viability of the business to be purchased:
Internal Analysis:
1. The main value proposition of the school, Primary Target Market
2 The competitive advantage
3. Does the school possess the critical factors for success of the school
4. Quality of management. Shall the top management remain in case of sale, who shall remain, who shall resign/be retired? Is this well managed
5. Quality of the teaching staff/efficiency (the current ratio of staff vs students population is 1:10. Is this an ideal ratio
External analysis:
1. Competitive analysis
of facilities
of teaching staff
of tuition fee. Is the fee of P51,000 a reasonable tuition for a Las Pinas School (malapit na sa exclusive school fees)
enrollment
2. Why is their enrollment only 500?
3. Where is their growth area? Can the enrollment be increased?
Strategy:
Price
1. How much is the just purchase price?
2. Manner of payment
Purpose
1. What is the goal for the school?
Enrollment, revenue, , expenses, Net income
2. What is the strategy to achieve # 1.
Operating the school:
1. Who will run the school? Shall we install a new dean (do we have a candidate now? Or shall there be a transition period until the purchase price is completed
2. What changes must be made to make it generate cash flow for the holding company? .
My hypothesis is that:
If the enrollment can reach 1,000 ,reduce tuition to 35,000, there would be additional P11 million, and peg expenses to only say 12 to P15 m, then we can generate additional income of
P14 million for added revenues
10 million from cost reduction
the N.I can be 24 million or 40% ROI. vs purchase price of 50 million
However, may I suggest that a due diligence be made. I talked to a school Dean CPA and I conclude that to properly know what to do with the acquisition and to validate this hypothesis
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