Economies of Scale & Financing

A Pot of Gold

The money to finance a merger or acquisition must can come from one of three places in order to be economically viable; 1) economies of scale savings, 2) a partner retiring, and/or 3) the growth that will result from the transaction. Economies of scale can be a large contributing factor in this equation. Economies of scale are dollar savings realized when two businesses are combined. These savings arise by 1) the elimination of duplicate expenses, and 2) the spreading of fixed costs over a larger revenue base. From accumulated experience, SAFE has developed a unique methodology of quantifying and accurately forecasting these savings when accounting practices are acquired or merged. Significant economies of scale can be identified and achieved increasing profitability considerably. This is particularly evident when two or more locations are combined. Yet even when an acquisition or merger does not result in the combination of locations, many economies of scale are realized. These savings assist in the determination of cash flow projections which are especially useful when third party financing is involved.

• Advertising and Promotion

• Automobile

• Bank service charges

• Computer maintenance and supplies

• Education and professional development

• Health insurance

• Licenses

• Malpractice insurance

• Owner´s salaries and benefits

• Payroll processing fees

• Postage and supplies

• Property casualty insurance

• Property taxes

• Rent

• Repairs and maintenance

• Salaries and wages

• Software subscriptions and maintenance

• Telephone

• Utilities

Other Exhibits include:

Financing the Transaction
Owners´ Compensation and Add Backs
Information Required by Banks
Acquisition Analysis
Payout Analysis
Combined Economies of Scale (Samples)
Monthly Projections, Larger Firm (Samples)
Term Sheet Financing Assets and Liabilities