Preparing to Buy or Sell? Topics and Tips for a Successful Transition

Preparing to Sell? Topics and Tips for a Successful

TransitionPresented By

Kurt M. Trimarchi, CPA, CM&AA – Managing Partner

David B. Blain, CPA, CVA - Partner

Kurt Trimarchi• CPA, CM&AA

• Managing Partner

• ktrimarchi@macpas.com

David Blain• CPA, CVA

• Partner

• dblain@macpas.com

About Us

Webinar Agenda

This webinar will focus on key concepts in planning and preparing for a business transition.

The webinar will focus on addressing:• Preliminary planning and preparation for transition.

• Understanding business value.

• Tax consequences and tax structuring matters.

• Pitfalls to avoid and be aware of.

• Other unintended consequences.

Begin With The End In Mind

What should you do in advance of selling your business?

• Financial Reporting

• Team

•Valuation

• Structure

Team

1. Third Party Support – Business/Transaction Advisory, Attorney, CPA/CVA.

2. Internal Team – Senior management, key operations personnel, finance/accounting.

3. Other Trusted Advisors

Having the right team of professionals is key to a successful transition.

Financial Reporting

1. Review Financial Reporting Dept. and Internal Control Environment.

2. Consider an Audit (especially for financial buyer).

3. Quality of Earnings – EBITDA and Cash Flow.

Cash Flow

• Usually defined as Free Available Cash after all expenses have been paid.

• Expenses would include all operating expenses including taxes, interest on debt and capital requirements.

• Free cash flow does not include depreciation and amortization – non-cash items.

Free Cash Flow Calculation

Scenario 1

Revenue $1,000

Operating Expenses ($500)

Taxes ($100)

Interest on Debt ($50)

Capital Assets ($100)

Free Cash Flow $250

Scenario 2

Revenue $2,000

Operating Expenses ($1,500)

Taxes ($100)

Interest on Debt ($150)

Capital Assets ($100)

Free Cash Flow $150

Cash Flow Analysis

• From the valuators perspective, scenario 1 provides more value – More free available cash from that business model.

• Value could be impacted by discount rates but overall the free cash flow drives value.

CASH IS STILL KING

Valuation Consideration

What is Business Valuation?

Establishing the Value of an Asset

• Tangible Asset Valuation• Building and Land

• Equipment

• Intangible Asset Valuation• Goodwill

• Trademark

• Customer Lists

Asset Approach

• Adjust assets and liabilities to Fair Market Value.

Market Approach

• Comparable transaction data.

Income Methods

• Capitalization of benefits method -- if stable.• Cash flow/ EBITDA• Benefits = cash flow

• Discounted future benefits -- when earnings are not stable.

Pre-Sale Ownership Structure Review

1. Review Current Ownership Structure for Planning Opportunities and Risk Management (Jurisdiction Shifting and Valid S Election)

2. Review Entity Type

What do the different types of tax structures mean to me?

Traditional Structures

1. Asset

2. Stock

3. 338(h)(10)

Transition Within the Family

1. GRAT

2. IDGT

3. IDBT

4. GIFT

Pitfalls and Consequences

• Be honest about your business.

• Use highly qualified professionals.

• Communicate, communicate, communicate.

• Begin with the End in mind.

Kurt Trimarchi• CPA, CM&AA

• Managing Partner

• ktrimarchi@macpas.com

David Blain• CPA, CVA

• Partner

• dblain@macpas.com

Questions?

Building SuccessfulEmployee Relationships

A Cornerstone to Fraud Prevention

and Risk Management