Buying a Business

Sunbelt Business AdvisorsBrian Mazar

Top 10 Signs You Work in Public Accounting

10. You lecture the neighborhood kids selling lemonade on ways to improve their processes.

9. You get all excited it's Saturday so you can wear casual clothes to work.

8. You refer to the tomatoes in your garden as deliverables.

7. You find you really need PowerPoint to explain what you do for living.

6. You normally eat out of vending machines and at the most expensive restaurant in town within the same week.

5. You wear gray to work instead of navy blue to make a bold fashion statement.

4. You know the people at the airport and hotel better than your next door neighbors.

3. Ask your friends to "think out of box" when making Friday night plans.

2. You think Einstein would have been more effective had he put his ideas into a matrix.

1. You think a "half-day" means leaving at 5 o'clock.

Top 10 Signs You Work in Public Accounting

Agenda

3 hour tour…

• Business Ownership

• Effective Leadership

• Succession Planning

• Business Valuations

Business Ownership

Do you have what it takes?

A 10 Point Checklist

Business Ownership Checklist

a. I do things on my own. Nobody has to tell me what to do.

b. If someone gets me started, I follow through well enough.

c. Easy does it. I don’t put myself out until I have to.

1. Are you a self-starter?

2. How do you feel about other people?

a. I like people and can get along with just about anyone.

b. I have plenty of friends; I don’t need anyone else.

c. Most people irritate me.


What's an extroverted accountant?

One who looks at your shoes while he is talking to you, instead of his own.

a. I can get most people to go along when I initiate something.

b. I can give the orders if someone tells me what we should do.

c. I let someone else get things moving, then I take part if I feel like it.


3. Can you lead others?

4. Can you take responsibility?

a. I like to take charge of things and see them through.

b. I’ll take over if I have to, but would rather let someone else be responsible.

c. There’s always some eager beaver around wanting to show how smart he is. I say let him.


What is an auditor?

Someone who arrives after the battle and bayonets the wounded.


5. How good an organizer are you?

a. I like to have a plan before I start. I’m usually the organizer when the group wants to do something.

b. I’m fine unless things get too confusing; then I quit.

c. Something usually occurs that presents too many problems. So I just take things as they come.

6. How good a worker are you?

a. I can stay motivated as long as I need to. I don’t mind working hard for something I want.

b. I’ll work hard for a while, but when I’ve had enough, that’s it.

c. Easy does it. I don’t put myself out until I have to.


What is the definition of a good tax accountant?

Someone who has a loophole named after him.


a. I can make up my mind in a hurry if I have to. It usually turns out fine, too.

b. If I have to make up my mind quickly, I later think that I should have decided the other way.

c. I don’t like to be the one to decide things.

7. Can you make decisions?

8. Can people trust what you have to

say? a. You bet they can. I don’t say things that I don’t mean.

b. I try to be on the level most of the time, but sometimes I just say what is easiest.

c. Why bother with the truth if the other person doesn’t know the difference?


Newton's Laws of Accounting

1. For every accountant, there is

an equal and opposite accountant.

2. Both of them are wrong.


9. Can you stick with it?

a. If I make up my mind to do something, I don’t let anything get in the way.

b. I usually finish what I start – if it goes well.

c. If things don’t go right immediately, I quit. Why beat my brains out?

10. How good is your health?

a. I never run down!

b. I have enough energy for most of the things I want to do.

c. I run out of energy sooner than most of my friends.


There are just three types of accountants:

those who can count and those who can't.

Tally Your Score

• JUST a pic

• Tally + calc1 + 1 = 2

2 + 2 = 4

3 + 3 = ?

Effective Leadership

What is it?How to be it!

Definition

Principles

Traits

Knowledge & Communication

Effective vs. Ineffective

Effective Leadership

•Challenge Status Quo

•Visionary

•Ethics and Integrity

What is Leadership?

Art of influencing and directing

Obtaining confidence and respect

Earning loyal cooperation to achieve goals

What is Self-Leadership?

Bringing out the best

Enjoying life

Learning self-discipline

Improving personal performance

“Managers who want to lead others effectively must first lead the one in the mirror… They need to learn self-leadership.”

─ Charles Manz

Effective Leadership Thoughts

Whose responsibility is it to keep a leader’s passion up?

The leader’s… YOURS!

Who is your toughest leadership challenge?YOURSELF!

Who is the person who has the most influence on you?

It’s not your spouse… it’s YOU!If your business is to survive, you must learn to lead it, not just manage it.

Why Do You Need Leadership?

The GE Analogy

“People in leadership have so much energy and passion that they engage and impassion the people around them.”

― Jack Welch

Self-Assessment

1. Take responsibility for your actions and the actions of other people?

2. Know yourself and seek self-improvement?

3. Develop your people?

4. Set the example?

5. Ensure that a job is understood, then supervise it and carry it through to completion?

Ask yourself how effective you are…

Self-Assessment

6. Know your subordinates and look after their welfare?

7. Make certain that everyone is kept well-informed.

8. Set goals that are attainable?

9. Make sound and timely decisions?

10.Know your job?

11. Instill trust and teamwork?…then build on your strengths and neutralize your

weaknesses

Traits of an Effective Leader

Do you possess these traits?

Key Leadership TraitsCompulsive

• Poised

Conscientious

• Self-Disciplined

Courage

• Moral & Physical

Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised


• Poised

Conscientious


Courage


Decisiveness

• Prompt

Dependability

• Reliability

Dominance

• Assertive

Emotional Stability

• Well-Adjusted

Enthusiasm

• Energetic

Initiative

• Take Lead

Integrity

• Moral Character

Self-Assurance

• Self-Confidence

Social Boldness

• Risk-Taker

Tough-Mindedness

• Poised

Key Personality Traits

Charisma

• Strong Presence

Empathy

• Understanding

High Energy

• Alert & Focused

Intuitiveness

• Trust “Gut”

Maturity

• Empowerment

Team Oriented

• Spirit


Charisma

• Strong Presence

Empathy

• Understanding

High Energy

• Alert & Focused

Intuitiveness

• Trust “Gut”

Maturity

• Empowerment

Team Oriented

• Spirit


Charisma

• Strong Presence

Empathy

• Understanding

High Energy

• Alert & Focused

Intuitiveness

• Trust “Gut”

Maturity

• Empowerment

Team Oriented

• Spirit


Charisma

• Strong Presence

Empathy

• Understanding

High Energy

• Alert & Focused

Intuitiveness

• Trust “Gut”

Maturity

• Empowerment

Team Oriented

• Spirit


Charisma

• Strong Presence

Empathy

• Understanding

High Energy

• Alert & Focused

Intuitiveness

• Trust “Gut”

Maturity

• Empowerment

Team Oriented

• Spirit


Charisma

• Strong Presence

Empathy

• Understanding

High Energy

• Alert & Focused

Intuitiveness

• Trust “Gut”

Maturity

• Empowerment

Team Oriented

• Spirit


Charisma

• Strong Presence

Empathy

• Understanding

High Energy

• Alert & Focused

Intuitiveness

• Trust “Gut”

Maturity

• Empowerment

Team Oriented

• Spirit


Charisma

• Strong Presence

Empathy

• Understanding

High Energy

• Alert & Focused

Intuitiveness

• Trust “Gut”

Maturity

• Empowerment

Team Oriented

• Spirit

Actual Leadership• Know your job.

• Know yourself.

• Know your employees.

• Keep your employees informed.

• Set a good example.

• Assign tasks the right way.

• Train your people to work as a team.

• Be a good decision maker.

• Learn to delegate.

• Do what you do well.

• Step to the front of the line.

Effective vs. Ineffective Leader

EFFECTIVE

• Guides People• Inspires Enthusiasm• Says “Let’s Go”• Makes Work

Interesting• Relies Upon Co-

Operation• Says “We” • Encourages Creativity• Asks Questions• Delegates

INEFFECTIVE

• Drives People• Instills Fear• Says “Do”• Makes Work

Drudgery• Relies upon

Authority• Says “I,” “I,” “I”• Dictates Tasks• Gives Orders• Controls

Topic Thoughts

• What traits are you proud to say describe you?

• Was there a trait you would not consider desirable?

• What trait do you want to make more descriptive of you?

BREAK!!!

Succession Planning

The concept of succession planning is an important part of a company’s strategic planning.

Applications of Succession Planning

Is it only in family owned businesses?

Is it only in large firms?

Is it beneficial for every business?

Elements of Succession Planning

What is involved?

• Preparing for the future

• Every key position is a candidate

• Every key person is a candidate

Key Issues

• What is the long-term direction?

• What are the key areas?

• Who are the key people?

• How does it fit into your strategy?

• What are the career paths of the employees?

• Are you proactive?

Strategies for Succession Planning

• Move people along quickly

• Expose to other disciplines

• Be sensitive to culture

• Be aware of individual’s capabilities

• Be mindful of the corporate structure

What strategies should be considered?

Requirements for Succession Planning

• Well-trained people

• Good candidate pool

• Flow of people through departments

• Matching needs with resources

• Goals for key personnel

• Defined career paths

• Input of ideas

Pitfalls of Succession Planning

• Lack of formal written plan

• Rigid inflexible plan

• Too long of a wait time

• Superficial approach

• Unqualified people

Succession planning can have a few pitfalls if you’re not careful.

Advantages of Succession Planning

Succession planning can have more advantages if you work it properly.

• Involved capable people

• Improving the company

• Employee Involvement

• Good reputation

Succession Planning in Action

How does succession planning fit into

strategic planning?

• Developing key people

• Addressing needs and current

capabilities

• Creating an objective

The Timeline

How long should succession planning take?It’s NEVER finished.

Over what time should you plan?It should be years IN ADVANCE.

What will succession planning bring?PEACE OF MIND for the future.

To properly train a successor, the firm needs sufficient time.

Outline for Succession Planning

• Where are you in the planning process?

• What has changed inside the company?

• Where do you want the plan to take you?

• How will you get to the future?

Where are you in the planning process?

• What positions are you planning for?

• What key people have you designed for succeeding to higher positions?

• What are their experience, education and training schedules?

• What has changed since your last review?

• What other candidates can you identify?

What has changed inside the company?

• How have the current candidates performed to date?

• What jobs have changed and how?

• What new issues emerged that may lead to a change in the plan?

What do you want the plan to accomplish?

• What will you look like in 3 to 5 years?

• What will your key people be doing then?

• What openings will you need to fill?

• What new disciplines will the company require?

• How does your succession plan fit with your expansion?

It should be clearly defined where you want your succession plan to take you, especially in light of your current strategic plan.

How will you get to the future?

• Who will be involved?

• When will you start the plan?

• How will you judge progress?

• Is each candidate right?

• What are your control measurements?

• What is your alternative plan?

You must have a clear understanding of where you are today and what you want the company to look like in the future.

BREAK!!!

Business Valuations

How much is a business really

worth?

What method is best for each type

of company?

Valuation Considerations

Single most important decision is determining the value

Publicly-held corporation

Privately-held company

Team Approach

• Internal– CEO/Owner– Majority

shareholder(s)

• External– CPA– Business

Broker/Advisor– Legal Counsel– Investment

Advisor

A good team is composed of strong internal and

external members.

External members are powerful intermediaries.

Why Use an Intermediary?

• Lack of in-house expertise

• Less room for error

• Learning curve to steep for a one time transaction

• Too important not to

Roles of an Intermadiary

• Match maker

• Perform Business Valuation

• Confidentially screen prospects

• Assist in structuring deal

• Act as buffer during negotiations

• Mediate disputes over price and terms

What is a Business Valuation?

– Formalized report

– Opinion regarding estimated value

– At a given point in time

Valuation Guidelines

– Nature of business and history

– Economic outlook (General and Industry)

– Book value and financial condition of business

– Earnings capacity

– Dividend capacity

– Goodwill or other intangible value

– Market price of comparable companies

Reasons for Valuing a Business

– Selling or Buying a business

– Mergers

– Obtaining financing

– Dissolution of shares or partners

– Buy-sell Agreements

– Retirement of owner

– 3 D’s (death, divorce or disability)

– Litigation

– Estate Planning

– Gift, Estate or Inheritance Taxes

Valuation ProcessData Gathering

• Financial Statements – most recent 3-5 years

history

• Federal Income Tax Returns – most recent 3-5 years

• Underlying support/ documentation for selected information

• Prospective financial information

• Leases or other legal agreements/contracts

• Economic and industry information

• Market data

Valuation Process

• Description• History• Operations • Customers• Employees• Facilities• Ownership

Company Background

Valuation Process

Financial Analysis

• Historical trend including ratios

• Determine add backs to normalize earnings

The taxable income reported on a small business tax return

is rarely an indicator of the true earnings realized by the

business owner.

Valuation Process

Actual Earnings

– Earnings before interest, taxes depreciation and amortization (EBITDA)

– Extraordinary and non-recurring items

– Effect of LIFO inventory valuation

Valuation Process

Seller’s Discretionary Cash Flow

– Actual Earnings– Owner’s Compensation– Owner’s Benefits

• Vehicle costs• Health, life and car

insurance• Charitable

contributions• T & E (personal)• Non-business

maintenance costs• Rent subsidies, etc.

Valuation Approaches• Income

– Capitalization of Earnings/Cash Flow

– Discount Future Earnings/Cash Flow

• Market– Earnings Multiples– Price/Earnings– Price/Revenues– Price/Gross Cash Flows– Price/Net Asset Value

• Asset– Net Book Value (adjusted)– Appraisal of Tangible

Assets– Intended use of Tangible

Assets– Identification of Intangible

Assets

Valuation Methods

– Based on 3, 5 or 10 year projection of revenues, earnings and cash flow

– Discounted to present value based on appropriate discount rate (cost of capital, risk adjusted)

Discounted Cash Flow

Valuation Methods

– Comparable transactions in the industry

– Rule of Thumbs

– Industry benchmarks

– Local market conditions

– If comparable is public-held company and target is privately-held, the P/E ratio is usually discounted due to liquidity differences

Multiple of Earnings

Valuation Methods

Stability of Earnings ◄► Overall Marketability

Rating Characteristics of the Business

Ease of Financing ◄► Competition

Industry Growth ◄► Number of Strategic Buyers

Customer Concentration ◄► Company Growth

Reliance on Owner

Key Considerations

Estimating the value of a mid-market company

– Stability of historical earnings

– Reasonable future projections

– Verification of information

– Assets included in sale

Valuation Checks

• Due Diligence

• Investment Analysis

• Return on Investment

• Payback period in years

Price vs. Value

• Common misconception– Price = Value

• Price is influenced by– Deal terms– Financing arrangements – Earn-outs– Stock versus cash– Buyer synergies

• Many types of Value– Fair Market Value– Seller’s Perceived Value– Synergistic Value

Fair Market Value

“FMV is the amount at which the business would change hands between a willing buyer and a willing seller when the former is not under compulsion to buy and the latter is not under any compulsion to sell AND both parties having knowledge of therelevant facts.”

Discounts

Minority Interest Discount

Marketability Discount

Key-Person Discount

Minority Interest Discount

• Relationship between the interest being valued and the total enterprise

• Impact of minority interest

• Range from 20% to 40%

Marketability Discount

• Deals with liquidity interest

• How quickly and certainly it can be converted to cash at the owner’s discretion

• Range from 10% to 33.33%

• Applied to either controlling or non-controlling interest

Maximizing the Value of Your Business

• Develop an Exit Strategy early

• Understand the Valuation Process and Variables– Apply to your business– Changes to increase value

• Value the business before you sell– No fire sale valuations

• Understand who the buyers are– Financial

• Investment– Strategic

• Synergy

Ways to Improve Value

• Increase profitability

• Reduce/eliminate costly perks

• Extend/renegotiate supplier and customer contracts

• Evaluate company policies

• Extend leases

• Obtain employment contracts on key employees

Team Approach

• Internal– CEO/Owner– Majority

shareholder(s)

• External– CPA– Business

Broker/Advisor– Legal Counsel– Investment

Advisor

A good team is composed of strong internal and

external members.

External members are powerful intermediaries.

Role of Business Broker/ Advisor

• Pre-qualify potential buyers

• Address confidentiality issues

• Arrange buyer seller meetings

• Encourage due diligence

• Assist in the development of an offer

• Represent the seller in the offer/ acceptance stage

• Arrange for bank financing

• Coordinate closing

Summary: Words of Wisdom

• Bottom line is only the tip of the iceberg.

• A fool and his money are soon audited.

• If you need accounting to prove it, it was probably not true in the first place.

• An accountant is a man hired to explain that you did not make the money you did.

• Accountants are witch doctors of the modern world.

The End

Do you have any questions?

That’s all folks.

Documents

Buying a Business