Exit Now or Exit LaterPRESENTED BY:
Monte Pendleton, Silver Fox Advisor.Jim Griffing, Treasurer, Silver Fox Advisors.Howard London, President, Silver Fox Advisors.
Pendleton BackgroundMonte Pendleton is a mentor to owners on how to improve sales and profits; Founder of Sun-X International with over 700 distributors in 69 countries. Past President of the Intl. Franchise Assn., U. of Mo., B.S.C.E.
Griffing BackgroundJim Griffing is both a CPA and CFE.
After years of experience as a Regional Tax Partner with another firm, he founded Griffing & Company, P.C., a full service certified public accounting firm in 1987. MS in Taxation degree from Drexel University.
London BackgroundHoward London is a business development expert;Forty four years of hands on administrative, technical, creative, advertising, marketing and sales experience for start-up and growth companies; Author of "Six Minute Business Plan".
Exit Objectives Maximize Value; Reward Loyalty; and Perpetuate the Business.
Potential Business Exit StrategiesSaleMergerBuyoutLiquidation of AssetsIPO
Private Businesses10% of family businesses survive to the third generation 10% of family business owners are financially independent from their business when they retireGrant Thornton data
Where Can Private Businesses Go?Go publicAcquired by- Strategic buyer often a competitor- Financial buyer if income-producingLiquidated- Owner cashes out.- Bankruptcy.
Elements of Exit Vehicles* This index runs from 1 to 10, with 10 describing the exit vehicle with the greatest potential value. The values reflect a subjective opinion.
Dont Let the Transfer of Your Business be Triggered by External Events:Life surprises- Death- Disability- DivorceBusiness surprises- Adverse marketplace- Competitive challenges- Regulatory changes
Plan To ExitSell to a competitor, corporation or individual;My ideal buyer will be ___________________________________The buyer will pay _______________________________________I might sell in January 2011 or I might keep the business.
Plan To ExitDocument 2 to 3 years profit;Increase the value of your business:Establish financial goals for 2010;Establish management goals for 2010;Establish marketing goals for 2010; andProduce and/or update Personnel, Policy & Procedure Manuals.
Financial Goals for 2010
Total Sales:$_________________ Net Profit Before Taxes: $_________________Equity (Net Worth): $_________________ Credit (Bank Loans and Lines): $_________________ Number of Clients: __________________ Number of Employees: ___________________
Management Goals for 2010
Business Vision Statement by __________Business Mission Statement by __________ Complete a Customer Satisfaction Survey by__________ Annual Budget by__________ Employment Contracts by __________ Write Job Descriptions by __________
More Management Goals for 2010
Employee Questionnaire by _____________________________Monthly P & L Statements by ____________________________ Monthly Balance Sheets by ______________________________ Monthly Budget Analysis by _____________________________ Daily Sales, Cash, Problems, etc. Reports by __________ Weekly Proposals In Progress Reports by ____________Weekly Work In Progress Reports by __________________
Marketing Goals for 2010 Produce a new website by ____________________________Produce new marketing materials by _____________Update customer & prospect database by __________Create Touch Marketing Program by ______________Create trade show program by _______________________Create business network program by _______________
Personnel, Policy & ProceduresProduce or update Policy Manuals:Personnel by ________________________ Credit by ____________________________ Audit by _____________________________ Insurance by ________________________ Safety by _____________________________
Personnel, Policy & ProceduresProduce or update Procedures Manuals:Purchasing by ______________________________________ Selling by ____________________________________________ Order Processing by ________________________________ Hiring by _____________________________________________ Invoicing & Accounting by __________________________Customer Service by _________________________________Banking by ____________________________________________
What Is The Value?Revenue 2009 $1,000,000 100%Cost of Goods or Services $380,00038%G & A Overhead .. 330,00033%Executive Salary .100,00010%Selling/Marketing Expenses ..150,00015%TOTAL $960,000EBITDA $ 40,00004%5 x $40,000 (EBITDA) = $200,000
Double The ValueWHAT IF?Revenue 2009 $1,050,000 100%Cost of Goods or Services $378,00036%G & A Overhead .. 336,00032%Executive Salary .100,0009.5%Selling/Marketing Expenses ..157,50015% TOTAL $971,500EBITDA $ 78,50007.5%5 x $78,500 (EBITDA) = $392,500
Triple The ValueWHAT IF?Revenue 2009 $1,100,000 100%Cost of Goods or Services $385,00035%G & A Overhead .. 330,00030%Executive Salary .100,000 9%Selling/Marketing Expenses ..165,00015%TOTAL $980,000EBITDA $ 120,00011%5 x $120,000 (EBITDA) = $600,000
Triple The ValueWHAT IF?Revenue 2009 $11,000,000 100%Cost of Goods or Services $3,850,00035%G & A Overhead . 3,300,00030%Executive Salary . 200,000 0.2%Selling/Marketing Expenses ..1,650,00015%TOTAL $9,000,000EBITDA $ 2,000,00018%5 x $2,000,000 (EBITDA) = $10,000,000
How Do Owners Successfully Transfer the Business to Others?Recognize the transfer will be a complex process.Keep financial reports and tax filings current.Strive for accuracy do your due diligence now.Make yourself expendable delegate success to your employees.
Negotiating and ClosingValuation methodsThe wide range of terms availableStock versus assets exampleTypes of financing availableEarn outsProtecting your escrow
Valuation MethodsMultiple of Earnings or EBITDAReplacement CostLiquidation ValueDividend Paying CapacityComparable Market ValueDiscounted Future EarningsDiscounted Cash Flows
Other Issues affecting ValuationTimes net asset valueDiscounted increase in net worthDiscounted free cash flowEBITDA (Earnings before interest, taxes, depreciation and amortization)Internal rate of return (IRR)
Strategic BuyersBeware of under-pricing your firm to a strategic buyer.Value of your firm is driven by their internal needs.Never be the first to mention price when dealing with a strategic buyer.
TermsAll cashCash down with installments- Recapturing hot assets- Personal guarantees of purchaseAll deferred - (discussion of earn outs to come)Stock for stock, cash and stockUsing gifting when selling to family members
Types of Financing Terms
Financing Terms Available by Source
Earn OutsOnly part of purchase price is paid at closing, rest due as earnings or revenue milestones are met in the future.Risk reduced to buyer.Seller has opportunity to get higher price.Complicated by - External economic or political issues- Creates a long-term relationship- Tax implications are tricky
After the CloseKeep valuable employees by planning a well-communicated transition to the new ownerbe honest with them!If merging organizations, anticipate and manage cultural clashesespecially if theyll affect customers.New owners will need guidance in hands-on operational questionsanticipate wholl provide it: previous owner or employees?
Whats the Worst and Best that can Happen?
Top Ten Reasons Owners Dont Get the Best Deal
Guidelines for keeping a business buy-able
Ten Top Reasons Owners Didnt Get Best Deal10.Were first one to mention price.9.Didnt plan to sell business.8.Proper documentation was not demanded.7.Didnt correctly position business for sale.6.Assumed they knew the best buyer.
Ten Top Reasons Owner Didnt Get Best Deal5.Tried to sell to the wrong people.4.Didnt get proper counsel.3.Didnt understand the buyers motive.2.Were unrealistic about price.1.Didnt understand the real value of the business.
A Buy-Able Business Stays in Top ConditionAccurate and up-to-date financial statements.Owner can be replacedmethod of success is no mystery.Owner is glad to keep the business until the right buyer is found.