Planning Your Exit All Business Owners Leave Eventually. Successfully Plan yours Critical Success Factors In Maximizing Value

Transcription

1 Presenter: TERENCE SHEPHERD Planning Your Exit All Business Owners Leave Eventually. Successfully Plan yours Critical Success Factors In Maximizing Value

2 The Need For Planning

3 The Need For Planning Owners feel that protecting the business is important, but are spending majority of their time working IN their business instead of ON their business long term planning is not top of mind Mass Mutual Owners Perspectives Study, % of private business owner s wealth is tied up as an illiquid asset in their business AM&AA Loyola Management University 80% of privately owned businesses are not currently increasing the value of their companies Robert Slee, Robertson & Foley Investment Banker The average entrepreneur spends 80,000 hours building their business but only 6 hours planning it s transition Raymond Cabot Grant Thornton BOCA RATON BOSTON GRAND RAPIDS JACKSONVILLE SEATTLE MONTREAL VANCOUVER 3

4 The Need For Planning Less than 40% of business owners say they successfully transitioned their business and only 10% said they received a price anywhere close to what they wanted or expected Canadian Federation of Independent Business (CFIB), SME Succession Update Fewer than 20% of businesses for sale actually close Small Business Administration Over 60% of family owned businesses transferring to the 2 nd generation fail Family Firm Institute (FFI) Not all BUSINESSES ARE SALEABLE even successful businesses will face challenges if they have not been deliberately managed for sale The Owner s Journey, 2014 Columbia Business School/UST BOCA RATON BOSTON GRAND RAPIDS JACKSONVILLE SEATTLE MONTREAL VANCOUVER 4

5 Dismal Statistics Continued Lack of Urgency in Formal Planning 2008 ROCG Survey 9% have a formal written plan 2011 ROCG survey 14% have a formal written plan 2015 Securian Financial Group Survey 28% have an exit plan in action 2018 Pepperdine Capital Report: Deal Size With formal planning prior to engagement to sell >$500K 15% $500K-$1M 30% $1M-$2M 28% $2M-$5M 37% $5M-$50M 57% BOCA RATON BOSTON GRAND RAPIDS JACKSONVILLE SEATTLE MONTREAL VANCOUVER 5

6 Exit and Value Growth Planning Basics 6

7 #1 Holistic Approach Should take a holistic approach to align personal objectives, with business strategy. Your individual objectives both financial and nonfinancial should drive your business strategy going forward making It should be the vehicle to deliver your personal End-In-Mind goals and objectives. BOCA RATON BOSTON GRAND RAPIDS JACKSONVILLE SEATTLE MONTREAL VANCOUVER 7

8 #2 End-In-Mind Planning BOCA RATON BOSTON GRAND RAPIDS JACKSONVILLE SEATTLE MONTREAL VANCOUVER

9 #3 Identify the Value Gaps Is There A Wealth Gap? What s needed from the business to live the lifestyle of your choosing? Increase income stream to fund retirement lifestyle objectives Increase business value BOCA RATON BOSTON GRAND RAPIDS JACKSONVILLE SEATTLE MONTREAL VANCOUVER 9

10 #3 Identify the Value Gaps Is There A Life Gap? Don t Live in Regret! Has business prevented you away from: Building strong and enduring relationships with your: Children Grandchildren Spouse Friends Travel Passionate hobbies Starting different business ventures Enjoying the best use of your time and talent BOCA RATON BOSTON GRAND RAPIDS JACKSONVILLE SEATTLE MONTREAL VANCOUVER 10

11 #4 Planning Business Strategy To Achieve Personal Objectives A step-by-step plan to increase profitability and desired value in the time frame you want Design growth and improvement plans based on primary buyer target BOCA RATON BOSTON GRAND RAPIDS JACKSONVILLE SEATTLE MONTREAL VANCOUVER 11

12 #5 Contingency Planning Forced Exit - Having A Back-up Plan In Case Of Disability Or Pre-mature Death The What If? Contingency Planning Plan B Your exit strategy planning should take into consideration possible derailment by changes in circumstance Who/what will be in place to take over on a moments notice (successor development plan) What type of written agreements do you currently have in place, providing for the orderly transfer of business ownership in the event of death or permanent disability? What written agreement do you have in place on who will take over the day-to day management? BOCA RATON BOSTON GRAND RAPIDS JACKSONVILLE SEATTLE MONTREAL VANCOUVER 12

13 #6 Time To Implement Many business owners believe exiting is a simple one-time transaction that needs no time to plan and implement. A successful exit strategy is a process. Like your retirement and personal investment planning strategies, the longer the time line to plan and implement, the better the results. BOCA RATON BOSTON GRAND RAPIDS JACKSONVILLE SEATTLE MONTREAL VANCOUVER 13

14 Building Business Value BOCA RATON BOSTON GRAND RAPIDS JACKSONVILLE SEATTLE MONTREAL VANCOUVER 14

15 Stampede To The Exit 15

16 The Basics Stampede To The Exit 16

17 #1 Change in Mindset Stampede To The Exit 17

18 Stampede To The Exit 18 A Change in Mindset Are you living the Entrepreneurial Myth? The romantic belief that businesses are started by entrepreneurs risking capital to make a profit is a fallacy. Michael Gerber The E-Myth Most business owners aren t in business for growth and building value, but for lifestyle, Gerber was right Robert Slee Investment Banker, Business Owner, and Author

19 A Change in Mindset According to Rob Slee: 80% of privately owned businesses are not currently increasing the value of their companies Why? Owners get caught up in the doing rather than what ought to be done Stampede To The Exit 19

20 Stampede To The Exit 20 A Change in Mindset Why are you in business? For growth, to build value that you can later cash out? Or For lifestyle? Your answer to these questions will determine how you should conduct and PLAN your business life going forward

21 Stampede To The Exit 21 Building Business Value #2 The Importance Of A Formal Plan

22 The Value of a Formal Plan Top 10 list of lessons learned that have lead to successful businesses I have owned #1 Know where you are. Know where you re going. Execute your plan David Friend Co-Founder, Chairman & CEO Carbonite, Inc. Stampede To The Exit 22

23 The Value of a Formal Plan Owners work hard, but undirected diligence isn t efficient Planning places effort, where effort is most needed John Wooden Pyramid of Success Stampede To The Exit 23

24 Why a Formal Plan in Writing? The correlation between having written goals and achieving greater success has been well documented. Original Masterpiece Study Napoleon Hill Think and Grow Rich Tony Robbins - Unlimited Power Stampede To The Exit 24

25 Stampede To The Exit 25 I hope I reach the finish line! The Need For Planning A strategic plan to grow and become more profitable to build business value to maximize your financial pay day upon exit to protect and accumulate wealth HOPE IS NOT A STRATEGY

26 #3 As Put Plan Together Begin With The End In Mind Stampede To The Exit 26

27 Stampede To The Exit 27 Begin With The End In Mind Begin with the visualization of your personal primary aim: What do you want for your life? Business is just a means to an end. Michael E. Gerber E-Myth Worldwide

28 Stampede To The Exit 28 Begin With The End In Mind Owners Get caught up in the doing and lose sight of where exactly they re going Often get so intertwined with the business, it takes their life over and Unconsciously allows the business to become the end game instead of the means to an end the fulfillment of their personal goals and objectives

29 Stampede To The Exit 29 Identifying The End Game Removes subjectivity in general thought process of I want to grow the business Answers the question of exactly how much you want to grow Allows owners to build business value with direction to get to their end-in-mind Note: It doesn t mean it s the end of the game, planning gives owners options when they get there.

30 #4 Understanding Business Value Stampede To The Exit 30

31 Understanding Business Value Value Worlds Market Value what the open market says the business is worth Fair Market Value what the IRS/Courts say it is worth Owner Value what you say it is worth Investor Value what an investor says it is worth Collateral Value what the bank says it is worth Others: Economic; Bankruptcy; Insurable; Early Equity (Venture Capital); Public; Fair Value Robert Slee Private Capital Markets Stampede To The Exit 31

32 How An Owner Sees The Value Stampede To The Exit 32

33 How A Buyer Sees It! Stampede To The Exit 33

34 Stampede To The Exit 34 So What Is My Business Worth? Source: Pepperdine Private Capital Markets Report

35 Stampede To The Exit 35 So What Is My Business Worth? Source: Pepperdine Private Capital Markets Report

36 #5 Understanding Value Drivers Stampede To The Exit 36

37 Stampede To The Exit 37 Understanding Value Drivers Identifying the Drivers of Value Normalized earnings and the cash flow from business Predictable and proven future earnings

38 Stampede To The Exit 38 Understanding Value Drivers $ Transition plan is created x Thoughts of exit strategy x x Optimal Transaction Day X Initial thoughts of exit x Sub-optimal transaction day Start-up Growth Maturity Decline Typical Business Life Cycle Time

39 Stampede To The Exit 39 Understanding Value Drivers Identifying the Drivers of Value Normalized earnings and the cash flow from business Predictable and proven future earnings The multiple used by a buyer to value the business (the fewer the dependencies the better) $ x multiple Reflects the risks to the buyer Range of Business Value

40 Stampede To The Exit 40 Managing RISK Factors Perceived Factors that increase Buyer risk decrease the multiple Smaller is riskier Reliance on owner Lack of management depth Over-reliance on key personnel Instability of the industry Lack of product diversification Over-reliance on too few customers Over-reliance on suppliers Fluctuating earnings Knowing Your Value Drivers

41 Stampede To The Exit 41 Understanding Scale To Drive Value Sales ($ millions) ,000 Small Businesses Lower Middle Upper M i d d l e M a r k e t Large Companies 5.4MM 300,000 2,000 15% 40% 45% 2-3x 4-8x 8-10x 10-11x >12x Source: Robertson & Foley Investment Bankers

42 Business Value Growth Strategy Stampede To The Exit 42

43 #1 Look From Buyer s Perspective Stampede To The Exit 43

44 Stampede To The Exit 44 Strategy Planning Value Drivers What values will potential buyers be looking for in your business? Identify how your business is currently aligned with the values that potential buyers would seek. This will help you to.. Identify gaps Set immediate baseline strategies for your business development and profit improvement initiatives.

45 Stampede To The Exit 45 Strategy Planning Value Drivers Values buyers look for: Can this business operate independently of you? Does the business have a unique differentiator that sets it apart from all others in the industry? Is the business generating sustainable profits? Is the customer base diversified and capable of further business development? Is there an untapped market for the products or services? Are the systems and processes considered first rate for the industry? Is the right team in place for growing the business?

46 Strategy Planning Value Drivers Values buyers look for: What s the strength of the management team? Are there proprietary assets that have future value? Does the business have contracts with key stakeholderscustomers, suppliers, employees, other owners? Are there potential liabilities that could damage the future value of the business? What is the strategic outlook of the business? Is there a business plan in effect that has been followed and demonstrates future growth potential? Stampede To The Exit 46

47 Stampede To The Exit 47 Strategy Planning Value Drivers Minimizing the Dependency on You Systematize the operations Develop your team Empower them to make decisions (even the bad ones) Manage Expectations Your business is much more valuable if it can run without you!

48 #2 SWOT Analysis Stampede To The Exit 48

49 Stampede To The Exit 49 ROCG Framework External Environment Competition Industry Technology THE BUSINESS Customers Shareholder Circumstances Business Environment

50 Stampede To The Exit 50 ROCG Framework Internal Environment Products and Services Marketing and Sales Vision Strategy Structure Culture People Systems and Processes Finance

51 Stampede To The Exit 51 Growth Strategies SWOT Analysis Understand your Strengths, Weaknesses, Opportunities and Threats Leverage internal strengths to pursue external opportunities Counter weaknesses and threats (internal and external factors that undermine successful strategy execution)

52 Stampede To The Exit 52 Growth Strategies SWOT Analysis Analysis reveals issues that your strategy must address: Is the right organizational structure in place to support growth? Are there gaps or holes in the management team? Is there a recruitment plan in place to ensure a steady workforce stream? Are adequate processes and systems in place? Are there effective communication channels throughout the organization?

53 Stampede To The Exit 53 Growth Strategies SWOT Analysis Analysis reveals issues that your strategy must address: Is there a contingency plan in place in event of disability or premature death? Are there new market segments the company might enter? What is the best role for new products and services? Is an acquisition needed?

54 #3 Strategic Growth Analysis Stampede To The Exit 54

55 Stampede To The Exit 55 Business Value Growth Strategy Carefully consider your growth investment strategies Increase market share by taking advantage of competitor s cutbacks/economic weaknesses; Enter new markets where weakened competitors are; Seek M&A opportunities for bargain basement opportunities (lots of Boomers looking to sell; more sellers than buyers)

56 Stampede To The Exit 56 Growth Strategies Strategic Ideas Fall Into One of Four Areas New Services Existing Clients Business Development 3 New Clients Step Out 4 Existing Services 1 2 Status Quo Business Extension Source: Boston Consulting Group

57 Stampede To The Exit 57 Higher risk New Services Building Business Value Growth Strategies Strategic Ideas Fall Into One of Four Areas Existing Clients Business Development Launching New Services New Clients Step Out Major New Strategic Direction Maximum risk Existing Services Low risk Operational Improvement Focus Status Quo Attacking New Markets Business Extension Moderate risk

58 #4 Strategy Execution Stampede To The Exit

59 Stampede To The Exit 59 Putting It All Together: Your Custom Designed Plan Moving On Action Steps

60 Stampede To The Exit 60 Success Key #1 Team Alignment Develop aligned vision Set long term (5 years) and short term (1-2 years) goals and objectives Develop team communication plan sharing the vision Tie in remuneration/performance bonuses to company goals

61 Success Key #2 Financial Management REVENUE IS VANITY; PROFIT IS SANITY; BUT CASH IS KING Monitor your cash position and requirements on a regular basis Beware of growth s cash land mine. Growth demands working capital investment. Don t run out of cash! Carefully plan new product or service offerings that will tie up and consume cash Carefully plan business expansion strategies that will tie up and consume cash Stampede To The Exit 61

62 Stampede To The Exit 62 Success Key #3 Strengthen Organization Structure Strengthen your team get the right people for the right job First get the right people on the bus in the right seats then figure out where to drive it Jim Collins Good to Great Develop management depth-upper and middle management Develop and strengthen processes and systems Develop strategic management oversight plan Execute - phase in accountability / consequences

63 Stampede To The Exit 63 Doing It Right The Secret to Success is.. EXECUTION! Don t F.T.I Take Action Today As Tomorrow.. Often becomes NEVER!

64 Thank You Questions? Take our online survey for transition readiness visit Terry Shepherd (: (617) *: Start Your Planning Now Stampede To The Exit 64