From Revenue to Exit: A Guide to Business Transition

From Revenue to Exit: A Guide

Mark Johnson
Partner, B2BCFO
January 30, 2012

Mark Johnson

 CPA with KPMG an international accounting
firm for 12 years
 Senior financial executive for large retailers
including Victoria Secret Stores, Kay-Bee
Toys, Conway Stores and PetsMart
 Partner for B2B CFO with clients in
manufacturing, health care, education,
hospitality, construction and litigation support

Stages for a Business Owner

 Stage 1 – Revenue Maximization for
Survival
 Stage 2 – Pursue Higher Quality Revenue
Sources to Maximize Profits
 Stage 3 – What is My Business Worth?
 Stage 4 – Preparing to Exit the Business

Stage 1 - So You Know the Answer
to…..

 How healthy is my business?
 When can I take money from the business?
 How much can I take, so it won't bleed to
death?
 How much debt OK for the business?
 Am I meeting my financial goals?
 What about next year?

Stage 2 - Key metrics

 Do you know where your company
stands versus your key competitors?
 Where should you focus efforts for
improvement
 Am I meeting my financial goals?
 What about next year?

Characteristics of KPI’s

 Only have 3 to 5 KPI’s for an organization
 Roll up departmental KPI’s to address
company- wide KPI measures
 KPI differ by organization
 KPI’s provide a direction, benchmark, target
and timeframe
 Includes operation and financial information

Some Key Performance Indicators

 Sales volume per unit or location
 Margin per product or location
 Cost per unit or location
 Overhead or fixed costs
 Utilization % of plant capacity or capital equipment
 Cash flow positive (negative) per week
 Payroll cost per employee
 Volume trends in markets (CY vs LY and CY vs Plan)
 EBITDA
 Gross margin % by product or location

Challenges with KPI’s

 Expensive or difficult to determine
 Adjusts to changing needs in the company
 Difficulties in benchmarking
 Rough guide rather than a precise
measurement

Stage 3 – Three Step Process to
Driving Greater Value

 Adopt the lens of an acquirer and
perform a thorough diagnostic of the
business
 Know where your company stands in
the industry
 Establish a foundation for future
performance

Stage 3 – Value Drivers

 Create and implement a succession plan so the
owner can exit
 Establish written processes and process controls
 Maintain key resources and relationships
– Key employees and customers
– Protect intellectual property
– Strong market position (niche or leadership)
 Provide financial statements with history and details
that are readily available and reliable

Stage 3 - Benefits of Preparing the
Company for the Exit

 Bridge the “value gap” by achieving a higher
transaction price through superior operating
performance (i.e. increase EBITDA multiple)
 Facilitate deal closure by setting reasonable
expectations as to what the business is really worth
 Anticipate and address the risks which can result in
an “eleventh hour” reduction in price or even derail
the deal completely
 Planning and preparation will strengthen your
negotiating position with prospective acquirers

Stage 4 – Key Questions

 If a competitor or financial buyer knocks on your
door would you be ready?
 Do your financial statements accurately portray the
value of your business?
 Do you know where your company stands versus
your key competitors?
 Have you identified the gaps or issues that threaten
your continued success and growth?
 If you had to leave the business today would your
company continue to thrive?

Planning the Exit
Top 10 Reasons Businesses Don’t Sell

1. The business is extremely overpriced, in some cases
by as much as 100%.
2. The business has several family members in top
management.
3. The owner is the business - as a result the company
cannot effectively run without the efforts of the
owner.
4. One or more customers constitute more than 25% of
the total business.

Planning the Exit
(Continued)

5. The industry that the business is in is
diminishing or threatened by globalization.
6. The owner(s) is aging and has slowed-down,
resulting in diminishing revenues.
7. The owner did not take time to perform exit
planning. To properly prepare the business
for sale, the owner should have engaged an
Exit Planning Advisor 2-5 years prior to
selling.

Planning the Exit
(Continued)

8. Many of the financial rewards of the businesses were taken by
the owner in various "perks" which, from valuation, banking and
market perspectives, will not make it to the EBITDA as add
backs (meals and entertainment, promotions, business travel,
etc.)
9. The seller did not take time to become educated on the selling
process, especially on the possible ugliness of the due
diligence process by the buyer team.
10. The owner did not hire a proper professional such as a trusted
M&A Advisor, as opposed to a broker that usually works both
sides in a sale process.

Preparing for Your Exit

© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com

Planning the Exit

Did you have a plan when you
started your business ?

Do you have a plan to exit your
business and protect your wealth ?


Planning the Exit

The average business owner spends
80 hours preparing a business plan
and only 6 hours preparing for their
exit.


Planning the Exit

2007 ROCG Survey of 502 business owners in U.S. and Canada

Planning the Exit

“84% of business owners
stated that the proceeds
from the sale of their
business were important to
their retirement plans.”


Planning the Exit

“It’s never too early to begin
this type of planning, but it
may certainly one day be too
late.”


The Transfer Cycle

Sales of businesses occur in cycles

Provided by Rob Slee

Planning the Exit

With current estimates that more than
40% of business owners plan to exit
within the next five years and 80% within
10 years, there will be many more sellers
than buyers in the marketplace.
- Inc.com, University of Dallas School of Management and GW
Equity survey, 2006 as cited by Peter Hoy in, Most Business
Owners Plan to Sell Within Three Years.


Planning the Exit
• How many businesses exist in the United
States today?

500 – 999 Em’ees 8,326

100 – 499 Em’ees 82,334
20 – 99 Em’ees
508,249

1 – 19 Em’ees
4,320,290

Non-Em’ee Firms: 17,646,062


Planning the Exit
What is at stake ?

Your hard-earned wealth can be diminished by:

Changes to your business
Changes to the global economy
Lack of a Successor
Income & Estate Taxes
Deal Structuring & Advisory Fees


Planning the Exit
So, how will millions of Baby Boomers:

Convert their illiquid, primary asset to
cash ?
Replace the income from the business ?
Transfer their business wealth to the next
generation ?
Protect their legacy ?


What is an Exit Strategy?

An Exit Strategy is:

The written goals for the succession of a business’
ownership and control, derived from a well thought
out and properly timed plan that considers all
factors, all interested parties, and the personal
goals of the owners in a manner and a time period
that is accommodative to the business, its
shareholders, and potential buyers.


Exiting Your Business,
Protecting Your Wealth
A Strategic Guide for Owners and Their Advisors

Part I:
Preparing for Your Exit

Part II:
Options for Your Exit

Part III:
Planning Your Exit,
Protecting Your Wealth


Planning the Exit

Six Steps for Developing an
Exit Strategy Plan


Your Exit Strategy
Plan

Your Plan follows
these six steps and
instructs your
advisors on where
their input is
required.


Concluding Thoughts

An Exit Strategy takes you from:

• Guesswork to actual planning for illiquid wealth
• Illiquidity to Liquidity

• Personal wealth trapped to ‘liberated’

• Private Company Risk to Diversification

• Wealth at Risk to Wealth Protection Strategies

• Working to Retirement (for Baby Boomers)


From Revenue to Exit: A Guide to Business Transition

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