1. Maximise the Value of
Your Business
Craig West

2. Did you know?

3. 51%
Of business owners plan to use their
business as their primary source of
funding retirement
43%
Aim for a lump sum and a third expect an
ongoing income stream

4. The average age of a family business
owner is 56 years.
61%
Would seriously consider selling if
approached.

5. Baby Boomers – the 18 year wave

6. Since 2008, almost half of
business owners over age 50
have delayed their retirements
due to the GFC.

7. If you turn 50 today, your life
expectancy is now 32 more years.
31%
of retired business owners do not
have an adequately funded retirement.

8. Why Business Succession
and Exit Planning?
55% of all business exits are
due to death, disability,
bankruptcy, receivership,
liquidation or simply closing
the doors.

10. Covey says “ if you want to have
a successful enterprise, you clearly
define what you‟re trying to
accomplish…. the extent to which
you begin with the end in mind
often determines whether or not
you are able to create a
successful enterprise.”

12. Australia‟s mid-range market of
companies, with revenues ranging from
$10 million to $250 million are actually the
biggest contributors to our economy .
27,000 businesses.
3.2 M full time jobs.
Generating 33 % of total revenue and
accounting for 1 in 5 dollars borrowed .

13. Business Survival Rates – 2008/09
TOTAL
Non-employing
Micro/Small
Mid-Range
Big Business
Total Number of Businesses
Exiting the Market: 319,867

14. Business Succession
and Exit Planning
Combining the
Business, Financial and
Personal goals of business
owners to design and
implement a strategic exit.

17. Stage 1: Identify
Stage 2: Protect
Stage 3: Maximise
Stage 4: Extract
Stage 5: Manager

19. Stage One:
Identify Value

20. Financial Analysis

22. Non-Financial Analysis

24. Benchmarking
$269,858
$88,894
$41,592
$25,595
$384,352
$80,477
$63,969
$50,224
$251,971
$162,002
$48,676
$34,431
$- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000
Totalincomeperfee
earner
TotalincomeperpersonNetprofitperfeeearnerNetprofitperperson
Income KPI's
High Turnover Firms
High Profit Firms
This firm

26. Due Diligence
Checklist of all vital information:
• Financials, tax returns, BAS.
• Legal – licenses, leases , employment
agreements.
• Policy & Procedures / Systems.
• Intellectual Property – patents, trademarks.

28. Stage Two:
Protect

29. Structure Review
ASSETS
RISK

30. Decrease Risk
Non- financial analysis
Owner dependence
Reverse due diligence
Advisory board
Key people

31. What do you want from your business
in 5-10 years?

32. Stage Three:
Maximise Value

33. 1. Exit options
2. Job vs. Business
3. Boutique or Scale
4. Expansion or Efficiency
5. Decrease risk
6. Improve earnings – 5 * 5 * 5
7. Ownership Thinking

35. Strategy

38. Income vs Equity
“The proper man understands
equity – the small man, profits”
Confucius
551 – 479 BC

39. Maximise Value
Job vs. Business
Can you leave your business for
days,
Weeks,
months?
How can you add value
to your business?

40. Adding Value

41. Efficiency or Expansion

42. Not sure which level to pull or which
switch to touch?

43. The 5 x 5 x 5 Process
Increasing Business Profit & Value
How does it work?
5% improvement in
three key areas of your business

44. EARNINGS
Gross Profit + 5%
Reduce Expenses – 5%
Increase Sales + 5%

45. Here’s an example:

47. Secure Funding
• Many plans fall over at this point
• Age & Financial situation?
• Internal succession funding
• Equity Partner / Investor

48. Did you know that over 72% of Gen Y
want to own their own business…
but not on their own!

49. Ladder to Equity
1. Income
2. Incentive – commission
3. Profit Share - % profits
4. ESOP – Equity
5. Control / Management

50. Peak Performance Trust
A structure to allow
employees to think and act
like business owners by
matching the performance of
the business with their ability
to build equity.

51. Peak Performance Trust to fund:
• Profit share based on performance
• Profit used only to fund purchase of
business by same key employees
• Employee retention
• Improved performance and increased
value

52. Stage Four:
Extract Value

54. Strategic Sales
"Price is what you pay
Value is what you get "
Warren Buffett
1 + 1 = 3

55. Strategic Value Drivers

56. August 2011 –
Archer accepts $1.2B for MYOB
The acquisitive private equity fund bought MYOB in February 2009
for about $500 million, and then boosted earnings by stripping out
costs, raising prices and aggressively growing its customer base.
The deal is understood to have been valued at
a multiple of 11.3 times EBITDA.
MYOB is used by more than 1 million SME’s in Australia and NZ.

57. Siri wasn’t made in Cupertino. It was
actually acquired in a deal rumoured to be
worth close to $200 million.
It only took only one phone call to
turn Siri's Dag Kittlaus's life around.
Before the call, he was the head of a
Silicon Valley start-up and
afterwards, he was a multimillionaire
working with Apple.

58. Sale to a listed company

59. ASX – PE ration (multiple)

60. Private to Public Arbitrage
Historical ASX average 13.73 x
Private companies average 2.5 x
The value gap is called “private to public arbitrage”

61. Listed companies have a 22 year high in CASH

62. Offshore buyers
The total value of transactions increased 35% over the
previous year to US$736 billion.
8.8 * EBIT average

63. AUSTRALIAN
BUSINESS
PTY LTD
$500K Profit
EXIT
TRADE SALE
@ 2 x = $1 million
STRATEGIC SALE
@ 4 x = $2 million
SALE TO LISTED CO @
7 x = $3.5 million
To achieve a higher sale price, it‟s much
smarter to focus on HOW to sell and
WHO to sell to, rather than trying to
increase profit.

64. Net proceeds is the important $
CGT – small business concessions.
Structures – who owns assets – before and after
Other costs - legal, accounting, other fees.

65. Equity Matrix
100%
owned
20%
owned

68. Stage Five:
Manage Value

69. Strategic Financial Projections
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Revenue
Revenue - Dept A Revenue - Dept B
0
5
10
15
20
25
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Headcount
Headcount
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Profit / Dividend
Net Profit Dividend
0%
10%
20%
30%
40%
50%
60%
70%
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Margin / Div Ratio
Net Margin Div payout ratio

70. Successors Exit Options

71. Smoothtransition
Incoming CEO or Partners
Gradually increasing involvement

72. Smoothtransition
Existing CEO or Partners
Gradually reducing involvement

73. Strategy for successful succession:
systems / processes

74. Communication Strategy
• Implementation Success
• Shareholder / Key Management Communication
• Buyer Communication
• Staff Communication
• Client Communication

75. Case Studies

76. Client Case Study:
Real Estate
 Real estate office in NSW
 Combined commercial office and residential sales : Central Coast
 3 owners
 Not in a rush to exit
 Business Value approx. $2.4 m
 14 employees

77. Client Case Study:
Outcomes
• Implemented Peak Performance Trust
• Engaged and motivated 5 key staff with equity plan
• Reduced risk – staff retention
• Restructured
• Asset protection & risk management
• Tax and CGT advice
• Wealth outside business structure
• SMSF to hold appreciating assets
• Risk minimization
• Insured for unplanned events

78. Recent Typical Project:
Insurance Brokers
• 5 month time frame
• 3 existing partners, one potential, two possible
• 5 year plan to sell down
• Accelerate sale by partial sale to VC / Private Equity
• 18 months of ongoing coaching/consulting

79. Outcomes
• Pre-documented sales programmed over 8 years
• Maximum Equity Value for outgoing shareholders
• Motivated Staff – with a predetermined program to transition
- Ladder to equity
• Recruitment / retention tool
• Accelerated thru initial sale to Austbrokers

80. Client Case Study:
Manufacturing
C-Mac GM Steve Grylak, with the national
award for best ESOP for SME’s /
Succession at the Employee Ownership
Conference and awards dinner last Thursday
10th May. C-Mac has bucked the growing
national SME trend to wind up on owner
retirement (The Exit Generation Needs Help
– SMH 19 Sept.2011) with the introduction of
an employee owned share plan ( ESOP)
offered to all its employees. The engagement
of employees as owners has already seen an
18 % hike in productivity at the plant.

81. Client Case Study:
Clearwater Filter Systems
Sale of a family owned private company at 9.5 times earnings to JWI.
Key Factors:
• Listed company as buyer.
• Offshore buyer .
• Strategic sale – expansion from NZ to Australia.
• 5 year exit strategy.

82. Client Case Study:
Sydney Software Business
• 60 year old owners - focused on reducing involvement and gradual sale.
• Peak Performance Trust involving 8 key staff.
• GM now running business – “semi retired” owners.
• Business Value now over $6 Mil.
• All other assets separated and protected.
• “truly a good story of transitional management”

83. Strategic Advisory
At start of engagement ( August 2011 ):
• Heavily reliant on the three owners
• Owners frustrated at staff disengagement
• Unclear about the vision and future of the business
• Owners goals - semi-retire while continuing to grow the value of their business
• Owners personally exposed to potential liability

84. Strategic Advisory
Key Actions:
• Overall strategy & vision defined
• Improved people management & communication
• Ownership Thinking implemented – move towards a business of business
people
• Non-owner GM appointed to take the business to the next level and reduce
the reliance on owners

85. Strategic Advisory
Outcomes:
• Staff understand and are aligned with the vision and
• Management and staff are clearer about what‟s expected of them
• Staff are in the loop of what‟s going on in the business through monthly company-wide
information sessions
• The two owners who are closest to their planned retirement age have appointed and are
grooming their successors
• All employees have been educated in business ownership, are now receiving information
about the performance of the business and will soon have a self-funded incentive plan to
replace their „christmas bonus‟
• Less „me‟ focus and more „we‟ thinking in the culture: phasing out entitlement and bringing
staff on-board to a culture of purpose, visibility and accountability
• Employees are sharing the insomnia and stress of running the business

86. What Next?
Further information on our website:
www.successionplus.com.au
Complete feedback form to be added to our newsletter
Arrange a free 90 minute review

87. Craig West
1300 665 473
cwest@successionplus.com.au
Visit www.successionplus.com.au
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