Presentation summarizing the stages of owning a business and how to properly navigate from the initial stage of maximizing revenue to finally exiting the business with confidence and security.
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From Revenue to Exit: A Guide to a Successful Business
1. From Revenue to Exit: A Guide
Mark Johnson
Partner, B2BCFO
January 30, 2012
2. 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
3. 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
4. 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?
5. 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?
6. 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
7. 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
8. 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
9. 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
10. 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
11. 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
12. 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?
13. 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.
14. Planning the Exit
Top 10 Reasons Businesses Don’t Sell
(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.
15. Planning the Exit
Top 10 Reasons Businesses Don’t Sell
(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.
20. Planning the Exit
“84% of business owners
stated that the proceeds
from the sale of their
business were important to
their retirement plans.”
2007 ROCG Survey of 502 business owners in U.S. and Canada