jeff christensen & holly quinn nenedd business loan specialists economic development financial...
TRANSCRIPT
Jeff Christensen & Holly QuinnNENEDD Business Loan Specialists
Economic Development Financial ProfessionalsAccredited Business Planning Advisors
How to Plan a Successful Business Exit
Exit & SuccessionWhat it means to your Family, Community
and Region
Challenges
Exit Opportunities
Who can Help & How
Lessons LearnedWhat can go wrong?
1st Attempts Often FailWrong PriceBuyer not Qualified
Work With Experienced AdvisorsExplore All Exit OptionsBusiness Value
Buyer NeedsRoom for Improvement
Last Minute NegotiationsFailing to Plan….Planning to Fail
Impact – What are the FactorsBusiness Owners are Aging52-70% of Business Owners will leave by
2017Small to Mid-Sized Businesses
1/3 Transfer to Family 1/3 Sell to Someone Else 1/3 Sell Inventory & Close the Door
Economic Downturn Business Owners Think They’ve hit Bottom
AlreadyRetirement is on Hold….Hope to Sell at a Later
Time
Impact – What are the Factors
Outside Factors will Force an ExitLess Financing AvailableBanks have tightened Lending Practices
Due to RegulationsFewer Entrepreneurs and BuyersLack of Qualified Buyers
Buyer Lives Elsewhere – Profits Leave Community Absentee Owner
Local Owners = Local Wealth
Uncontrollable & Risky
Family Succession can by risky65% of Family Successions FAIL
80% within the 1st 2 yearsDo Family Members want the Business?
Not all Exits can be controlledOwner is Key Employee – Forced Early Exit
Illness, Disability, Death
BuyersBusinesses are Sold to Individuals
Seeking a Life StyleBuying a Job
Buyer are Looking for:Bragging RightsA Good Deal
Good Management Up to Date Inventory Website/Advertising/Marketing Curb Appeal
Business ValueValue of Business
20% of Business Owners Undervalue their Business Leaving Money on Table
Business Must be Priced CorrectlyOver Priced to Cover other ExpensesBuyers Consider Sale Based on Past
Performances Future Performance/Earnings
Excess Market Time = Increased Risk Loose Clients, Employees, Suppliers
Fair Market Business Valuation
Required for a Qualified Business Deal70% of Businesses don’t sell
Seller isn’t MotivatedFinancials in Disarray
Unreported income Self Accounting System
Using Business to Pay for Items not Related to the Business
Business Owner’s Goals
Maximize BenefitsMinimize TaxesLook for all Cash Deal
No owner FinancingLittle or no GoodwillMaximum Sales Price
Success - OpportunityBuyer wants more Success
Looking for Opportunity – not repetitionSeller must be Truthful
Need to fix Financial IssuesSeasonalityEmployeesContractsLease/Ownership of Building
Financial Demands
Business Must Meet 3 Financial Needs
1. Return On Equity
2. Pay New Owner Salary & Benefits
3. Make Loan Payments
Example$1,000,000 – Total Purchase Price $200,000 – Equity (20%) $800,000 – Loan (80%)
$30,000 – 15% ROE$60,000 – Salary/Benefits$80,000 – Loan Payments$170,000 Cash Flow NEEDED
Financing80/20%Required Equity Injection
SBA or USDA GuarantyLender RequirementsVolatility of MarketType of Business
Financial Information – Past 3 yearsIncome & Expense StatementsBalance SheetAccounts Payable & Receivables
Business ReorganizationChange OperationDemonstrate OpportunityReduce ExpensesReduce Excess CompensationRefrain from Discretionary SpendingSimplify Financial ReportingReport ALL Income
Unreported Income $50,000/year – saves approx $20,000 on
taxesReporting Income Increases Cash Flow
Increases Business Value at Time of SaleTwo Times Business Owner gets Money
Operating the BusinessTime of Sale
Additional Purchase Price of the Business$10,000 Additional Financing RequiredLeaving $40,000 Additional Cash Flow