without an exit strategy you have no strategy without an exit strategy you have no strategy john...
TRANSCRIPT
Without an Exit Strategy Without an Exit Strategy
You Have No StrategyYou Have No Strategy
John Martinka -
“Partner” On-Call Network
StatisticsStatistics
How many medium sized businesses are predicted to sell in the next decade?
StatisticsStatistics
How many of these businesses are prepared for sale?
StatisticsStatistics
According to Kiplinger, those companies without an exit strategy will _________ _______ ____ __ ________.
Statistics – SunTrust BankStatistics – SunTrust Bank75% of business owners ultimately plan to sell
or pass along their business as part of their exit plan
23% of owners are looking to expand and/or acquire other businesses
60% have delayed their exit plans by, on average, two years due to the Great Recession
42% feel maximizing their business’s value is the most important part of their exit plan
Statistics – The DisconnectStatistics – The Disconnect
11% of owners have lowered their expectations for the value of their business as a result of the current economy (SunTrust)
Where does the Financial Where does the Financial Professional fit?Professional fit?
Financial PlanningMotivationTeam coordinationProtection and tax reliefTax advantaged productsCompensation programsRetirement plans
StatisticsStatistics
The number one mistake small businesses make is ____________________.
Those with a business plan have, on average, sales and profit growth ____% more than those without a plan?
DecisionsDecisions
What is my business worth?Is it even salable?Do I sell all or part of my business?When? Now, six months or six years? Who do I sell to?
Who Do I Sell To?Who Do I Sell To?
OutsidersInsidersPublic Markets
And I get paid via:Cash, Stock, Notes, Consulting Agreement,
Employment Agreement, Earnout…
Types of BuyersTypes of Buyers
FinancialStrategicHybrid
– Foreign– PEG
Financial BuyersFinancial Buyers
• Individuals• Corporate refugees• Small business owners• Family• Employees
Financial Buyers Look ForFinancial Buyers Look For
SalaryProfitsNet worth increaseSalability in futureA jobManageable risk
StatisticsStatistics
There are ______ more people in the baby boomer generation than Gen X
Rank the generations in terms of entrepreneurship
___ Baby Boomer___ Gen X___ Gen Y
Strategic BuyersStrategic Buyers
Rapid growth potentialManagement structureGross marginEmployeesSynergyExcess overheadSystems in place
Why do Strategic Buyers Buy?Why do Strategic Buyers Buy?
People – Customers, Employees, VendorsGeographic Synergies, lower overhead, etc.EquipmentEliminate a competitorTo prove you can do itScaling = options & a higher selling price
Hybrid BuyersHybrid Buyers
GrowthEmployees/ManagementSolid practicesStable, non-cyclical industryA good “feel” (for the future)Profit and salary
Your Situation Your Situation
Who is your logical buyer?Why me?Why now?What is their motivation?
InsuranceInsuranceOn the SellerOn the BuyerKey EmployeeBuy-Sell AgreementDeferred Comp as part of the
financing package
Why Sell a Why Sell a Profitable Business?Profitable Business?
Why Sell?Why Sell?
The 3 D’s a buyer looks for
The 3 DThe 3 D’’ss
DivorceDeath Disability
Reasons affecting the ownerReasons affecting the owner
DivorceDeathDisabilityBurnoutRetirementFamily feudPartnership disputeLife
Earn a better return elsewhere
Company is part of larger firm
Company outgrows owner
Owner is an entrepreneur
Reasons affecting the Reasons affecting the businessbusiness
Owner dies without succession plan
Catastrophic natural eventUninsured damage or legal
claimsLarge loss of salesGovernmental actions or
seizuresPolitical decisions
Fraud or theftWrong business
decisionStrike or labor
disruptionLender changes terms
of financingInvoluntary
bankruptcy possible
When to sell?When to sell?
Experts say get prepared ___ to ___ years before selling
Why?___% of owners have to tell a “story”Sell one year _____ ___ ___ _____ ___
Current ConditionsCurrent Conditions2011 market conditions
– Serious buyers, fewer in number though– Serious sellers, coming out from their
shell– Willing banks???
What do they want? What don’t they like?
– Is this business “recession proof”
Buy, Be Bought or BothBuy, Be Bought or Both
More buyer optionsHigher multipleMore profits along the journeyMore controlMore cash at closing
What’s it Worth?What’s it Worth?
It’s a function of profit (EBITDA, free cash flow, etc.)
If not, you better be attractive to bigger companies, or,
Your value is based on your net asset value (and you’re worth less than the value based on profit )
What’s it Worth?What’s it Worth?
From Rob Slee’s, “Midas Managers:”$1-5MM in sales = 2-3 X EBITDA$5-50MM in sales = 4-7 X EBITDA
You can bet a $40MM firm will get closer to 7X than a $5MM firmGrowth is the key
Strategic BuyersStrategic Buyers
Rapid growth potentialManagement structureGross marginEmployeesSynergyExcess overheadSystems in place
ACTIONACTION™™ Plan Plan
A CTION
ACTIONACTION™™ Plan Plan
Arrange all the affairs of the company
CTION
ACTIONACTION™™ Plan Plan
Arrange all the affairs of the company
Coach and counsel the company. Its people, process and systems
TION
ACTIONACTION™™ Plan Plan
Arrange all the affairs of the company Coach and counsel the company. Its people, process and
systems
Transmit and teach all the good “things” about your firm
ION
ACTIONACTION™™ Plan Plan
Arrange all the affairs of the company Coach and counsel the company. Its people, process and
systems Transmit and teach all the good “things” about your firm
Intricacies that make your company special
ON
ACTIONACTION™™ Plan Plan
Arrange all the affairs of the company Coach and counsel the company. Its people, process
and systems Transmit and teach all the good “things” about your
firm Intricacies that make your company special
Operations and management systems in place that will make a transition smooth
N
ACTIONACTION™™ Plan Plan
Arrange all the affairs of the company Coach and counsel the company. Its people, process and
systems Transmit and teach all the good “things” about your firm Intricacies that make your company special Operations and management systems in place that will
make a transition smooth
Numbers, all the financials in understandable form, straightforward with no “tricks”
6 Seller Pitfalls6 Seller Pitfalls
6 Seller Pitfalls6 Seller Pitfalls
No selling planReason for sellingWeak non-financial factorsNot being prepared (tell a story)Poor financial systems and recordsNot properly screening buyers
Why? To get a deal done! Savings & Investments Private party loan to buyer Buy excess assets and sell off Buy inventory as needed Sell shares to employees Recruit equity partner Buy cash and Accounts Receivable Balloon payments, interest only loans, etc. SBA guaranteed bank loan – current situation 401k rollover (Guidant Financial, Bellevue) Insurance
Case Study – Industry BuyerCase Study – Industry Buyer
Management structureProtecting trade secretsThe buyer wants…?EmployeesLease, etc.CultureThe seller’s role post-sale
Case Study – Industry BuyerCase Study – Industry Buyer
Service BusinessQuasi competitors (different cities)Buyer was 5-7X as bigWeak management structure (seller)Lease, equipment, T1 lines, etc.Culture differencesSeller to remain in a sales role
Case Study – Industry BuyerCase Study – Industry Buyer
Background – the story Planning yields benefitsResultsIndustry offersSeller’s next stepThe returnA deal, a post-mortem
Case Study – Industry BuyerCase Study – Industry Buyer
Insurance needs–Where do you see a need?BuyerSellerManagementPensionBenefits
Case Study – Family SaleCase Study – Family Sale
Who? Kids, one kid, management?Do they want the business?Do they want the responsibility? Will they put any money in the deal?Do they expect a gift?What’s it worth?How long do mom and/or dad stay on?
Case Study – Family SaleCase Study – Family SaleDistribution CompanyDistribution Company
Discussion issues:– Who?– When?– How?– Future success?– If one child, what about the others?– Payment (this is mom & dad’s retirement)
Case Study – Family SaleCase Study – Family SaleDistribution CompanyDistribution Company
Dad bought companyMom kept job, came on board laterDad-CEO; Mom-CFOFast growth with both in management rolesInitial valuationBusiness plan for growthFamily succession or outside buyer?
Case Study – Family SaleCase Study – Family SaleDistribution CompanyDistribution Company
Son got outside experienceHired son as salespersonPromoted to sales managerGift of 10% of stockDaughter-in-law hired as office managerSecond valuation20-year payment plan from son to parents
Case Study – Family BuyerCase Study – Family Buyer
Insurance needs–Where do you see a need?KidsParentsManagementPensionBenefits
Keep in touchKeep in touch
John Martinka425-576-1814partneroncall/[email protected]: johnmartinka.com Free e-mail newsletter “The Business Buy,
Sell & Growth Advisor”