From Revenue to Exit: A Guide to a Successful Business

From Revenue to Exit: A Guide

Mark JohnsonPartner, B2BCFOJanuary 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?

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 ExitPlanning 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.


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.


Preparing for Your ExitPreparing for Your Exit

© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com


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

Did you have a plan when you started your business ?



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

exit.


2007 ROCG Survey of 502 business owners in U.S. and Canada2007 ROCG Survey of 502 business owners in U.S. and Canada


““84% of business owners 84% of business owners stated that the proceeds stated that the proceeds

from the sale of their from the sale of their business were important to business were important to

their retirement plans.”their retirement plans.”






““It’s never too early to begin It’s never too early to begin this type of planning, but it this type of planning, but it

may certainly one day be too may certainly one day be too late.”late.”



Provided by Rob Slee

Sales of businesses occur in cycles

The Transfer Cycle


With current estimates that more than With current estimates that more than 40% of business owners plan to exit 40% of business owners plan to exit

within the next five years and 80% within within the next five years and 80% within 10 years, there will be many more sellers 10 years, there will be many more sellers

than buyers in the marketplace.than buyers in the marketplace.

- Inc.com, University of Dallas School of Management and GW- Inc.com, University of Dallas School of Management and GWEquity survey, 2006 as cited by Peter Hoy in, Most BusinessEquity survey, 2006 as cited by Peter Hoy in, Most BusinessOwners Plan to Sell Within Three Years.Owners Plan to Sell Within Three Years.



• How many businesses exist in the United States today?

Non-Em’ee Firms: 17,646,062

1 – 19 Em’ees

20 – 99 Em’ees

4,320,290

508,249

100 – 499 Em’ees 82,334

500 – 999 Em’ees 8,326



Your hard-earned wealth can be diminished by:

Changes to your business

What is at stake ?

Income & Estate Taxes

Lack of a Successor

Changes to the global economy

Deal Structuring & Advisory Fees



So, how will millions of Baby Boomers:So, how will millions of Baby Boomers:

Replace the income from the business ?Replace the income from the business ?

Convert their illiquid, primary asset to cash ?Convert their illiquid, primary asset to cash ?

Protect their legacy ?Protect their legacy ?

Transfer their business wealth to the next Transfer their business wealth to the next generation ?generation ?



What is an Exit Strategy?What is an Exit Strategy?

An Exit Strategy is: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, Exiting Your Business, Protecting Your WealthProtecting Your Wealth

A Strategic Guide for Owners and Their AdvisorsA Strategic Guide for Owners and Their Advisors

Part I:Part I:Preparing for Your ExitPreparing for Your Exit

Part II:Part II:Options for Your ExitOptions for Your Exit

Part III:Part III:Planning Your Exit, Planning Your Exit,

Protecting Your WealthProtecting Your Wealth


Six Steps for Developing an Six Steps for Developing an Exit Strategy PlanExit Strategy Plan



Your Plan follows these six steps and

instructs your advisors on where

their input is required.

Your Exit Strategy Plan


An Exit Strategy takes you from: An Exit Strategy takes you from:

Concluding Thoughts

• Illiquidity to Liquidity

• Personal wealth trapped to ‘liberated’

• Private Company Risk to Diversification

• Working to Retirement (for Baby Boomers)

• Wealth at Risk to Wealth Protection Strategies

• Guesswork to actual planning for illiquid wealth


From Revenue to Exit: A Guide to a Successful Business

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