exit planning for business owners

"Exit Your Business with a Plan in Hand and Retire with Peace of Mind"

February 24, 2010

CenterPoint Business AdvisorsMichael F. Coyle and Jeffery Paquet

Introduction• Wiifm "What's In It For Me"• Need for Exit Planning• Seven Step Exit Planning Process• The ROI of Exit Planning• How to Get Started with Exit Planning

Wiifm #1

• Developing a comprehensive Exit Plan will give you significant "peace of mind" in executing what is perhaps the single most important financial event of your life.

• An Exit Plan is your "GPS" through the journey of converting your business assets into cash

IntroducingMichael F. Coyle, CBI

• Principal, CenterPoint Business Advisors, Inc.• Exit Planning Advisor, Business Enterprise Institute• Certified Business Intermediary (CBI) Awarded by the

International Business Brokers Association• MBA – Boston College, Carroll Graduate School of

Management• Serial Entrepreneur

IntroducingJeffrey Paquet, CBI

• Business Advisor, CenterPoint Business Advisors• Career in Product Development & Management of

Manufacturing Companies• Expertise in Transportation Sector – Aerospace &

Automotive • B.S. Aerospace Engineering – UCLA• Dedicated to Serving the Complex Needs of Business

Owners and Companies with Strategic Value

CenterPoint Business Advisors assists the owners of small to mid-sized businesses in planning for and executing the most important financial event of their lives...the inevitable exit from their business.

• Advisory Market          Valuations• Certified Business

         Appraisals• Machinery &

         Equipment Appraisals

• Value Drivers         & Detractors• Strategic &

          Project Specific

• Sale to 3rd Parties• Transfer to Family,

          Employees or                      Partners• Recapitalization

         with Private Equity

The Reality For Business Owners• 80% of business owners sell their business to retire,

they are not serial entrepreneurso The principal fear is “Will I have enough money so that I can

fund my retirement lifestyle without running out of money”?o Other considerations may include

wealth transfer to the next generation, charitable giving,and minimizing taxes

The Reality For Business Owners (2)

• Typically 50-75% of a business owner’s net worth is in their business assets. The balance is in their personal real estate & financial investments

• Business owners typically only have one chance to transfertheir largest asset

Equities

Real Estate

Business

The Reality For Business Owners (3)• Most business owners have only an anecdotal perception of the

value of their business

“My brother in law knew a woman who had a business like mine that sold for…”

• Relying on this type of perception can leadto large gaps in future wealth and quality of life

The Reality For Business Owners (4)

• 85% of all small business owners do not have an exit plan, a wealth management plan, and/or an advisory team to assist them

• Very few start the process early enough to achieve the maximum benefit of exit planning

There Are Only 4 Places Your Money Can Go

• An Exit Plan will help you decide where your hard earned assets end up!

Typical Business Owner Concerns• Who should I transfer my business to?

o Family, Employees, Partners, a 3rd party• When is the right time to leave my business?• What is my business really worth?• What is the right deal structure?

o Tax avoidance vs. future risk• How do I ensure that I meet all of my future goals

and expectations?

Wiifm # 2

• Exiting your business is "inevitable" and there are a finite number of options.  One exit option involves a hearse.  

• Exit Planning will allow you to exit your business on YOUR terms and time frame....without the hearse.

The Concept of An Exit Planning Framework

From The Endless Focused Work in Building a Business....

...To Achieving Life’s Next Goals:

Takes A Cohesive Team Approach

• Accounting Team• Legal Team• Wealth Planning Team• Risk Advisors• Business Advisory• Intermediary Team• Exit Planning Advisor

• You

• A written Exit Plan based on the owner’s objectives.

• An experienced team of advisors to design and implement the plan.

• Cash flow and a quantified business value.• A strong management team in place.• Time and a commitment from the Owner

Ingredients of a Successful Exit

The Exit Planning Process

“When a man does not know which harbor he is heading for, no wind is the right wind.” - Seneca

Step One: Identify Exit Objectives

Step One: Identify Exit ObjectivesUniversal Objectives• How much longer do you want to work in the business

before retiring or moving on? _________ years• What annual after-tax income do you want during

retirement (in today’s dollars)? $_________• To whom do you want to transfer the business?

o Family?o Co-Owner?o Key Employee(s)?o Outside party?o ESOP?

Step One: Identify Exit Objectives

Working with a Team of Advisors• No one professional has all the answers.• Diverse skills and talents are necessary.• Team approach minimizes time and cost.

o If properly facilitated and led.

Step One: Identify Exit ObjectivesWho is on the Advisor Team?

• Valuation Specialist• Business Intermediary• Investment Banker• Business or Management

Consultant• Banker• Exit Planning Advisor

• Financial Planner• Insurance Advisor• Investment Advisor• Business Attorney• Estate Planning

Attorney• CPA/Accountant

Wiifm #3

• Working with a Team of Advisors will ensure that you maximize the value that you receive upon exiting your business while also minimizing taxes.

“Beauty is in the eye of the buyer.”

Step Two: Quantify Business and Personal Financial Resources

Step Two: Quantify Business and Personal Financial Resources

Benefits to You• Provides a baseline business value by projecting future

cash flow.• Measures business and personal resources both today

and as a basis for future projections.• Allows you to monitor progress toward your stated

objectives.

“Making a silk purse from a sow’s ear.”

Step Three: Maximize and Protect Business Value

Step Three: Maximize and Protect Business Value

Benefits to You• Grow business value and intangible value of the

business.• Reduce income taxes upon sale of business.• Protect assets from potential business and personal

creditors.• Create ability to sell the business.• Motivate and keep Key Employees.

Step Three: Maximize and Protect Business Value

Promote Value Through Value Drivers• Focus on increasing cash flow.• Develop operating systems that improve sustainability of

cash flows.• Solidify and diversify customer base.• Implement strategies to grow the company.• Improve company performance as measured by industry

metrics.• Build a solid management team and groom a

successor.

“Making a mountain out of a molehill.”

Step Four: Ownership Transfer to Third Parties

Step Four: Ownership Transfer to Third PartiesBenefits to You• Cash at closing.• Eliminate financial risk.• No family succession issues.• Speed of exit.

Step Four: Ownership Transfer to Third Parties

Third Party Sales – Not Just About the Business• Ability to sell and business value are determined by:

o Intrinsic Value: the value drivers.o Extrinsic Value: the value the market places on the business.o Effectiveness of the sale process.

Step Four: Ownership Transfer to Third Parties

Current M & A Marketplace• Of businesses with sales of less than $10 million per

year, 20 percent are for sale, but only one out of four actually sells.

• Businesses with sales of $10 million per year aren’t much better – only one-third sell.

• Above $10 million per year, the odds improve to 50-50.

“Making a molehill out of a mountain.”

Step Five: Ownership Transfer to Insiders

Step Five: Ownership Transfer to Insiders

Benefits to You• Achieves Exit Objective of:

o Selling to Key Employee Group (KEG).o Transferring to a Family Member.

• Motivates and retains key employees.• Planning reduces risk and increases amount of money

received.

“Making sure the business continues when the owner doesn’t.”

Step Six: Business Continuity Planning

Wiifm #4

• Your "peace of mind" can be greatly improved by having contingency plans if your desired exit can not be achieved or you are not there to for the exit.

Step Six: Business Continuity Planning

Benefits to You• Objectives can still be achieved if you don’t survive your exit.• Retains ownership and control of company if co-owner departs.• Can force non-contributing owners to leave the business.• Provides consistency between lifetime and death objectives.• Ensures survival of the business for the benefit of others.• Results in family receiving value of owner’s interest, in cash.

Wiifm #5

• Making decisions with data and within a structured process leads to a better outcome

“When the ‘slings and arrows’ of outrageous fortune befall you, fight back.” - William Shakespeare (Hamlet)

Step Seven: Personal Wealth and Estate Planning

Step Seven: Personal Wealth and Estate Planning

Benefits to the Owner• Preserve wealth, minimize taxes using both lifetime and

death planning tools. • Coordinates and integrates lifetime exit objectives

wishes with estate plan.• In effect, estate planning becomes part of business and

exit planning.

Wiifm #6

• It is all about wealth generation and protection and how this wealth supports your lifestyle,  estate goals, and philanthropic initiatives

The Exit Planning Process

The vast majority of owners are unaware there is a specific planning and implementation process that can help ensure they

achieve their objectives.

Most business owners spend more time planning a family vacationthan how to exit from their business.

This is not due to a lack of desire or intelligence. It is simply because they don’t know how or where to begin.

How Much Does this Cost?

• It depends, on size, complexity & the amount of pre planning a business owner has done in the past

• The process can take 2-7 years• Exit Planning done right has Design, Implementation and

Maintenance phases• Typically a business owner will spend 2-4% of the value of

his/her business in all Exit Planning activities• Significant ROI on Exit Planning

Wiifm Summary

• #1 "Peace of mind" in executing what is perhaps the single most important financial event of your life.

• #2 Exit Planning will allow you to exit your business on YOUR terms and time frame 

• #3  Working with a Team of Advisors will ensure that you maximize the value that you receive upon exiting your business while also minimizing taxes.

Wiifm Summary (cont)• #4 Your "peace of mind" can be greatly improved

by having contingency plans if your desired exit can not be achieved or you are not there to for the exit.

• #5  Making decisions with data and within a structured process leads to a better outcome

• #6 It is all about wealth generation and protection and how this wealth supports your lifestyle,  estate goals, and philanthropic initiatives

Ways to Get Started with Exit Planning

• Request a Business Owner Exit Planning Checklist from us.• Contact us for a FREE copy of How to Run Your Business So

you Can Leave It In Style by John Brown• Sign up to receive from us a bi-monthly, advertising free

newsletter, Exit Planning Review• Have us conduct a FREE 90 minute Exit Planning

Readiness Assessment for you.

A must read reference guide for today’s Business Owner about Exit Planning