passing on the baton peter briscoe. 1662 - van eeghen & co chr. van eeghen (1700-1747) jan van...

PASSING ON THE BATON

Peter Briscoe

1662 - van Eeghen & Co

Chr. Van Eeghen (1700-1747)

Jan Van Eeghen (1729-1760)

Jan Van Eeghen (1789-1838)

Sam Van Eeghen (1853-1934)

Chr. Van Eeghen (1952 - )

Herengracht 462, Amsterdam)

Succession

Business• 1972 - 1986

– Brent Chemicals

• 1990 - 1997– Synthesys

• 2002 – 2008– HE Space Operations

Christian Ministry• 1986 – 1989

– CBMC Holland

• 1990 – 2002– Europartners

• 2008 – – Crown Europe

Biblical succession planning• God is in charge and a successor is His choice

– David’s appointment• Recognise and develop emerging leaders

– Deuteronomy 6:6–9; 20–25; • Emerging leaders are to be mentored

– Moses > Joshua (40 years)• Recognise limitations &

step down in time– Moses would die before entering

• Share leadership– Moses in Numbers 27:20

Joshua’s development• selected by Moses to lead the Israelite army into battle

against the Amalekites (Exodus 17:8-16)• accompanies Moses up the mountain to receive the Ten

Commandments (Exodus 24:13• guarded the tent of meeting, where Moses met face to face

with God (Exodus 33:11)• present when the Lord sent His Spirit upon seventy leaders

(Numbers 11:17). • chosen by Moses to be one of the 12 spies sent to spy out

the land (Numbers 13:8)• God had placed His Spirit in Joshua, which shows God’s

choice and God’s provision for leadership (Joshua 1:1-18)

MARK LLOYDBOTTOM BATON

Peter now handing over to Mark


Household Net Financial Wealth Plus Housing Assets By Age

Age Range 1995 2005 (2011?)

25-34 3,000 95035-44 22,788 54,47545-54 44,750 73,50055-64 50,000 149,50065+ 39,500 95,500

Source: The Pinch pg. 73


Rough Estimates of Distribution of Property Ownership (£trillion) (12 noughts!)

AgeLiquid Assets

Owner Occupied Housing

OtherAssets Pensions Total %

< 45s 0.2 0.3 0.1 0.3 0.9 13

45-65 1.0 1.0 0.75 0.75 3.5 52

65+ 0.4 0.8 0.4 0.75 2.3 34

6.7 100

Source: The Pinch pg. 76

The Age of Inheritance (1)• The “Age of Inheritance” is peaking with today’s

over 55s• The peak in leaving an inheritance is around 2047• Value of windfalls to date is £904 billion• Today’s adults expect to receive £1.2 trillion• The amount of inheritance today’s adults expect

to leave is £5.4 trillion


Source: HSBC Age of Inheritance. Sept 2011

The Age of Inheritance (2)• All Britons plan to leave more than they expect to receive in inheritance• Expectations of inheriting from parents have grown significantly• There is a huge growth in the expectation of windfalls from property• London and south east will see the greatest share ML note – I believe baby boomers will use their home equityPASSING ON THE BATON


A Few Quick Stats• 52% of windfalls are currently under £10,000• 2% are over £500,000• All Britons plan to leave more than they expect to receive in inheritance• Those aged 45 and over expect to leave £230,000



How Will Windfalls Be Used?• Essentials (34%)

• Holiday and travel (32%)

• Investment/pension (31%)

• Property (27%)




PRIME

GROWING AGING

ORGANISATIONAL LIFE CYCLE

Late Prime

Adolescent

Go Go

Infant

Courtship

Bureaucracy

Recrimination

Death

Aristocracy

PAEI Producer

Entrepreneur

Administrator

Integrator



PRIME

GROWING AGING

PaEi

ORGANISATIONAL LIFE CYCLE

Late Prime Paei

Adolescent

Go Go

Infant

Courtship

Bureaucracy

Recrimination

Death

Aristocracy

UK Business Stock• There are an estimated 4.5 million private sector

businesses (an increase of 94,000 since 2010 and over 1 million since 2000)

• These businesses employ 23.4 million people• 62 per cent are in sole ownership• 28 per cent are companies• 10 per cent partnershipsEmployment: 3.3 million have no employees


Source: Department for Business Innovation and Skills

Issues For The Business Owner• Emotional: “this is my baby”• Purpose and direction: “what will I do?”• Maintaining strong leadership• Will I have enough income? (How much is enough?)• Who can I transfer the business to?

or• Who can I sell the business to?• What is it worth?


Beware of the Assumptions...• The business will continue to prosper• The value will be maintained or even increased• “I” will continue to enjoy good health• My life’s goals will not change• The business will never be my albatross• I am the business• I cannot afford to retire• I am irreplaceable


Beware of the Challenges• Letting go• Bias against planning• Planning ahead: Ten years is a good starting point• Knowing what your options are, and • Keeping all options open• Staying in prime – balancing entrepreneurship and production• Increasing profits


Passing on Within the Family• Is there a successor who will advance the business? • Family relationship issues – harmony or conflict?• Who to choose? • Issues of financial fairness – fair to whom?


Passing The Baton Checklist• Pray at all times• Seek good counsel• Start planning early – Be prepared - Timing

• Trade sale• Family• MBO• MBI

• Encourage intergenerational teamwork• Put your plans in writing• Plan for life beyond the businessPASSING ON THE BATON

Types of Exit


Monarchs Do not leave office until they are decisively forced out through death or an internal palace revolt

Generals Are forced out, but plot their return, and quickly come back out of retirement to ‘save’ the business

Ambassadors Leave office gracefully and frequently serve as post-retirement mentors

Governors Rule for a limited term of office, retire, and switch to other vocational opportunities

Valuation: What is the Business Worth?


Company Profits For The Last 12 Months £220,000

Add back:

Property interest costs 4,000

Directors’ remuneration (all) 50,000

Freehold property depreciation 2,000

Directors’ pension contributions 5,000

Adjusted Profit Before Deductions £281,000

Deduct:

Market salary (including national insurance) -110,000

Market rent -25,000

ADJUSTED PROFIT BEFORE CORPORATION TAX 146,000

Deduct: Corporation Tax (Main rate) 28% -40,000

ADJUSTED PROFIT BEFORE APPLYING : P/E £106,000

Capital Account £150,000 - £200,000

Goodwill £250,000 - £350,000

Exit Cost Range £400,000 - £550,000

Cost of Exiting Partner £500,000

What mightretiring [accounting] firm owners be expecting?

• The starting point for valuing the majority of private profitable companies is a multiple of profits.

• The ‘profit figure’ most frequently used in this multiple is ‘Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). However sometimes EBIT can be used, depending on the company / seller / buyer.

• More often or not it will be the latest 12 month EBITDA which will drive valuation.

• The Enterprise Value (EV) is normally calculated on a ‘cash free / debt free’ basis.

• There is no set multiple for valuing a business, however here are some ideas based on the current marketplace: (only a guide)- Manufacturing / Engineering / Contracting businesses: 5x EBITDA

- Software / Technology businesses: 6-9x EBITDA

- A Freehold based business e.g. Care homes / Day Care centres: 6-8x EBITDA

- A leasehold based business e.g. chain of shops: 3-4x EBITDA


BRICK IT LIMITED

• Ben and Peter run a building contractor business, Brick it Ltd (“Brick it”)

• Brick it operates in Bristol and the surrounding areas.

• The business has grown from a small two man operation to a £4.5m (2010) turnover business over the last 10 years.

• Ben and Peter now feel that the business is getting too big for them, and wish to sell to a larger contracting business.

• Sales growth has been strong in the last two years, however the bank has been unwilling to increase Brick it’s overdraft facility and cashflow is now becoming a constant worry. Ben feels as though he is working for the bank, and wants out of the responsibility.

• They are 9 months into their financial year, and are looking at the possibility of selling after their year end. Their advisor has provided them with the following overview of valuation.

• In the first 9 months of the year Brick it has made sales of £4m and an operating profit (EBIT) of £0.4m. Their advisor is helping them to place a value on the business for sale post year end.

• The last three months of the year are largely expected to continue as the first nine. However there is a possibility of a large contract being won which would represent c.£1m of sales in 2011 alone. It makes the final results unknown.

• The company holds a freehold property, and several pieces of equipment which produce a depreciation of £150k p.a.

• The estimated EBITDA for 2011 based on the first 9 months is therefore £680k.

2008 Act. 2009 Act. 2010 Act. 9m 2011 2011 Est.£m £m £m £m £m

Turnover 2.50 3.40 4.50 4.00 5.33

Gross profit 0.63 0.85 1.08 0.92 1.23 25% 25% 24% 23% 23%

Operating profit (EBIT)

0.25 0.34 0.45 0.40 0.53

Depreciation 0.15 0.15 0.15 0.11 0.15

EBITDA 0.40 0.49 0.60 0.51 0.68 16% 14% 13% 13% 13%

• Ben and Peter would ideally like to sell Brick it to a large contracting business, and therefore stay in the business for a further year to hand over.

• As a result of being owned by a larger business the advisor has identified several cost savings which could be added back to profit. This reflects the level of profit a large corporate could expect to make when run from it’s own head office.

Add backs

Overpaid directors salaries 60Benefits of new head offi ce staff 50Other misc cost savings of HO 15

125

• Ben and Peter have been paying themselves above market rate salaries. £30k additional each, providing a £60k add back.

• By moving to a large head office two of Brick it’s admin/accounting staff will not be required. They are paid a combined salary of £50k.

• There are further cost savings made possible by moving to a larger company. Better rates and central costs for example. These are estimated at £15k.

• The historic and forecasted EBITDA can now be adjusted by these add back which produces the following performance profile.

2008 Act. 2009 Act. 2010 Act. 9m 2011 2011 Est.£m £m £m £m £m

Turnover 2.50 3.40 4.50 4.00 5.33

Gross profit 0.63 0.85 1.08 0.92 1.23 25% 25% 24% 23% 23%

Operating profit (EBIT)

0.25 0.34 0.45 0.40 0.53

Depreciation 0.15 0.15 0.15 0.11 0.15

EBITDA 0.40 0.49 0.60 0.51 0.68 16% 14% 13% 13% 13%

Add backs 0.13 0.13 0.13 0.13 0.13

Adjusted EBITDA 0.53 0.62 0.73 0.64 0.81 21% 18% 16% 16% 15%

• The adjusted EBITDA is now estimated to be c.£810k.

• The performance of the business for the full year is unknown at this point, in addition the add back are unlikely to be accepted by a buyer in full. To get an idea of a valuation range the advisor has provided the following table which shows various profit outcomes and multiples and the associated valuations.

• The highlighted range shows the values that the advisor believes are most achievable. Therefore providing a business valuation of between £2.8m and £3.5m.

• The final outcome will be driven by the full year performance, and the ability of the advisor to get the best deal.

Outturn£m 3.0 3.5 4.0 4.5 5.0 5.5 6.0 0.7 2.10 2.45 2.80 3.15 3.50 3.85 4.20 0.8 2.40 2.80 3.20 3.60 4.00 4.40 4.80 0.9 2.70 3.15 3.60 4.05 4.50 4.95 5.40 1 3.00 3.50 4.00 4.50 5.00 5.50 6.00

Multiple

Taxation


Gross Proceeds £3,000,000 £300,000

Deduct:

Professional costs -20,000 -10,000

Cost of company (shares if a limited company) -1,000 -100

Net Gain 2,979,000 289,900

Capital Gains Tax annual exemption -10,600 -10,600

Taxable 2,968,400 279,300

Capital Gains Tax at 10% £296,840 £27,930

ENTREPRENEURS’ RELIEFEntrepreneurs’ Lifetime Limit 10,000,000 10,000,000

Used up with this sale 2,968,400 279,300

Carried Forward £7,031,600 £9,720,700

Other Reliefs: Holdover Relief / Rollover Relief

Do Not Overlook...• The purpose of the business is to glorify God• God owns/owned the business• Give back to God a tithe

• Remember that the tithe is the starting point • You will not find retirement in the Bible• ??


Net Gain before tax £2,979,000 £289,900Tithe £297,900 £28,990

Generosity• There are five types of giving:

1. Money you ______ _______ ____

2. ________ money

3. ________ money

4. ______ ______ money

5. ________ money


passing on the baton peter briscoe. 1662 - van eeghen & co chr. van eeghen (1700-1747) jan van...

Documents

baton slide

mark slide

hsbc age of inheritance

mentorlead slide

amsterdam slide

baton source

age age range19952005

baton peter briscoe