Bob Lawrence

Date: August 20, 2014

Name: StudioThink – How to maximize your business before you sell

Presenter: Bob Lawrence, CEPA, CPA

StudioThink is founded with a primary philosophy to help communicate ideas through branding. The organization forms “Think60” event to give and explore opportunities for business owners to share ideas with each other. The presenter for this event is Bob Lawrence, the president of Breakaway Business Transition Planning. Over 20 years of experiences as a CFO, COO and CEO, he specializes in identifying value drives of any business and maximizes values prior to exiting. This presentation will benefit any business owners who are looking for proper ways to exit the market.

When business owners are looking for exit planning strategy, they need to follow the 7 steps of primary procedures.

• Goals and Objectives Analysis
• Estimation of Business Value
• Preparation of Personal Financial Plan
• Value Enhancement Process
• Analysis of Exit Options
• Estimate of Net Proceeds
• Business and Personal Action Plan

The first step will help business owners to understand the result that will impact their families and business. The second and third steps will analyze the outcome of the exiting the business. The forth to sixth steps will help business owners to forecast the path of exiting the business. Moreover, the last step will help business owners to create the action plan.

Many people are fear of doing exit planning because of emotion and financial issues. Based on statistic, 67% of people are not familiar with all exit options. In average, 49% of people have no plans at all.

In developing exit plan, business owners need to ensure they are clear about their post-exit goals and objectives. They need to understand their business current values and actions to increase value prior to exiting. The proceeds need to link with their personal financial objectives. Business owners need to understand the impact of business exit options and prepare for any unforeseen circumstances.

To complete any business exit plan, business owners need to follow these 8 steps.

1. Collect data to provide understanding of business and industry

2. Define and align goals

3. Prepare estimate of business value

4. Prepare / obtain personal financial plan

5. Value enhancement process

6. Identify and evaluate exit options

7. Calculate net proceeds and evaluate alternative structure

8. Identify personal and business action plans

The post –exit goals and objectives are important. Business owners need to understand the outcome of exiting the business will have enough financial support to cover their family objectives. The goals and objectives need to provide direction for any exit plan.

Business owners need to understand the value of business and know what it takes to increase it. The main impediment to successful sale of any business is the expectation gap between the business owners and purchasers. For example, many owners expect to have their sweat equity include in business value; however, purchasers only matter the cash flow that business will generate for future.

Business owners can use this equation to estimate their business value.

EBITDA x Multiplier (usually 2-5) = Business Value

EBITDA stands for Earnings before interest, taxes, depreciation and amortization.

To increase the business value, business owners need to either increase EBITDA or multipliers. The impact from those factors can reduce risk that the business will not continue to generate the present earnings and increase the opportunities that the business will generate increasing earnings. These risks and opportunities are considered as value drivers.

Business owners can reduce the risk drivers and improve opportunity drivers to maximize their business value.

There are 9 options to exit your business

Sell or give your business to a family member

Sell your business to one or more key employees

Sell your business to your employees (ESOP)

Sell your business to your other shareholders

Sell your business to an outside third party

Bring an outside investor and keep a minority interest

Go public

Hire a management team to take over and become a passive owner

Liquid your business

Business owners need to understand that all exit options will impact after tax net proceeds.

Unforeseen Circumstances

Business owners to understand there are factors that can accelerate the exit planning. They are “Death”, “Disability”, “Divorce”, and “Distress”. Business owners need to ensure they incorporate contingency plan. The contingency plan will include the designated person who will run the business, the options of exit planning, the contact information, and other important items affect business relationship.

Business owners need to be emotionally ready to exit their business. Most business owners spend more time in their business than the combination of other activities in their lives. The business exit planning will reduce their uncertainty and make the transition much smoother.

Business owners should start their planning immediately. The planning will help business owners to foresee the values of their business. In future, there will be more buyers than sellers due to baby boomer wave.

In exit planning, business owners will implement goodwill. Purchasers will only consider business goodwill instead of personal goodwill. With good planning strategy, business owners can transform personal goodwill to business goodwill. These include building a brand, strengthening management team, and documenting procedures. Purchasers can come from competitors, customers, suppliers and other business industries. Business owners can use the business exit plan to identify their purchasers, understand the motivation behind the purchasers, develop conditions fit in to the purchasers, and manage implementation with the purchasers.