Exit Planning For Business Owners

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  • Jeff-  
  • Jeff -  Introduce examples of current engagements in MA and VT.  Emphasize that each client and business will have a different set of needs.
  • Exit Planning For Business Owners

    1. 1. "Exit Your Business with a Plan in Hand and Retire with Peace of Mind" February 24, 2010 CenterPoint Business Advisors Michael F. Coyle and Jeffery Paquet
    2. 2. Introduction <ul><ul><li>Wiifm &quot;What's In It For Me&quot; </li></ul></ul><ul><ul><li>Need for Exit Planning </li></ul></ul><ul><ul><li>Seven Step Exit Planning Process </li></ul></ul><ul><ul><li>The ROI of Exit Planning </li></ul></ul><ul><ul><li>How to Get Started with Exit Planning </li></ul></ul>
    3. 3. Wiifm #1 <ul><ul><li>Developing a comprehensive Exit Plan will give you significant &quot;peace of mind&quot; in executing what is perhaps the single most important financial event of your life . </li></ul></ul><ul><ul><li>An Exit Plan is your &quot;GPS&quot; through the journey of converting your business assets into cash </li></ul></ul>
    4. 4. Introducing Michael F. Coyle, CBI <ul><ul><li>Principal, CenterPoint Business Advisors, Inc. </li></ul></ul><ul><ul><li>Exit Planning Advisor, Business Enterprise Institute </li></ul></ul><ul><ul><li>Certified Business Intermediary (CBI) Awarded by the International Business Brokers Association </li></ul></ul><ul><ul><li>MBA – Boston College, Carroll Graduate School of Management </li></ul></ul><ul><ul><li>Serial Entrepreneur </li></ul></ul>
    5. 5. Introducing Jeffrey Paquet, CBI <ul><ul><li>Business Advisor, CenterPoint Business Advisors </li></ul></ul><ul><ul><li>Career in Product Development & Management of Manufacturing Companies </li></ul></ul><ul><ul><li>Expertise in Transportation Sector – Aerospace & Automotive </li></ul></ul><ul><ul><li>B.S. Aerospace Engineering – UCLA </li></ul></ul><ul><ul><li>Dedicated to Serving the Complex Needs of Business Owners and Companies with Strategic Value </li></ul></ul>
    6. 6. 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. <ul><ul><li>Advisory Market </li></ul></ul><ul><li>          Valuations </li></ul><ul><ul><li>Certified Business </li></ul></ul><ul><li>          Appraisals </li></ul><ul><ul><li>Machinery & </li></ul></ul><ul><li>          Equipment Appraisals </li></ul><ul><ul><li>Value Drivers </li></ul></ul><ul><li>          & Detractors </li></ul><ul><ul><li>Strategic & </li></ul></ul><ul><li>           Project Specific </li></ul><ul><ul><li>Sale to 3rd Parties </li></ul></ul><ul><ul><li>Transfer to Family, </li></ul></ul><ul><li>           Employees or                      Partners </li></ul><ul><ul><li>Recapitalization </li></ul></ul><ul><li>          with Private Equity </li></ul>
    7. 7. The Reality For Business Owners <ul><ul><li>80% of business owners sell their business to retire, they are not serial entrepreneurs </li></ul></ul><ul><ul><ul><li>The principal fear is “Will I have enough money so that I can fund my retirement lifestyle without running out of money”? </li></ul></ul></ul><ul><ul><ul><li>Other considerations may include wealth transfer to the next generation, charitable giving, and minimizing taxes </li></ul></ul></ul>
    8. 8. The Reality For Business Owners (2) <ul><ul><li>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 </li></ul></ul><ul><ul><li>Business owners typically only have one chance to transfer their largest asset </li></ul></ul>Equities Real Estate Business
    9. 9. The Reality For Business Owners (3) <ul><ul><li>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…” </li></ul></ul><ul><ul><li>Relying on this type of perception can lead to large gaps in future wealth and quality of life </li></ul></ul>
    10. 10. The Reality For Business Owners (4) <ul><ul><li>85% of all small business owners do not have an exit plan, a wealth management plan, and/or an advisory team to assist them </li></ul></ul><ul><ul><li>Very few start the process early enough to achieve the maximum benefit of exit planning </li></ul></ul>
    11. 11. There Are Only 4 Places Your Money Can Go <ul><ul><li>An Exit Plan will help you decide where your hard earned assets end up! </li></ul></ul>
    12. 12. Typical Business Owner Concerns <ul><ul><li>Who should I transfer my business to? </li></ul></ul><ul><ul><ul><li>Family, Employees, Partners, a 3rd party </li></ul></ul></ul><ul><ul><li>When is the right time to leave my business? </li></ul></ul><ul><ul><li>What is my business really worth? </li></ul></ul><ul><ul><li>What is the right deal structure? </li></ul></ul><ul><ul><ul><li>Tax avoidance vs. future risk </li></ul></ul></ul><ul><ul><li>How do I ensure that I meet all of my future goals and expectations? </li></ul></ul>
    13. 13. Wiifm # 2 <ul><ul><li>Exiting your business is &quot;inevitable&quot; and there are a finite number of options.  One exit option involves a hearse.   </li></ul></ul><ul><ul><li>Exit Planning will allow you to exit your business on YOUR terms and time frame....without the hearse. </li></ul></ul>
    14. 14. The Concept of An Exit Planning Framework From The Endless Focused Work in Building a Business....
    15. 15. ... To Achieving Life’s Next Goals:
    16. 16. Takes A Cohesive Team Approach <ul><ul><li>Accounting Team </li></ul></ul><ul><ul><li>Legal Team </li></ul></ul><ul><ul><li>Wealth Planning Team </li></ul></ul><ul><ul><li>Risk Advisors </li></ul></ul><ul><ul><li>Business Advisory </li></ul></ul><ul><ul><li>Intermediary Team </li></ul></ul><ul><ul><li>Exit Planning Advisor </li></ul></ul><ul><ul><li>You </li></ul></ul>
    17. 17. <ul><ul><li>A written Exit Plan based on the owner’s objectives. </li></ul></ul><ul><ul><li>An experienced team of advisors to design and implement the plan. </li></ul></ul><ul><ul><li>Cash flow and a quantified business value. </li></ul></ul><ul><ul><li>A strong management team in place. </li></ul></ul><ul><ul><li>Time and a commitment from the Owner </li></ul></ul>Ingredients of a Successful Exit
    18. 18. The Exit Planning Process
    19. 19. “ When a man does not know which harbor he is heading for, no wind is the right wind.” - Seneca Step One: Identify Exit Objectives
    20. 20. Step One: Identify Exit Objectives <ul><li>Universal Objectives </li></ul><ul><ul><li>How much longer do you want to work in the business before retiring or moving on? _________ years </li></ul></ul><ul><ul><li>What annual after-tax income do you want during retirement (in today’s dollars)? $_________ </li></ul></ul><ul><ul><li>To whom do you want to transfer the business? </li></ul></ul><ul><ul><ul><li>Family? </li></ul></ul></ul><ul><ul><ul><li>Co-Owner? </li></ul></ul></ul><ul><ul><ul><li>Key Employee(s)? </li></ul></ul></ul><ul><ul><ul><li>Outside party? </li></ul></ul></ul><ul><ul><ul><li>ESOP? </li></ul></ul></ul>
    21. 21. Step One: Identify Exit Objectives <ul><li>Working with a Team of Advisors </li></ul><ul><ul><li>No one professional has all the answers. </li></ul></ul><ul><ul><li>Diverse skills and talents are necessary. </li></ul></ul><ul><ul><li>Team approach minimizes time and cost. </li></ul></ul><ul><ul><ul><li>If properly facilitated and led. </li></ul></ul></ul>
    22. 22. Step One: Identify Exit Objectives Who is on the Advisor Team? <ul><ul><li>Valuation Specialist </li></ul></ul><ul><ul><li>Business Intermediary </li></ul></ul><ul><ul><li>Investment Banker </li></ul></ul><ul><ul><li>Business or Management Consultant </li></ul></ul><ul><ul><li>Banker </li></ul></ul><ul><ul><li>Exit Planning Advisor </li></ul></ul><ul><ul><li>Financial Planner </li></ul></ul><ul><ul><li>Insurance Advisor </li></ul></ul><ul><ul><li>Investment Advisor </li></ul></ul><ul><ul><li>Business Attorney </li></ul></ul><ul><ul><li>Estate Planning Attorney </li></ul></ul><ul><ul><li>CPA/Accountant </li></ul></ul>
    23. 23. Wiifm #3 <ul><ul><li>Working with a Team of Advisors will ensure that you maximize the value that you receive upon exiting your business while also minimizing taxes. </li></ul></ul>
    24. 24. “ Beauty is in the eye of the buyer.” Step Two: Quantify Business and Personal Financial Resources
    25. 25. Step Two: Quantify Business and Personal Financial Resources <ul><li>Benefits to You </li></ul><ul><ul><li>Provides a baseline business value by projecting future cash flow. </li></ul></ul><ul><ul><li>Measures business and personal resources both today and as a basis for future projections. </li></ul></ul><ul><ul><li>Allows you to monitor progress toward your stated objectives. </li></ul></ul>
    26. 26. “ Making a silk purse from a sow’s ear.” Step Three: Maximize and Protect Business Value
    27. 27. Step Three: Maximize and Protect Business Value <ul><li>Benefits to You </li></ul><ul><ul><li>Grow business value and intangible value of the business. </li></ul></ul><ul><ul><li>Reduce income taxes upon sale of business. </li></ul></ul><ul><ul><li>Protect assets from potential business and personal creditors. </li></ul></ul><ul><ul><li>Create ability to sell the business. </li></ul></ul><ul><ul><li>Motivate and keep Key Employees. </li></ul></ul>
    28. 28. Step Three: Maximize and Protect Business Value <ul><li>Promote Value Through Value Drivers </li></ul><ul><ul><li>Focus on increasing cash flow. </li></ul></ul><ul><ul><li>Develop operating systems that improve sustainability of cash flows. </li></ul></ul><ul><ul><li>Solidify and diversify customer base. </li></ul></ul><ul><ul><li>Implement strategies to grow the company. </li></ul></ul><ul><ul><li>Improve company performance as measured by industry metrics. </li></ul></ul><ul><ul><li>Build a solid management team and groom a successor. </li></ul></ul>
    29. 29. “ Making a mountain out of a molehill.” Step Four: Ownership Transfer to Third Parties
    30. 30. Step Four: Ownership Transfer to Third Parties <ul><li>Benefits to You </li></ul><ul><ul><li>Cash at closing. </li></ul></ul><ul><ul><li>Eliminate financial risk. </li></ul></ul><ul><ul><li>No family succession issues. </li></ul></ul><ul><ul><li>Speed of exit. </li></ul></ul>
    31. 31. Step Four: Ownership Transfer to Third Parties <ul><li>Third Party Sales – Not Just About the Business </li></ul><ul><ul><li>Ability to sell and business value are determined by: </li></ul></ul><ul><ul><ul><li>Intrinsic Value: the value drivers. </li></ul></ul></ul><ul><ul><ul><li>Extrinsic Value: the value the market places on the business. </li></ul></ul></ul><ul><ul><ul><li>Effectiveness of the sale process. </li></ul></ul></ul>
    32. 32. Step Four: Ownership Transfer to Third Parties <ul><li>Current M & A Marketplace </li></ul><ul><ul><li>Of businesses with sales of less than $10 million per year, 20 percent are for sale, but only one out of four actually sells. </li></ul></ul><ul><ul><li>Businesses with sales of $10 million per year aren’t much better – only one-third sell. </li></ul></ul><ul><ul><li>Above $10 million per year, the odds improve to 50-50. </li></ul></ul>
    33. 33. “ Making a molehill out of a mountain.” Step Five: Ownership Transfer to Insiders
    34. 34. Step Five: Ownership Transfer to Insiders <ul><li>Benefits to You </li></ul><ul><ul><li>Achieves Exit Objective of: </li></ul></ul><ul><ul><ul><li>Selling to Key Employee Group (KEG). </li></ul></ul></ul><ul><ul><ul><li>Transferring to a Family Member. </li></ul></ul></ul><ul><ul><li>Motivates and retains key employees. </li></ul></ul><ul><ul><li>Planning reduces risk and increases amount of money received. </li></ul></ul>
    35. 35. “ Making sure the business continues when the owner doesn’t.” Step Six: Business Continuity Planning
    36. 36. Wiifm #4 <ul><ul><li>Your &quot;peace of mind&quot; 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. </li></ul></ul>
    37. 37. Step Six: Business Continuity Planning <ul><li>Benefits to You </li></ul><ul><ul><li>Objectives can still be achieved if you don’t survive your exit. </li></ul></ul><ul><ul><li>Retains ownership and control of company if co-owner departs. </li></ul></ul><ul><ul><li>Can force non-contributing owners to leave the business. </li></ul></ul><ul><ul><li>Provides consistency between lifetime and death objectives. </li></ul></ul><ul><ul><li>Ensures survival of the business for the benefit of others. </li></ul></ul><ul><ul><li>Results in family receiving value of owner’s interest, in cash. </li></ul></ul>
    38. 38. Wiifm #5 <ul><ul><li>Making decisions with data and within a structured process leads to a better outcome </li></ul></ul>
    39. 39. “ When the ‘slings and arrows’ of outrageous fortune befall you, fight back.” - William Shakespeare (Hamlet) Step Seven: Personal Wealth and Estate Planning
    40. 40. Step Seven: Personal Wealth and Estate Planning <ul><li>Benefits to the Owner </li></ul><ul><ul><li>Preserve wealth, minimize taxes using both lifetime and death planning tools. </li></ul></ul><ul><ul><li>Coordinates and integrates lifetime exit objectives wishes with estate plan. </li></ul></ul><ul><ul><li>In effect, estate planning becomes part of business and exit planning. </li></ul></ul>
    41. 41. Wiifm #6 <ul><ul><li>It is all about wealth generation and protection and how this wealth supports your lifestyle,  estate goals, and philanthropic initiatives </li></ul></ul>
    42. 42. The Exit Planning Process
    43. 43. 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 vacation than 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.
    44. 44. How Much Does this Cost? <ul><ul><li>It depends, on size, complexity & the amount of pre planning a business owner has done in the past </li></ul></ul><ul><ul><li>The process can take 2-7 years </li></ul></ul><ul><ul><li>Exit Planning done right has Design, Implementation and Maintenance phases </li></ul></ul><ul><ul><li>Typically a business owner will spend 2-4% of the value of his/her business in all Exit Planning activities </li></ul></ul><ul><ul><li>Significant ROI on Exit Planning </li></ul></ul>
    45. 45. Wiifm Summary <ul><ul><li>#1 &quot;Peace of mind&quot; in executing what is perhaps the single most important financial event of your life. </li></ul></ul><ul><ul><li>#2 Exit Planning will allow you to exit your business on YOUR terms and time frame  </li></ul></ul><ul><ul><li>#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. </li></ul></ul>
    46. 46. Wiifm Summary (cont) <ul><ul><li>#4 Your &quot;peace of mind&quot; 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. </li></ul></ul><ul><ul><li>#5  Making decisions with data and within a structured process leads to a better outcome </li></ul></ul><ul><ul><li>#6 It is all about wealth generation and protection and how this wealth supports your lifestyle,  estate goals, and philanthropic initiatives </li></ul></ul>
    47. 47. Ways to Get Started with Exit Planning <ul><ul><li>Request a Business Owner Exit Planning Checklist from us. </li></ul></ul><ul><ul><li>Contact us for a FREE copy of How to Run Your Business So you Can Leave It In Style by John Brown </li></ul></ul><ul><ul><li>Sign up to receive from us a bi-monthly, advertising free newsletter, Exit Planning Review </li></ul></ul><ul><ul><li>Have us conduct a FREE 90 minute Exit Planning Readiness Assessment for you. </li></ul></ul>
    48. 48. A must read reference guide for today’s Business Owner about Exit Planning

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