Maximise the value of your business dec 2012

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  • Most Are badly underprepared if and when approached they don’t have the right information ready or available they haven’t considered their tax position etc.
  • The first baby boomer turns 65 in 2011 and the birth rate continues to increase until 2028.
  • The baby-boom waves made much worse by the fact that the three years preceding the boom were the GFC and many people delayed retirement or selling their business or other assets
  • Improved medical science and healthier lifestyles et cetera have increased our life expectancy – this dramatically increases the amount we need to successfully fund retirement.
  • More than half of business exits in Australia are a failure of some sort
  • Steve covey’s second habit was begin with the end in mind – that means we should map every single business decision to our exit strategy and ensure that we are always moving closer to (rather than further away from) our exit strategy
  • Succession and exit planning for the average business owner can be a very complicated issue and without the right advice and a coordinated strategic approach the ability to extract maximum value from your business (for many the largest asset) may be compromised.
  • Succession plus is Australia’s leading business succession and exit planning advisory firm and we have designed a unique 21 step process to ensure business owners design the most viable strategy to extract maximum value from their business when they retire.
  • Use This graphical analysis to identify areas where improvements can be implemented and to ensure our financials remain on track going forward
  • All this analysis identifies areas of substantial risk within the business areas where the value of the business could be threatened or where our multiple will be lower because of the high risk inherent within the business.
  • Allows business owners to easily identify areas of over or underperformance and in conjunction with the financial and non-financial analysis allows us to focus our attention when working with clients to maximise value
  • The profit Invariably highlight areas where the business is underperforming and profit could be improved in this particular example we can see that they have almost exactly the correct number of people engaged to generate a $3 million turnover (fairly unusual normally) but that they overspent on overheads by proximally $408,000 and that if this was reduced to the industry average for high profit firms would represent a substantial increase in profit.
  • Most business owners don’t have this information at hand up to date or easily available and in any due diligence exercise this would represent a significant issue documents are often outdated for example employment agreements that went into 10 years ago when the employee first joined have never been updated and are now most likely illegal.
  • In valuing any business there are obviously several different methods however they all come back to a very simple formula return or profit and the risk satiated with generating net profit. The higher the risk the lower the valuation multiple this is true of businesses listed on the ASX and small privately held companies.
  • Protecting assets is generally about separating or quarantining risk (and any business contains various risks some more than others all have some level of risk involved and the assets we are trying to protect.For example many businesses are still structured as two dollars shelf company’s with mum and dad being the only shareholders and both operating as directors this is high risk in terms of asset protection inefficient in terms of taxation and it is often made worse when the two dollars shelf company acquires other assets for example the premises or factory the business operates from.
  • Most business owners are so caught up in the day to day they simply don’t devote enough time to looking strategically at what they actually want from their business.
  • There are varied exit options available to business owners as we move up into the right to become more complicated more expensive more risky and typically take longer though they do maximise value.
  • These are the preferred options actually used by business owners to exit.
  • Income versus equity unless you’re a soccer player for Manchester United your job has no equity value and therefore can’t be sold.Robert Kiyosaki believes J O B stands for just over broke
  • Solution – proactive and holistic adviceAsk your accountant – what is my business worth today, if I sold it how much CGT will have to pay – is there anything I can do to reduce the tax payable.Small business concessions have a $6 million threshold so if you are approaching that level will consider very carefully whether it’s worth doing something before you exceed the threshold.
  • Smaller piece of a larger pieTo unlock value you must unlock equity.
  • Paperless Warehousing Sydney2 owners now working 3 days per week
  • NPG in Newcastle
  • NPG in Newcastle
  • NPG in Newcastle
  • Maximise the value of your business dec 2012

    1. 1. Maximise the Value of Your Business Craig West
    2. 2. Did you know?
    3. 3. 51% Of business owners plan to use their business as their primary source of funding retirement 43% Aim for a lump sum and a third expect an ongoing income stream
    4. 4. The average age of a family business owner is 56 years. 61% Would seriously consider selling if approached.
    5. 5. Baby Boomers – the 18 year wave
    6. 6. Since 2008, almost half of business owners over age 50 have delayed their retirements due to the GFC.
    7. 7. If you turn 50 today, your life expectancy is now 32 more years. 31% of retired business owners do not have an adequately funded retirement.
    8. 8. Why Business Succession and Exit Planning? 55% of all business exits are due to death, disability, bankruptcy, receivership, liquidation or simply closing the doors.
    9. 9. Covey says “ if you want to have a successful enterprise, you clearly define what you‟re trying to accomplish…. the extent to which you begin with the end in mind often determines whether or not you are able to create a successful enterprise.”
    10. 10. Australia‟s mid-range market of companies, with revenues ranging from $10 million to $250 million are actually the biggest contributors to our economy . 27,000 businesses. 3.2 M full time jobs. Generating 33 % of total revenue and accounting for 1 in 5 dollars borrowed .
    11. 11. Business Survival Rates – 2008/09 TOTAL Non-employing Micro/Small Mid-Range Big Business Total Number of Businesses Exiting the Market: 319,867
    12. 12. Business Succession and Exit Planning Combining the Business, Financial and Personal goals of business owners to design and implement a strategic exit.
    13. 13. Stage 1: Identify Stage 2: Protect Stage 3: Maximise Stage 4: Extract Stage 5: Manager
    14. 14. Stage One: Identify Value
    15. 15. Financial Analysis
    16. 16. Non-Financial Analysis
    17. 17. Benchmarking $269,858 $88,894 $41,592 $25,595 $384,352 $80,477 $63,969 $50,224 $251,971 $162,002 $48,676 $34,431 $- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 Totalincomeperfee earner TotalincomeperpersonNetprofitperfeeearnerNetprofitperperson Income KPI's High Turnover Firms High Profit Firms This firm
    18. 18. Due Diligence Checklist of all vital information: • Financials, tax returns, BAS. • Legal – licenses, leases , employment agreements. • Policy & Procedures / Systems. • Intellectual Property – patents, trademarks.
    19. 19. Stage Two: Protect
    20. 20. Structure Review ASSETS RISK
    21. 21. Decrease Risk Non- financial analysis Owner dependence Reverse due diligence Advisory board Key people
    22. 22. What do you want from your business in 5-10 years?
    23. 23. Stage Three: Maximise Value
    24. 24. 1. Exit options 2. Job vs. Business 3. Boutique or Scale 4. Expansion or Efficiency 5. Decrease risk 6. Improve earnings – 5 * 5 * 5 7. Ownership Thinking
    25. 25. Strategy
    26. 26. Income vs Equity “The proper man understands equity – the small man, profits” Confucius 551 – 479 BC
    27. 27. Maximise Value Job vs. Business Can you leave your business for days, Weeks, months? How can you add value to your business?
    28. 28. Adding Value
    29. 29. Efficiency or Expansion
    30. 30. Not sure which level to pull or which switch to touch?
    31. 31. The 5 x 5 x 5 Process Increasing Business Profit & Value How does it work? 5% improvement in three key areas of your business
    32. 32. EARNINGS Gross Profit + 5% Reduce Expenses – 5% Increase Sales + 5%
    33. 33. Here’s an example:
    34. 34. Secure Funding • Many plans fall over at this point • Age & Financial situation? • Internal succession funding • Equity Partner / Investor
    35. 35. Did you know that over 72% of Gen Y want to own their own business… but not on their own!
    36. 36. Ladder to Equity 1. Income 2. Incentive – commission 3. Profit Share - % profits 4. ESOP – Equity 5. Control / Management
    37. 37. Peak Performance Trust A structure to allow employees to think and act like business owners by matching the performance of the business with their ability to build equity.
    38. 38. Peak Performance Trust to fund: • Profit share based on performance • Profit used only to fund purchase of business by same key employees • Employee retention • Improved performance and increased value
    39. 39. Stage Four: Extract Value
    40. 40. Strategic Sales "Price is what you pay Value is what you get " Warren Buffett 1 + 1 = 3
    41. 41. Strategic Value Drivers
    42. 42. August 2011 – Archer accepts $1.2B for MYOB The acquisitive private equity fund bought MYOB in February 2009 for about $500 million, and then boosted earnings by stripping out costs, raising prices and aggressively growing its customer base. The deal is understood to have been valued at a multiple of 11.3 times EBITDA. MYOB is used by more than 1 million SME’s in Australia and NZ.
    43. 43. Siri wasn’t made in Cupertino. It was actually acquired in a deal rumoured to be worth close to $200 million. It only took only one phone call to turn Siri's Dag Kittlaus's life around. Before the call, he was the head of a Silicon Valley start-up and afterwards, he was a multimillionaire working with Apple.
    44. 44. Sale to a listed company
    45. 45. ASX – PE ration (multiple)
    46. 46. Private to Public Arbitrage Historical ASX average 13.73 x Private companies average 2.5 x The value gap is called “private to public arbitrage”
    47. 47. Listed companies have a 22 year high in CASH
    48. 48. Offshore buyers The total value of transactions increased 35% over the previous year to US$736 billion. 8.8 * EBIT average
    49. 49. AUSTRALIAN BUSINESS PTY LTD $500K Profit EXIT TRADE SALE @ 2 x = $1 million STRATEGIC SALE @ 4 x = $2 million SALE TO LISTED CO @ 7 x = $3.5 million To achieve a higher sale price, it‟s much smarter to focus on HOW to sell and WHO to sell to, rather than trying to increase profit.
    50. 50. Net proceeds is the important $ CGT – small business concessions. Structures – who owns assets – before and after Other costs - legal, accounting, other fees.
    51. 51. Equity Matrix 100% owned 20% owned
    52. 52. Stage Five: Manage Value
    53. 53. Strategic Financial Projections $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Revenue Revenue - Dept A Revenue - Dept B 0 5 10 15 20 25 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Headcount Headcount $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Profit / Dividend Net Profit Dividend 0% 10% 20% 30% 40% 50% 60% 70% Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Margin / Div Ratio Net Margin Div payout ratio
    54. 54. Successors Exit Options
    55. 55. Smoothtransition Incoming CEO or Partners Gradually increasing involvement
    56. 56. Smoothtransition Existing CEO or Partners Gradually reducing involvement
    57. 57. Strategy for successful succession: systems / processes
    58. 58. Communication Strategy • Implementation Success • Shareholder / Key Management Communication • Buyer Communication • Staff Communication • Client Communication
    59. 59. Case Studies
    60. 60. Client Case Study: Real Estate  Real estate office in NSW  Combined commercial office and residential sales : Central Coast  3 owners  Not in a rush to exit  Business Value approx. $2.4 m  14 employees
    61. 61. Client Case Study: Outcomes • Implemented Peak Performance Trust • Engaged and motivated 5 key staff with equity plan • Reduced risk – staff retention • Restructured • Asset protection & risk management • Tax and CGT advice • Wealth outside business structure • SMSF to hold appreciating assets • Risk minimization • Insured for unplanned events
    62. 62. Recent Typical Project: Insurance Brokers • 5 month time frame • 3 existing partners, one potential, two possible • 5 year plan to sell down • Accelerate sale by partial sale to VC / Private Equity • 18 months of ongoing coaching/consulting
    63. 63. Outcomes • Pre-documented sales programmed over 8 years • Maximum Equity Value for outgoing shareholders • Motivated Staff – with a predetermined program to transition - Ladder to equity • Recruitment / retention tool • Accelerated thru initial sale to Austbrokers
    64. 64. Client Case Study: Manufacturing C-Mac GM Steve Grylak, with the national award for best ESOP for SME’s / Succession at the Employee Ownership Conference and awards dinner last Thursday 10th May. C-Mac has bucked the growing national SME trend to wind up on owner retirement (The Exit Generation Needs Help – SMH 19 Sept.2011) with the introduction of an employee owned share plan ( ESOP) offered to all its employees. The engagement of employees as owners has already seen an 18 % hike in productivity at the plant.
    65. 65. Client Case Study: Clearwater Filter Systems Sale of a family owned private company at 9.5 times earnings to JWI. Key Factors: • Listed company as buyer. • Offshore buyer . • Strategic sale – expansion from NZ to Australia. • 5 year exit strategy.
    66. 66. Client Case Study: Sydney Software Business • 60 year old owners - focused on reducing involvement and gradual sale. • Peak Performance Trust involving 8 key staff. • GM now running business – “semi retired” owners. • Business Value now over $6 Mil. • All other assets separated and protected. • “truly a good story of transitional management”
    67. 67. Strategic Advisory At start of engagement ( August 2011 ): • Heavily reliant on the three owners • Owners frustrated at staff disengagement • Unclear about the vision and future of the business • Owners goals - semi-retire while continuing to grow the value of their business • Owners personally exposed to potential liability
    68. 68. Strategic Advisory Key Actions: • Overall strategy & vision defined • Improved people management & communication • Ownership Thinking implemented – move towards a business of business people • Non-owner GM appointed to take the business to the next level and reduce the reliance on owners
    69. 69. Strategic Advisory Outcomes: • Staff understand and are aligned with the vision and • Management and staff are clearer about what‟s expected of them • Staff are in the loop of what‟s going on in the business through monthly company-wide information sessions • The two owners who are closest to their planned retirement age have appointed and are grooming their successors • All employees have been educated in business ownership, are now receiving information about the performance of the business and will soon have a self-funded incentive plan to replace their „christmas bonus‟ • Less „me‟ focus and more „we‟ thinking in the culture: phasing out entitlement and bringing staff on-board to a culture of purpose, visibility and accountability • Employees are sharing the insomnia and stress of running the business
    70. 70. What Next? Further information on our website: www.successionplus.com.au Complete feedback form to be added to our newsletter Arrange a free 90 minute review
    71. 71. Craig West 1300 665 473 cwest@successionplus.com.au Visit www.successionplus.com.au Follow us on:

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