Your exit strategy: Plan or Procrastinate - The Future is Yours

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Did you know that it typically takes five to ten years to prepare a business for sale or transition? Most business owners think that planning their exit from the business is something that they can think about later. Some may have the idea that they will pass their business on to their children or perhaps a key employee. Others may think about selling the business to a third party or worst case scenario, just liquidating the business.
All of these alternatives need a sufficient degree of planning in order for you to exit the business on your terms and with your retirement income secured.

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Your exit strategy: Plan or Procrastinate - The Future is Yours

  1. 1. Your Exit Strategy: Plan or Procrastinate, The Future is Yours Linnea Blair, Advisors On Target PDCA Contractor College Webinar December 11, 2013
  2. 2. Learning Objectives Critical questions you need to answer before you can start the transition process The most common options for exiting your business Key considerations when selecting the best exit strategy for you Specific variables that will add value to your business in preparation for sale Essential estate planning considerations for family businesses
  3. 3. Why owners choose not to plan Procrastination Fear of the unknown Fear of losing the familiar
  4. 4. Critical questions you need to answer before you can start the transition process
  5. 5. Begin with the end in mind
  6. 6. What are your business goals? Where do you see your business 3 years from now? 5 years from now? 10 years from now? 20 years from now?
  7. 7. What are your life goals? Where do you see yourself 3 years from now? 5 years from now? 10 years from now? 20 years from now?
  8. 8. The Evolving Relationship How do you see your relationship to your business evolving in those time frames? Fewer hours in the business A different role Transfer more responsibility to others More vacations
  9. 9. Critical Questions Do you want to exit the business fully or partially? When do you want to leave the business? How much money will you need when you exit the business?
  10. 10. Options for Business Exit
  11. 11. Options for Business Exit 1. 2. 3. 4. 5. Liquidation Keep your business in the family Sell to your employees Sell to an outside buyer Sell to another painting/home improvement business 6. IPO – Initial Public Offering
  12. 12. Evolving Your Role Several of the exit options can involve a gradual evolution of your role in the company if it’s your desire to stay in the business to some degree because you love it!
  13. 13. Choosing the best exit strategy for YOU
  14. 14. What’s the best option for you? Depends on your answers to the “critical questions” Financial needs Lifestyle desires Family considerations Availability of buyers
  15. 15. Choose your scenario When do you want to leave the business? Partially Fully How much money will you need when you leave? Do you need a lump sum or an ongoing income?
  16. 16. Choose your successors Who are your potential successors Children Employees Management team of children and employees What do you want to do for your successors? What do you want to do for other children who are not in the business?
  17. 17. Available Successors Children Do they want the business? Can they operate it successfully? Do you want to sell it to them or transfer it to them? Employees Do they want to buy the business? Can they operate it successfully? Will they stay with the business if you sell or transfer it to someone else? Are there other available buyers?
  18. 18. Is there a fit? Does a transfer to your chosen successors allow you to leave the business on your timetable? Will this type of transfer give you the amount of money you need to achieve your financial objectives Are there other scenarios that would benefit yourself and your family better?
  19. 19. Selling to an outside buyer
  20. 20. Tips for selling to an outside buyer Sell at the right time for the right reasons Be clear about what you are selling Determine what your business is actually worth Make sure the business is in good order Get professional help
  21. 21. Grooming your business for sale or transfer
  22. 22. Grooming your business for sale Determine your business value – Identify what you will sell or transfer Get rid of worthless inventory and long term debtors Clean up your financial records Strengthen legal and contractual affairs Improve business systems Prepare your management team
  23. 23. Variables that increase business value* Has regional/national accounting firm and reviewed/audited financials Has processes and procedures in place w/routine operational audits Has profitability at or above industry norms/uses a budget Has depth of management. Brand. Can be absent from business for 2+ weeks. Revenues have grown beyond increase in sales and at/above industry norms Buy-sell, articles of incorporation, bylaws are up-to-date & regularly checked Dominant player in market, diversification of clients and has growth plan Has revenues of $10 million-plus and adjusted EBITDA of 10%+ Outside advisory board or respectable board of directors Transition plan in place with measurable milestones Business revenues and profits are consistent with years in business * Provided by Carl Sheeler from Bizvalsltd.com
  24. 24. Variables that decrease business value* Performance is below industry norm and does not know what it is No rhyme or reason for operating other than to have a job Concentration is on keeping taxes low and shielding income (kitchen sink) Cannot be away from business. Is estimator-in-chief. No delegation. No outside advice and retained advisors respond to issues. Not proactive. Documents are out-dated and/or do not reconcile Level of compensation/financials are inconsistent with industry norms Allocation of capital is not based upon business fundamentals * Provided by Carl Sheeler from Bizvalsltd.com
  25. 25. Estate Planning Considerations
  26. 26. Estate Planning Considerations How can I provide for an equitable distribution of my estate among my children? Who should control and eventually own the family business? How can I use my business to fuel the growth of my estate outside of my business interests? How do I provide for my family’s income needs, especially those of my spouse and dependent children, after my death? How can I help preserve my assets from the claims of creditors during my lifetime and at my death? How can I minimize estate taxes?
  27. 27. Exit Planning Advisory Team
  28. 28. Who do you need on your exit planning advisory team? Core Advisors Accountant Business Consultant and/or Business Coach Financial Planner Insurance Broker Estate Planning Attorney Business Attorney Additional Advisors Business Valuation Expert Exit Planning Advisor Business Banker
  29. 29. Exit Planning Timeline
  30. 30. Exit Planning Time Line Create a timeline for where you and your business need to be at various points before you plan to exit the business. Put an action plan in place to take the steps needed to achieve it.
  31. 31. Not ready to plan your exit? Think about these situations…
  32. 32. Voluntary or Involuntary Absence
  33. 33. Risk Mitigation Life Insurance Key Person Insurance Buy-Sell Agreements Wills/Trusts Power of Attorney Health Care Directive
  34. 34. Business Continuity Strategy Business Plan Structure Org Chart, Management Team, Job Descriptions, Clear Responsibilities Systems Data Systems/CRM/IT/Backup Financial Systems/Accounting/Payroll Process Systems Delegation Employees, Outside Service Providers, Vendors
  35. 35. Conclusion A successful exit plan takes time to implement The business owner’s objectives for retirement and legacy as well as personal and business resources need to be considered It’s important to maximize and protect business value You’ll need to define and overcome barriers to exit Defining continuity and contingency plans are key to reducing risk Personal wealth, estate and tax planning are important parts of your exit strategy
  36. 36. Need help to grow a sustainable business? Business Coaching Services On Target for Contractors Program Individual Coaching Executive Group Program On Target Conferences Contractor’s Blueprint - 10 Week Intensive – starts January 23, 2014 Business Model Boot Camp - 10 Week Intensive – starts January 2014 Group Coaching for Painting Contractors – starts January 2014 Business Plans Business Health Check-up Social Media Consulting Find out more at AdvisorsOnTarget.com 36
  37. 37. Contact and Connect! Advisors On Target Business Coaching & Marketing Consulting Linnea Blair Office: 619.291.3700 Email: Lblair@AdvisorsOnTarget.com Web: AdvisorsOnTarget.com Twitter: AdvisorOnTarget Facebook: facebook.com/AdvisorsOnTarget LinkedIn: linkedin.com/in/linneablair 37

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