Fortune Increasing Value Of Your Business Aug06

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Increasing the value of your business and making it more marketable for sale.

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Fortune Increasing Value Of Your Business Aug06

  1. 1. Brian S. Mazar President/CEO
  2. 2. Topic <ul><li>Value Drivers in </li></ul><ul><li>Business Sale </li></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  3. 3. Value As Seen By The Market <ul><li>Positioning in the market place </li></ul><ul><ul><li>Strategic buyers </li></ul></ul><ul><ul><li>Industry buyers </li></ul></ul><ul><ul><li>Financial buyers </li></ul></ul><ul><li>Business continuity </li></ul><ul><ul><li>Balance short term and long term business needs </li></ul></ul><ul><ul><li>Employee development and mentoring </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  4. 4. Transition Plan Results <ul><li>Higher price </li></ul><ul><ul><li>Manage the factors that affect the valuation </li></ul></ul><ul><ul><li>Quality financial reports inspire buyer confidence </li></ul></ul><ul><ul><li>Attract a larger pool of buyers </li></ul></ul><ul><li>More favorable terms to seller </li></ul><ul><li>Reduction of tax liabilities </li></ul><ul><li>Increased satisfaction for </li></ul><ul><ul><li>Business buyer (new owner) </li></ul></ul><ul><ul><li>Customers </li></ul></ul><ul><ul><li>Employees </li></ul></ul><ul><ul><li>Suppliers </li></ul></ul>Introduction Transition Plan Valuations Finance Organization Operations Marketing Administration Closing
  5. 5. Good Planning Eases Adversity <ul><li>Owner illness </li></ul><ul><li>Divorce </li></ul><ul><li>Death </li></ul><ul><li>Disability </li></ul><ul><li>Litigation </li></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  6. 6. Business Viability Concerns <ul><li>Performance relative to benchmarks </li></ul><ul><ul><li>Revenues and revenue trends </li></ul></ul><ul><ul><li>Income and income trends </li></ul></ul><ul><li>Expansion potential </li></ul><ul><li>Competitive advantages </li></ul><ul><li>Company background </li></ul><ul><ul><li>Core competencies </li></ul></ul><ul><ul><li>Company culture </li></ul></ul><ul><li>Owner dependence </li></ul><ul><ul><li>Is the owner the business? </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  7. 7. Financial Concerns <ul><li>Price justification </li></ul><ul><ul><li>3 rd party valuation </li></ul></ul><ul><ul><li>Return on Investment to buyer </li></ul></ul><ul><ul><li>Payback periods in years </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  8. 8. Business Valuation <ul><li>Financial statements are key </li></ul><ul><ul><li>EBITDA multiples </li></ul></ul><ul><ul><li>Discretionary income multiples </li></ul></ul><ul><ul><li>Cash and non-cash add backs </li></ul></ul><ul><ul><li>Value derived from market data </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  9. 9. Business Valuation <ul><li>Valuation checks </li></ul><ul><ul><li>Return on Investment to buyer </li></ul></ul><ul><ul><li>Payback periods in years </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  10. 10. Financial Issues <ul><li>Report all revenues and income </li></ul><ul><ul><li>Accurate, complete, verifiable </li></ul></ul><ul><ul><li>Audited financials are preferred </li></ul></ul><ul><ul><li>Have good cost accounting system </li></ul></ul><ul><li>Change from bottom line minimization to profit maximization </li></ul><ul><ul><li>Mindset of a public as opposed to a private business </li></ul></ul><ul><li>Have a recent business valuation </li></ul><ul><li>Tax planning to reduce taxes from sale of business </li></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  11. 11. Owners Role <ul><li>Delegate more effectively </li></ul><ul><ul><li>Reduce reliance on business owner </li></ul></ul><ul><ul><li>Formal employee training </li></ul></ul><ul><li>Succession/Exit Strategy </li></ul><ul><ul><li>Employees related to owner </li></ul></ul><ul><ul><li>Identify and groom a successor </li></ul></ul><ul><ul><li>Mentoring of key personnel </li></ul></ul><ul><li>Succession takes time and effort </li></ul><ul><ul><li>Complex mix of potentially conflicting issues </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  12. 12. Partners and Employees <ul><li>Execute agreements with partners </li></ul><ul><ul><li>Buy/sell and buyout agreements </li></ul></ul><ul><li>Employee dependency </li></ul><ul><ul><li>Employee tenure/turnover </li></ul></ul><ul><ul><li>Employee contracts </li></ul></ul><ul><ul><li>401(k) plans to keep employees </li></ul></ul><ul><ul><li>Culture </li></ul></ul><ul><li>Human resource documentation </li></ul><ul><ul><li>Employee handbooks </li></ul></ul><ul><ul><li>Job descriptions </li></ul></ul><ul><ul><li>Personnel files </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  13. 13. Operational Processes <ul><li>Policies and procedures </li></ul><ul><ul><li>Processes </li></ul></ul><ul><ul><li>Core activities </li></ul></ul><ul><ul><li>Systems (consistency of quality, customer service) </li></ul></ul><ul><ul><li>Equipment maintenance </li></ul></ul><ul><ul><li>Procedures </li></ul></ul><ul><li>Technology and automation </li></ul><ul><ul><li>IT current </li></ul></ul><ul><ul><li>Equipment up to date </li></ul></ul><ul><li>Streamline processes </li></ul><ul><ul><li>Evaluate each product or service to verify contribution to bottom line </li></ul></ul><ul><ul><li>Outsource non-core activities </li></ul></ul><ul><ul><li>Analyze and outsource activities that can be obtained cheaper on the outside </li></ul></ul><ul><li>Inventory control </li></ul><ul><ul><li>Inventory turnover relative to industry standards </li></ul></ul><ul><ul><li>Review methods (FIFO, LIFO, etc.) </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  14. 14. Suppliers <ul><li>Supplier relations </li></ul><ul><ul><li>Supplier/approval selection process </li></ul></ul><ul><ul><li>Long-term contract benefits </li></ul></ul><ul><ul><li>Owner dependent relationships </li></ul></ul><ul><li>Cost of raw materials </li></ul><ul><ul><li>Review frequently </li></ul></ul><ul><ul><li>Renegotiate if necessary </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  15. 15. Customers <ul><li>Customer retention </li></ul><ul><ul><li>Friends or relatives of owner </li></ul></ul><ul><ul><li>Customer service and support </li></ul></ul><ul><ul><li>Customer loyalty </li></ul></ul><ul><li>Limited number of customers </li></ul><ul><li>80% of revenue concentrated around a small group of customers </li></ul><ul><li>20% of business concentrated with one customer </li></ul><ul><li>Reevaluate Marketing/Sales </li></ul><ul><ul><li>Direct </li></ul></ul><ul><ul><li>Reps </li></ul></ul><ul><ul><li>Agents </li></ul></ul><ul><ul><li>Internet – new opportunities </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  16. 16. Marketing and Advertising <ul><li>Marketing strategy/plan </li></ul><ul><ul><li>Advertising </li></ul></ul><ul><ul><li>Trade shows </li></ul></ul><ul><ul><li>Internet </li></ul></ul><ul><ul><li>Brand awareness </li></ul></ul><ul><ul><li>Clear and consistent message </li></ul></ul><ul><ul><li>Differentiation </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  17. 17. Competition <ul><li>Know your competition </li></ul><ul><ul><li>Use industry groups </li></ul></ul><ul><ul><li>Ask your customers </li></ul></ul><ul><li>Know what they do differently </li></ul><ul><ul><li>Articulate your advantages and disadvantages </li></ul></ul><ul><ul><li>Pricing strategy </li></ul></ul><ul><li>Learn from competitors </li></ul><ul><ul><li>Benchmark </li></ul></ul><ul><ul><li>Borrow good ideas </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  18. 18. Legal Issues <ul><li>Intellectual property is it secure </li></ul><ul><ul><li>Patent, copyright, and trademark applications </li></ul></ul><ul><li>Litigation issues </li></ul><ul><ul><li>Settle all litigation </li></ul></ul><ul><ul><li>Resolve all product liability cases </li></ul></ul><ul><ul><li>Resolve all insurance claims </li></ul></ul><ul><li>Form of incorporation pros & cons </li></ul><ul><ul><li>C-Corp </li></ul></ul><ul><ul><li>S-Corp </li></ul></ul><ul><ul><li>LLC </li></ul></ul><ul><ul><li>Proprietorship </li></ul></ul><ul><ul><li>Partnership </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  19. 19. Regulatory Issues <ul><li>Regulatory status </li></ul><ul><ul><li>Clear environmental compliance </li></ul></ul><ul><ul><li>Have environmental review by reputable firm </li></ul></ul><ul><ul><li>Review all permits and licenses </li></ul></ul><ul><ul><li>OSHA issues </li></ul></ul><ul><ul><li>Pending zoning issues </li></ul></ul>Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing
  20. 20. Questions Introduction Transition Plan Buyer’s View Valuations Finance Organization Operations Marketing Administration Closing

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