From Revenue to Exit: A GuideMark JohnsonPartner, B2BCFOJanuary 30, 2012
Mark Johnson   CPA with KPMG an international accounting    firm for 12 years   Senior financial executive for large ret...
Stages for a Business Owner   Stage 1 – Revenue Maximization for    Survival   Stage 2 – Pursue Higher Quality Revenue  ...
Stage 1 - So You Know the Answerto…..   How healthy is my business?   When can I take money from the business?   How mu...
Stage 2 - Key metrics   Do you know where your company    stands versus your key competitors?   Where should you focus e...
Characteristics of KPI’s   Only have 3 to 5 KPI’s for an organization   Roll up departmental KPI’s to address    company...
Some Key Performance Indicators   Sales volume per unit or location   Margin per product or location   Cost per unit or...
Challenges with KPI’s   Expensive or difficult to determine   Adjusts to changing needs in the company   Difficulties i...
Stage 3 – Three Step Process toDriving Greater Value   Adopt the lens of an acquirer and    perform a thorough diagnostic...
Stage 3 – Value Drivers   Create and implement a succession plan so the    owner can exit   Establish written processes ...
Stage 3 - Benefits of Preparing theCompany for the Exit   Bridge the “value gap” by achieving a higher    transaction pri...
Stage 4 – Key Questions   If a competitor or financial buyer knocks on your    door would you be ready?   Do your financ...
Planning the ExitTop 10 Reasons Businesses Don’t Sell1. The business is extremely overpriced, in some cases    by as much ...
Planning the ExitTop 10 Reasons Businesses Don’t Sell(Continued)5. The industry that the business is in is    diminishing ...
Planning the ExitTop 10 Reasons Businesses Don’t Sell(Continued)8. Many of the financial rewards of the businesses were ta...
Preparing for Your Exit© 2010, Pinnacle Equity Solutions                     www.pinnacleequitysolutions.com
Planning the Exit          Did you have a plan when you          started your business ?          Do you have a plan to ex...
Planning the Exit            The average business owner spends             80 hours preparing a business plan             ...
Planning the Exit2007 ROCG Survey of 502 business owners in U.S. and Canada
Planning the Exit                  “84% of business owners                   stated that the proceeds                     ...
Planning the Exit2007 ROCG Survey of 502 business owners in U.S. and Canada
2007 ROCG Survey of 502 business owners in U.S. and Canada
Planning the Exit                    “It’s never too early to begin                     this type of planning, but it     ...
The Transfer Cycle                           Sales of businesses occur in cycles             Provided by Rob Slee© 2010, P...
Planning the Exit            With current estimates that more than             40% of business owners plan to exit        ...
Planning the Exit         • How many businesses exist in the United                     States today?    500 – 999 Em’ees ...
Planning the Exit                                      What is at stake ?                          Your hard-earned wealth...
Planning the Exit             So, how will millions of Baby Boomers:               Convert their illiquid, primary asset t...
What is an Exit Strategy?                                    An Exit Strategy is:          The written goals for the succe...
Exiting Your Business,                                    Protecting Your Wealth              A Strategic Guide for Owners...
Planning the Exit                        Six Steps for Developing an                             Exit Strategy Plan© 2010,...
Your Exit Strategy                 Plan              Your Plan follows             these six steps and                inst...
Concluding Thoughts                           An Exit Strategy takes you from:           • Guesswork to actual planning fo...
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From Revenue to Exit: A Guide to a Successful Business

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Presentation summarizing the stages of owning a business and how to properly navigate from the initial stage of maximizing revenue to finally exiting the business with confidence and security.

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From Revenue to Exit: A Guide to a Successful Business

  1. 1. From Revenue to Exit: A GuideMark JohnsonPartner, B2BCFOJanuary 30, 2012
  2. 2. Mark Johnson CPA with KPMG an international accounting firm for 12 years Senior financial executive for large retailers including Victoria Secret Stores, Kay-Bee Toys, Conway Stores and PetsMart Partner for B2B CFO with clients in manufacturing, health care, education, hospitality, construction and litigation support
  3. 3. Stages for a Business Owner Stage 1 – Revenue Maximization for Survival Stage 2 – Pursue Higher Quality Revenue Sources to Maximize Profits Stage 3 – What is My Business Worth? Stage 4 – Preparing to Exit the Business
  4. 4. Stage 1 - So You Know the Answerto….. How healthy is my business? When can I take money from the business? How much can I take, so it wont bleed to death? How much debt OK for the business? Am I meeting my financial goals? What about next year?
  5. 5. Stage 2 - Key metrics Do you know where your company stands versus your key competitors? Where should you focus efforts for improvement Am I meeting my financial goals? What about next year?
  6. 6. Characteristics of KPI’s Only have 3 to 5 KPI’s for an organization Roll up departmental KPI’s to address company- wide KPI measures KPI differ by organization KPI’s provide a direction, benchmark, target and timeframe Includes operation and financial information
  7. 7. Some Key Performance Indicators Sales volume per unit or location Margin per product or location Cost per unit or location Overhead or fixed costs Utilization % of plant capacity or capital equipment Cash flow positive (negative) per week Payroll cost per employee Volume trends in markets (CY vs LY and CY vs Plan) EBITDA Gross margin % by product or location
  8. 8. Challenges with KPI’s Expensive or difficult to determine Adjusts to changing needs in the company Difficulties in benchmarking Rough guide rather than a precise measurement
  9. 9. Stage 3 – Three Step Process toDriving Greater Value Adopt the lens of an acquirer and perform a thorough diagnostic of the business Know where your company stands in the industry Establish a foundation for future performance
  10. 10. Stage 3 – Value Drivers Create and implement a succession plan so the owner can exit Establish written processes and process controls Maintain key resources and relationships – Key employees and customers – Protect intellectual property – Strong market position (niche or leadership) Provide financial statements with history and details that are readily available and reliable
  11. 11. Stage 3 - Benefits of Preparing theCompany for the Exit Bridge the “value gap” by achieving a higher transaction price through superior operating performance (i.e. increase EBITDA multiple) Facilitate deal closure by setting reasonable expectations as to what the business is really worth Anticipate and address the risks which can result in an “eleventh hour” reduction in price or even derail the deal completely Planning and preparation will strengthen your negotiating position with prospective acquirers
  12. 12. Stage 4 – Key Questions If a competitor or financial buyer knocks on your door would you be ready? Do your financial statements accurately portray the value of your business? Do you know where your company stands versus your key competitors? Have you identified the gaps or issues that threaten your continued success and growth? If you had to leave the business today would your company continue to thrive?
  13. 13. Planning the ExitTop 10 Reasons Businesses Don’t Sell1. The business is extremely overpriced, in some cases by as much as 100%.2. The business has several family members in top management.3. The owner is the business - as a result the company cannot effectively run without the efforts of the owner.4. One or more customers constitute more than 25% of the total business.
  14. 14. Planning the ExitTop 10 Reasons Businesses Don’t Sell(Continued)5. The industry that the business is in is diminishing or threatened by globalization.6. The owner(s) is aging and has slowed-down, resulting in diminishing revenues.7. The owner did not take time to perform exit planning. To properly prepare the business for sale, the owner should have engaged an Exit Planning Advisor 2-5 years prior to selling.
  15. 15. Planning the ExitTop 10 Reasons Businesses Don’t Sell(Continued)8. Many of the financial rewards of the businesses were taken by the owner in various "perks" which, from valuation, banking and market perspectives, will not make it to the EBITDA as add backs (meals and entertainment, promotions, business travel, etc.)9. The seller did not take time to become educated on the selling process, especially on the possible ugliness of the due diligence process by the buyer team.10. The owner did not hire a proper professional such as a trusted M&A Advisor, as opposed to a broker that usually works both sides in a sale process.
  16. 16. Preparing for Your Exit© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  17. 17. Planning the Exit Did you have a plan when you started your business ? Do you have a plan to exit your business and protect your wealth ?© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  18. 18. Planning the Exit The average business owner spends 80 hours preparing a business plan and only 6 hours preparing for their exit.© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  19. 19. Planning the Exit2007 ROCG Survey of 502 business owners in U.S. and Canada
  20. 20. Planning the Exit “84% of business owners stated that the proceeds from the sale of their business were important to their retirement plans.”2007 ROCG Survey of 502 business owners in U.S. and Canada
  21. 21. Planning the Exit2007 ROCG Survey of 502 business owners in U.S. and Canada
  22. 22. 2007 ROCG Survey of 502 business owners in U.S. and Canada
  23. 23. Planning the Exit “It’s never too early to begin this type of planning, but it may certainly one day be too late.”© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  24. 24. The Transfer Cycle Sales of businesses occur in cycles Provided by Rob Slee© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  25. 25. Planning the Exit With current estimates that more than 40% of business owners plan to exit within the next five years and 80% within 10 years, there will be many more sellers than buyers in the marketplace. - Inc.com, University of Dallas School of Management and GW Equity survey, 2006 as cited by Peter Hoy in, Most Business Owners Plan to Sell Within Three Years.© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  26. 26. Planning the Exit • How many businesses exist in the United States today? 500 – 999 Em’ees 8,326 100 – 499 Em’ees 82,334 20 – 99 Em’ees 508,249 1 – 19 Em’ees 4,320,290 Non-Em’ee Firms: 17,646,062© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  27. 27. Planning the Exit What is at stake ? Your hard-earned wealth can be diminished by: Changes to your business Changes to the global economy Lack of a Successor Income & Estate Taxes Deal Structuring & Advisory Fees© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  28. 28. Planning the Exit So, how will millions of Baby Boomers: Convert their illiquid, primary asset to cash ? Replace the income from the business ? Transfer their business wealth to the next generation ? Protect their legacy ?© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  29. 29. What is an Exit Strategy? An Exit Strategy is: The written goals for the succession of a business’ ownership and control, derived from a well thought out and properly timed plan that considers all factors, all interested parties, and the personal goals of the owners in a manner and a time period that is accommodative to the business, its shareholders, and potential buyers.© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  30. 30. Exiting Your Business, Protecting Your Wealth A Strategic Guide for Owners and Their Advisors Part I: Preparing for Your Exit Part II: Options for Your Exit Part III: Planning Your Exit, Protecting Your Wealth© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  31. 31. Planning the Exit Six Steps for Developing an Exit Strategy Plan© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  32. 32. Your Exit Strategy Plan Your Plan follows these six steps and instructs your advisors on where their input is required.© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com
  33. 33. Concluding Thoughts An Exit Strategy takes you from: • Guesswork to actual planning for illiquid wealth • Illiquidity to Liquidity • Personal wealth trapped to ‘liberated’ • Private Company Risk to Diversification • Wealth at Risk to Wealth Protection Strategies • Working to Retirement (for Baby Boomers)© 2010, Pinnacle Equity Solutions www.pinnacleequitysolutions.com

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