This seminar was presented by Jessica Man from CW Partners. The content was great and it presented how to valuate your business in anticipation of retiring and exiting. BizON had the pleasure of attending and wanted to share this presentation with you. If you have any questions please do not hesitate to contact us.

1. SUCCESSION PLANNING
JESSICA MAN CPA, CA, CBV, CDFA

2. OVERVIEW
 Succession Planning
 Value of a Business
 Valuation Example
 BuildingValue
 Tax Planning
 Questions

3. WHAT IS SUCCESSION PLANNING
 A planning process to:
1. Transfer management responsibilities
2. Transfer legal ownership

4. SUCCESSION PLANNINGTIMELINE
Succession Planning Timeline
Get Ready Get Set Go
Ownership
Transition
Ensure
Corporate
Sale
Readiness
Establish
Value/Price
Tax
Planning
Develop
Successors
Contingency
Plans
Prepare Will &
Estate Plan
Choose Sale
Option
Execute
Terms of
Sale
Financing for
Buyer
Corporate
Goal Planning
Personal Goal
Planning

5. WHY IS IT IMPORTANT
 Effective plans maximize value!

6. WHAT IS AVALUE?
“An Asset is worth what it can
earn and reflects a future income
stream”

7. PRINCIPLES OFVALUATION
 Value is at a point of time
 Value is related to future expectations
 Value relates to earning power
 More than one special purchaser will make a special
purchaser market

8. PURPOSE
 Succession planning
 Buy or sell a business
 Tax planning
 Shareholders agreement
 Matrimonial settlement

9. VALUATION APPROACH
 Going Concern
 Liquidation

10. VALUATION METHODS
 Capitalization cash flow/earnings method
 Discounted cash flow method
 Asset valuation method
 Comparable transaction method

11. RISK FACTORS
 Nature of business
 Clientele
 Credit and collection policies
 Geographic location
 Growth prospects of clients
 Owner-Client relationships:Transferable?

12. RISK FACTORS (CTD)
 Operating productivity
 Size
 Financial position
 Staff compensation
 Industry
 Economic, social and political environment

13. VALUATION EXAMPLE

14. VALUATION EXAMPLE
 Small Business
 Service Industry
 Assumptions:
 Going Concern
 Capitalization Earnings Method

15. EARNINGS CAPITALIZATION METHOD
 Formula
Maintainable Earnings BeforeTaxes
multiplied by (x)
Capitalization earnings multiple
plus (+)
Redundant assets
equals (=)
Fair MarketValue

16. INCOME STATEMENT
Ref. 2014 2015
$ $
Revenue (A) 950,000 1,000,000
Operating Expenses
Remuneration 550,000 625,000
Office and general 142,500 150,000
Professional fees 10,000 25,000
Rent 50,000 50,000
Selling expenses 80,000 100,000
Total operating expenses (B) 832,500 950,000
Income before taxes (C=A-B) 117,500 50,000
BUSINESS VALUATION TEMPLATE
CAPITALIZED EARNINGS METHOD
ABC COMPANY
INCOME STATEMENT
YEARS ENDED JUNE 30, 2014 AND 2015

17. BALANCE SHEET
2014 2015
$ $
ASSETS
Current
Cash 30,000 45,000
Accounts receivable 45,000 50,000
75,000 95,000
Non-current
Property, plant and equipment (net) 50,000 55,000
125,000 150,000
CAPITALIZED EARNINGS METHOD
ABC COMPANY
BALANCE SHEET
AS AT JUNE 30, 2014 AND 2015

18. BALANCE SHEET
2014 2015
$ $
LIABILITIES
Current
Accounts payable 20,000 25,000
Long-term
Long-term debt 100,000 90,000
120,000 115,000
SHAREHOLDERS' EQUITY
Capital stock 100 100
Retained earnings 4,900 34,900
5,000 35,000
125,000 150,000
Net Working Capital 55,000 70,000
CAPITALIZED EARNINGS METHOD
ABC COMPANY
BALANCE SHEET
AS AT JUNE 30, 2014 AND 2015

19. CALCULATION OF MAINTAINABLE EARNINGS
Notes in Financial Statements
 Professional fees of $15,000 related to litigation in 2015
 Severance Package of $50,000 for a retired employee in
2015
 Management Bonus of $75,000 for tax planning in 2014
and 2015
 Family travel to Italy in 2015
 Interest on long-term loan of $8,000 and $6,000 in
2014 and 2015 respectively

20. BUSINESS VALUATION TEMPLATE
CAPITALIZED EARNINGS METHOD
ABC COMPANY
MAINTAINABLE EARNINGS BEFORE INTEREST AND TAXES
YEARS ENDED JUNE 30, 2014 AND 2015
Ref. 2014 2015
$ $
Income before taxes
Adjustments to income
Professional fees
Employee termination/settlement
Management bonuses
Travel
Interest on long-term debt
Total Adjustments
Maintainable earnings before interest and
taxes (Maintainable earnings)
Average maintainable earnings
117,500 50,000
15,000
50,000
75,000 75,000
8,000
10,000
6,000
83,000 156,000
200,500 206,000
203,250
(C=A+B)
(A)
(B)

21. BUSINESS VALUATION TEMPLATE
CAPITALIZED EARNINGS METHOD
ABC COMPANY
CALCULATION OF FAIR MARKET VALUE
Ref. Low High
Maintainable Earnings
Capitalization Multiples
Capitalized Earnings
Add: Net Realizable Value of Redundant Assets
Excess Working Capital
Enterprise Value
Less: Fair Market Value of Long-term debt
Fair Market Value of Shares
203,250 203,250
3 5
609,750 1,016,250
70,000 70,000
679,750 1,086,250
(90,000) (90,000)
589,750 996,250
(A)
(B)
(C=AxB)
(D)
(E=A+D)
(F)
(G=E+F)

22. BUILDINGVALUE
 Plan and set goals
 Maintain profitability at benchmark levels
 Improve organic growth rate
 Establish a stable financial position
 Put employment contracts in place

23. MARKETTRANSACTIONS
 Accountant - 0.75 to 1x revenue
 Insurance Brokers - 3x commission income
 Dentists – (General) - 1x revenue
 Service Business (General) - 0.5 to 1x revenue
 E-commerce - 3 to 6x EBITDA
 Manufacturing - 5 to 7x EBITDA

24. TAX PLANNING
 Lifetime Capital Gain Exemption

25. QUESTIONS?
Jessica Man
905-513-9811
jman@cwcagroup.com