Decosimo's Bob Wheat presented this PowerPoint at the 2012 Decoimo Tax Seminar held October 31, 2012 in Chattanooga, Tennessee.

1. A Global Reach with a Local Perspective
www.decosimo.com
Strategic Transition Planning Applying
Proven Techniques
BOB WHEAT, CPA, J.D., AEP® | Senior Tax Manager

2. Why Strategic Transition Planning
Your Business Is Your Future…
Most owners...
• Want to leave their businesses in the next 5-10 years.
• Will never be able to leave their businesses in style.
• Have no plan to grow value or to exit their businesses.
• Work in, not on, their businesses.

3. Why Business Exit Planning
Your Business Is Your Future…
Few owners know:
• The amount of post-retirement income they need/want.
• The value of their largest asset.
• The amount of investment capital they need to create
their desired retirement income.
This is the starting point.

4. Why Business Value and Exit Planning
Why Build Business Value?
As Michael E. Gerber wrote in The E-Myth Revisited: Why
Most Small Businesses Don’t Work and What to Do About
It:
“…there is ultimately only one reason to create a business
of your own, and that is to sell it!” (pg. 152)

5. Case Study
Your Business Is Your Future
Determine first the amount of retirement income you want/need.
Let’s meet Peter and Pam.
• Peter is 58 and wants to exit by age 63.
• Their Joint Life Expectancy is age ___.
• They plan on having $500,000 of non-business investment
assets in five years.
• Peter and Pam’s annual income from their business is
$250,000.

6. Case Study
Meet Peter and Pam
• Annual Income Amount: Peter assumed that he and Pam could live
on 50 percent of their current income. Pam, however, did not want to
cut back that drastically and found that the editors of Money Magazine
agreed:
“. . . . you'll need 70% of your pre-retirement yearly salary to live
comfortably. That might be enough if you've paid off your
mortgage and are in excellent health when you kiss the office
good-bye. But if you plan to build your dream house, trot around
the globe, or get that Ph.D. in philosophy you've always wanted,
you may need 100% of your annual income – or more.”
http://money.cnn.com/retirement/guide/basics_basics.moneymag/index5
.htm.

7. Case Study
Assumptions and Approach
• Personal Financial Needs Projection: Peter and Pam need
$200,000 per year for approximately 30 years.
• Quantify Resources/Estimate of Business Value: The business is
estimated to be worth today between $1,000,000 and $1,500,000. Also,
Peter and Pam will have approximately $500,000 in investable assets at
retirement.
• The Gap: Peter’s advisor calculated that the amount of investment
capital needed to pay Peter and Pam $200,000 per year for the duration of
their lives is approximately $3,000,000.
• The net (after tax) sale proceeds from the sale of the business must be
$2,500,000 – or about $3,000,000 to $3,500,000 pre-tax.

8. Case Study
The Gap:
• The gap between what Peter has today and what he needs to retire
on his terms is about $2,000,000. Peter must increase the value of the
company by at least $2,000,000 if he is to exit on his terms.
• This is why Peter needs at least five years to build the value of his
business and why he must start now.

9. Your Next Step
Build Business Value
Rather than tackle the entire process, let’s commit to do only two
things:
– Break your distant goal of exiting your company in style into
manageable goals, based on growing business value.
– Create a list of small action steps for each goal with deadlines
that, when put together, are the beginnings of the road map to
your exit.

10. Manageable Goals
Goal One: Set Ownership Objectives
• As Yogi Berra said:
“You've got to be very careful if you don't know where
you're going, because you might not get there.”
• Setting your ownership objectives is about fixing your
target or describing what a successful exit looks like to you.

11. Manageable Goals
Goal Two: Quantify Your Resources
• What are your current personal assets? (Stocks, Bonds,
Executive Benefit Plans, etc.)
• How much cash will you need from the sale of the
company to enjoy a financially secure post business life?

12. Manageable Goals
Goal Three: Close The GAP
Sample Recommendations:
 Good and improving cash flow.
 A stable, motivated team of key
employees.  Removing YOU from the business.
 Operating systems that improve  Intellectual Property identification
sustainability of cash flows. and protection.
 A solid, diversified customer base.  Systems to make business
decisions (for employees)
 A realistic growth strategy.
 Paying down debt
 Effective financial controls.

13. Next Steps
Complete Value Driver Analysis
• It is complimentary.
• Includes 16 Questions (1=Not Important – 5=Critical)
• Result:
– Visual assessment that shows you the areas in which your
company is well-positioned to grow value and the areas where it
needs work.

14. Value Driver Analysis Brochure

15. Value Driver Analysis Brochure
This Value Driver Analysis will focus on:
• Identifying your Strategic Objectives.
• Determining your current personal and business financial resources.
• The specific areas in your business that you need to focus on to close the
gap.

16. The Value Driver Analysis Brochure Result

17. Value Driver Analysis Brochure
Strategic Objectives (Page 4)
1. Have you established the date (ex. January 15, 2015) that you wish to stop
working in and for your business?
2. Do you know how much money you may need, annually, after you leave
your business to live a comfortable post-business life?
3. Have you chosen your exit path and/or successor?

18. Value Driver Analysis Brochure
Quantifying Resources (Page 5)
1. Do you have strategies in place to increase your company’s current cash
flow?
2. Do you know what value you will need from your business to meet your
financial objectives?
3. Do you know what income your personal financial assets will likely generate
beginning on your planned business exit/retirement date?

19. Value Driver Analysis Brochure
Closing The GAP (page 6)
1. Statement: Successful owners understand how to exploit their companies’ future business
opportunities. They use written business plans to relentlessly pursue their goals and clearly
communicate to all employees how their actions and responsibilities contribute to the
company’s performance.
Question: Does your company have a similar approach and business plan?
2. Statement: Owners of best-of-the-best companies act swiftly to minimize or eliminate the
major threats and risks to their businesses. Threats include: loss of key employees, trade
secrets, proprietary information/technology and key customers, as well as competitive risks
arising from the development of new technologies.
Question: Have you assessed and addressed all threats facing your company?
3. Statement: Buyers look for and pay well for companies with motivated and longstanding key
employees. Unless key employees are able to run the business without the owner, the
company is neither sustainable nor saleable to a third party buyer, to employees or to the
owner’s children.
Question: Can your key management team run your company in your absence?

20. Value Driver Analysis Brochure
Closing The GAP (Page 6)
4. Statement: Failing to anticipate the income tax consequences you will incur upon the sale of your
company can result in a tax liability that will force you to stay at the helm years longer than you
anticipated. Best-of-the-best company owners begin tax minimization planning years before they
transfer or sell their ownership.
Question: Have you done everything legally possible to minimize the taxes you’ll pay when you
leave your company?
5. Statement: A key component in the success of any business is its development and use of efficient
operating systems, processes and procedures such as: marketing, human resources, production,
sales, lead generation, financial systems, and customer service. Without systems, a business cannot
expand effectively and cannot operate without its owner.
Question: Does your company have the systems necessary for a successor owner to operate it
successfully?
6. Statement: Successful businesses are financially strong and their owners constantly monitor timely
and accurate financial controls. Without controls and review it is impossible to maximize cash flow,
minimize expenses or develop and implement a plan to grow company value.
Question: Do you understand and constantly use your company’s financial information to improve
performance and cash flow?

21. The Process
How We Work With You
• Value Driver Analysis – Done!
– Visual assessment that that shows you the areas in which your
company is well-positioned to grow value and the areas where it
needs work.
• Review Value Driver Analysis
– We will set up a Web conference and discuss the next steps.
• Create Value Driver Report (paid engagement).
• Ultimately develop and implement comprehensive Exit Plan.

22. Thank You
J. Robert Wheat, Jr., JD, CPA, AEP ®
bobwheat@decosimo.com
Decosimo
www.decosimo.com
423-756-7100

23. The Value To You
Time is Ticking…
Current Financial Desired Financial
Resources Resources
How Large
Is Your
GAP?