The Successful Entrepreneurs Final Test

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The Successful Entrepreneurs Final Test

• Leaving a Legacy

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What Do You Want Your Legacy to Be?

• Your Legacy is the Sum of all of your
• Personal Goals
• Business Goals
• Financial Goals
• Family Goals
• Community Goals
• Charitable Goals

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Dont Leave This Kind of Legacy!
SARAH SAVED A BUCK, BUT LOST HER BUSINESS
ALAN LOST FAMILY BUSINESS TO PAY HIS DADS ESTATE
TAXES
TOM SOLD HIS BUSINESS FOR 8 MILLION. (TOO BAD IT
WAS WORTH TWICE THAT)
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Look Around You

• 75 of business owners DO NOT have an exit plan!
• 25 of senior family shareholders have NOT done
  any estate planning.
• This is a recipe for DISASTER!

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Exit Planning PutsYou In Charge of Your Legacy

• Over 50 of privately owned businesses will
  change ownership in the next 10 years.
• These companies have a estimated value of over
  10 trillion.

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What is Exit Planning?

• Exit planning is an integrated approach designed
  to help you address all of the
• Business,
• Personal,
• Legal,
• Financial,
• Tax, and
• Insurance issues
• Involved in exiting your business.

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Exit Planning Benefits You By

• Lowering business risks
• Avoiding asset concentration
• Maximizing your companys value
• Preserving family wealth for later generations
• Reducing employee and family uncertainty
• Lowering or eliminating capital gains taxes
• Providing strategic options

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The Cost of Not Planning

• Undervalue your company
• Unable to control your exit
• One buyer is no buyer
• Pay too much in capital gains and income taxes
• Pay too much in estate taxes
• Leave headaches to your family members to solve

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Why Dont Business Owners Plan?
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Common Reasons for Not Developing an Exit Plan

• You DO NOT know where or how to begin
• You may have difficulty discussing financial
  matters and personal goals
• You spend your time putting out fires
• The process seems too daunting

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Common Obstacles to Developing an Exit Plan

• Youre busy balancing three different value
  systems
• Generational differences between stakeholders may
  create barriers
• You may be afraid of what life is like without
  the business

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But Unfortunately

• Youre Human! You will exit your business sooner
  or later.
• You face issues you cant control
• Health,
• Changing motivations,
• Divorce,
• Death,

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How to Create a Successful Exit Plan
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10 Components of a Successful Exit Plan

• Strategic Analysis
• Exit Options
• Tax Plan
• Detail Action Plans
• Your Commitment

• Goals Objectives
• Personal Financial Plan
• Contingency Plan
• Team Approach
• Business Valuation

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1. Statement of Goals

• Foundation for the Exit Plan
• Include all Stakeholders

• Identify and Document Business and Personal Goals
• Goals should be specific, realistic, optimistic,
  honest and measurable

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2. Personal Financial Plan

• How much do I need to accomplish my personal
  goals?
• How should I invest the proceeds of the sale to
  meet my financial goals?

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3. Contingency Plan

• Disability Insurance
• Shareholder Buy-Sell Agreement
• Emergency Action Plan

• Written Instructions
• Communicate
• Stay Bonus
• Life Insurance

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4. Multidisciplinary Team

• Your team of professional advisors should
  include
• A Financial Advisor
• A CPA
• A Legal Advisor and
• An MA Advisor

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5. Business Valuation

• The business valuation should be prepared,
• By a valuation professional
• Should be evaluated using the four widely
  accepted valuation techniques,
• Should consider the valuations purpose and
• Be specific to your business

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6. Strategic Analysis

• How will a buyer see my business?
• How can I maximize the value of my business?

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7. Analysis of Exit Options

• Sell to Third Party
• Refinance or Recapitalize
• Go Public
• Liquidate the Business

• Transfer to Family Members
• Sell to Shareholders
• Sell to Management
• Sell to Employee Stock Ownership Plan

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8. Tax Plan

• How do I minimize
• Capital Gains Taxes?
• Ordinary Income Taxes?
• Estate Taxes

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9. Detailed Action Plan

• What needs to be done?
• When does it need to be done?
• Who will do it?
• Who will ensure its done?

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10. Your Commitment

• You must be the driving force behind your exit
  plan.

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A Real Life Case Study
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A Case Study

• Stan owned a very successful financial services
  consulting company
• He was 62 years old
• Owned business for 18 years
• No strategic business plan
• No exit plan
• No tax plan

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During the Exit Planning Process Stan . . .

• Saved 900,000 in capital gains taxes
• Developed an estate plan that saved over 1
  million in estate taxes
• Dramatically increased the value of his company

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Maximize Company Value

• Before
• Revenue 5.5MM
• EBITDA .9MM
• Baseline value estimated at 5.4MM

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Maximizing Value

• Strategic Analysis Showed that Stan needed to
• Developed a stronger mid-level management team
• Increase formal sales training
• Change reporting and accountability
• Productize their services to capture market
  share

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A Case Study

• After 24 months
• Revenue increased to 11MM (from 5.5MM)
• Cash flow increased to 2.4MM (from 0.9MM)
• Company sold to a foreign strategic buyer for
  15MM

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A Case Study

• The Results
• Before 5.4MM
• After 15MM
• Value-added 9.6MM
• Professional planning and implementation almost
  tripled the value of this clients company in 24
  months!

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The ROI of Exit Planning
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The ROI of Exit Planning
Thats a 151 to 1 return on your investment!!!
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Market Conditions

• Excellent time to Consider Selling
• 200 billion in private equity funds seeking
  investments
• Strategic buyers being aggressive
• Low interest rates
• Lowest capital gains tax rates in 60 years

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Market Values

• Smaller private companies are selling for
• 4-5 times EBITDA
• (EBITDAEarnings Before Interest, Depreciation,
  and Amortization)
• Structure 70 cash, 30 owner financing

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Results Can Be Stunning with Good Planning!

• You control how and when you exit
• You maximize value in good and bad times
• You keep more of what you get rather than paying
  it to Uncle Sam

• You shorten the due diligence and documentation
  periods
• You have better control over confidentiality
• You have strategic options to choose from

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The Entrepreneurs Final Test

• What Legacy Will You Leave?

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Questions?
Richard E. Jackim, JD, MBAPresidentThe
Christman GroupTelephone [phone]visit
us at www.christmangroup.com