your exit strategy: plan or procrastinate - the future is yours

Your Exit Strategy: Plan or Procrastinate, The

Future is YoursLinnea Blair, Advisors On Target

PDCA Contractor College WebinarDecember 11, 2013

Critical questions you need to answer before you can start the transition process

The most common options for exiting your business Key considerations when selecting the best exit

strategy for you Specific variables that will add value to your

business in preparation for sale Essential estate planning considerations for family

businesses

Learning Objectives

Procrastination Fear of the unknown Fear of losing the familiar

Why owners choose not to plan

Critical questions you need to answer before you can start the

transition process

Begin with the end in mind

Where do you see your business 3 years from now?

5 years from now? 10 years from now? 20 years from now?

What are your business goals?

Where do you see yourself 3 years from now?

5 years from now? 10 years from now? 20 years from now?

What are your life goals?

How do you see your relationship to your business evolving in those time frames? Fewer hours in the business A different role Transfer more responsibility to others More vacations

The Evolving Relationship

Do you want to exit the business fully or partially?

When do you want to leave the business? How much money will you need when you

exit the business?

Critical Questions

Options for Business Exit

1. Liquidation 2. Keep your business in the family 3. Sell to your employees 4. Sell to an outside buyer 5. Sell to another painting/home improvement

business 6. IPO – Initial Public Offering

Options for Business Exit

Evolving Your Role

Several of the exit options can involve a gradual evolution of your role in the company if it’s your desire to stay in the business to some degree because you love it!

Choosing the best exit strategy for YOU

Depends on your answers to the “critical questions”

Financial needs Lifestyle desires Family considerations Availability of buyers

What’s the best option for you?

When do you want to leave the business? Partially Fully

How much money will you need when you leave?

Do you need a lump sum or an ongoing income?

Choose your scenario

Who are your potential successors Children Employees Management team of children and employees

What do you want to do for your successors? What do you want to do for other children

who are not in the business?

Choose your successors

Children Do they want the business? Can they operate it successfully? Do you want to sell it to them or transfer it to them?

Employees Do they want to buy the business? Can they operate it successfully? Will they stay with the business if you sell or transfer it

to someone else? Are there other available buyers?

Available Successors

Does a transfer to your chosen successors allow you to leave the business on your timetable?

Will this type of transfer give you the amount of money you need to achieve your financial objectives

Are there other scenarios that would benefit yourself and your family better?

Is there a fit?

Selling to an outside buyer

Sell at the right time for the right reasons Be clear about what you are selling Determine what your business is actually

worth Make sure the business is in good order Get professional help

Tips for selling to an outside buyer

Grooming your business for sale or transfer

Determine your business value – Identify what you will sell or transfer

Get rid of worthless inventory and long term debtors

Clean up your financial records Strengthen legal and contractual affairs Improve business systems Prepare your management team

Grooming your business for sale

Has regional/national accounting firm and reviewed/audited financials Has processes and procedures in place w/routine operational audits Has profitability at or above industry norms/uses a budget Has depth of management. Brand. Can be absent from business for 2+

weeks. Revenues have grown beyond increase in sales and at/above industry norms Buy-sell, articles of incorporation, bylaws are up-to-date & regularly checked Dominant player in market, diversification of clients and has growth plan Has revenues of $10 million-plus and adjusted EBITDA of 10%+ Outside advisory board or respectable board of directors Transition plan in place with measurable milestones Business revenues and profits are consistent with years in business

Variables that increase business value*

* Provided by Carl Sheeler from Bizvalsltd.com

Performance is below industry norm and does not know what it is No rhyme or reason for operating other than to have a job Concentration is on keeping taxes low and shielding income

(kitchen sink) Cannot be away from business. Is estimator-in-chief. No

delegation. No outside advice and retained advisors respond to issues. Not

proactive. Documents are out-dated and/or do not reconcile Level of compensation/financials are inconsistent with industry

norms Allocation of capital is not based upon business fundamentals

Variables that decrease business value*

* Provided by Carl Sheeler from Bizvalsltd.com

Estate Planning Considerations

How can I provide for an equitable distribution of my estate among my children?

Who should control and eventually own the family business? How can I use my business to fuel the growth of my estate

outside of my business interests? How do I provide for my family’s income needs, especially

those of my spouse and dependent children, after my death?

How can I help preserve my assets from the claims of creditors during my lifetime and at my death?

How can I minimize estate taxes?

Estate Planning Considerations

Exit Planning Advisory Team

Who do you need on your exit planning advisory team?

Core Advisors Accountant Business Consultant

and/or Business Coach Financial Planner Insurance Broker Estate Planning Attorney Business Attorney

Additional Advisors Business Valuation Expert Exit Planning Advisor Business Banker

Exit Planning Timeline

Exit Planning Time Line

Create a timeline for where you and your business need to be at various points before you plan to exit the business.

Put an action plan in place to take the steps needed to achieve it.

Not ready to plan your exit?

Think about these situations…

Voluntary or Involuntary Absence

Life Insurance Key Person Insurance Buy-Sell Agreements Wills/Trusts Power of Attorney Health Care Directive

Risk Mitigation

Strategy Business Plan

Structure Org Chart, Management Team, Job Descriptions, Clear

Responsibilities Systems

Data Systems/CRM/IT/Backup Financial Systems/Accounting/Payroll Process Systems

Delegation Employees, Outside Service Providers, Vendors

Business Continuity

A successful exit plan takes time to implement The business owner’s objectives for retirement and

legacy as well as personal and business resources need to be considered

It’s important to maximize and protect business value You’ll need to define and overcome barriers to exit Defining continuity and contingency plans are key to

reducing risk Personal wealth, estate and tax planning are

important parts of your exit strategy

Conclusion

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Linnea Blair Office: 619.291.3700 Email: Lblair@AdvisorsOnTarget.com Web: AdvisorsOnTarget.com Twitter: AdvisorOnTarget Facebook: facebook.com/AdvisorsOnTarget LinkedIn: linkedin.com/in/linneablair

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