The End GameThe End GameSetting Up Your Business for Your Exit –Setting Up Your Business for Your Exit –

ProfitablyProfitably

Presented byPresented byBrendan J. Cunningham LPBCBrendan J. Cunningham LPBC

Excelleron Business Consulting, LLCExcelleron Business Consulting, LLC

What are your options?What are your options?

No planNo plan LiquidationLiquidation SaleSale BuyoutBuyout Sell to management/employeesSell to management/employees Pass to familyPass to family

No Plan (yes, “No Plan” is a No Plan (yes, “No Plan” is a Plan!) aka the Hamlet StrategyPlan!) aka the Hamlet Strategy

Let the cards fall where they may fallLet the cards fall where they may fall Passes on according to your last willPasses on according to your last will

– Heirs assume all control, taxes, etcHeirs assume all control, taxes, etc– If no will, goes to probate courtIf no will, goes to probate court

AdvantagesAdvantages– Doesn’t require any planning or actions – you Doesn’t require any planning or actions – you

can keep concentrating on “today”can keep concentrating on “today” DisadvantagesDisadvantages

– Heirs have burden of tax filings, payments, etcHeirs have burden of tax filings, payments, etc– Transition is cumbersome and stressful for new Transition is cumbersome and stressful for new

owner(s)owner(s)– Highest likelihood of business failureHighest likelihood of business failure

LiquidationLiquidation

Sell assets, pay liabilities, release Sell assets, pay liabilities, release employees, close doorsemployees, close doors

AdvantagesAdvantages– Simple – requires little planningSimple – requires little planning

DisadvantagesDisadvantages– Stressful during implementationStressful during implementation– Money – most likely will result in much Money – most likely will result in much

less money, since sale is for assets onlyless money, since sale is for assets only

SaleSale

Buyer pays an agreed-upon price for the Buyer pays an agreed-upon price for the businessbusiness

AdvantagesAdvantages– Can be significant amount of money if business Can be significant amount of money if business

is ready for saleis ready for sale– You get a check – and have freedom of choice You get a check – and have freedom of choice

following receipt following receipt DisadvantagesDisadvantages

– Finding suitable buyer and conducting Finding suitable buyer and conducting negotiations may be stressfulnegotiations may be stressful

BuyoutBuyout

Sale of the business over a period of time. Sale of the business over a period of time. – This may include a portion of the price based on This may include a portion of the price based on

performance during the buyout period (or may not)performance during the buyout period (or may not) AdvantagesAdvantages

– May result in more money over the long-runMay result in more money over the long-run– You may continue to be involvedYou may continue to be involved– Provides on-going “income”Provides on-going “income”

DisadvantagesDisadvantages– You may continue to be involvedYou may continue to be involved– Buyer(s) may not perform as well as you had expected, Buyer(s) may not perform as well as you had expected,

thus lowering your total dollars (if based on thus lowering your total dollars (if based on performance)performance)

– Buyers may fail, and stop paymentsBuyers may fail, and stop payments

Sale to Sale to Managers/EmployeesManagers/Employees

Usually consists of selling over a period of time to Usually consists of selling over a period of time to your existing management and/or employeesyour existing management and/or employees

Similar advantages and disadvantages to Similar advantages and disadvantages to previous slide (Buyout)previous slide (Buyout)

Unique AdvantagesUnique Advantages– Compared to the buyout scenario, these buyers are Compared to the buyout scenario, these buyers are

intimately knowledgeable about business, thus have a intimately knowledgeable about business, thus have a better chancebetter chance

– Can initiate it via payroll deduction and cashCan initiate it via payroll deduction and cash Unique DisadvantagesUnique Disadvantages

– Existing employees may not have “new ideas” to Existing employees may not have “new ideas” to expand businessexpand business

Pass to FamilyPass to Family The business goes to the next generation of your The business goes to the next generation of your

familyfamily AdvantagesAdvantages

– You directly provide for your descendentsYou directly provide for your descendents– Trust (hopefully!)Trust (hopefully!)– Intimacy – With family, you will have more influenceIntimacy – With family, you will have more influence– You can remain involvedYou can remain involved

DisadvantagesDisadvantages– Family may not have expertise of you or outside buyersFamily may not have expertise of you or outside buyers– No “cashing out” (although this MAY be involved as well)No “cashing out” (although this MAY be involved as well)– You may end up being more involved than you might You may end up being more involved than you might

likelike

In Every Scenario…In Every Scenario…

You can still maximize your return You can still maximize your return and chances of success for your and chances of success for your futurefuture

The value of your business is directly The value of your business is directly related to your business model and related to your business model and whether it operates effectivelywhether it operates effectively

Valuation ExampleValuation Example

Business A (Adam)Business A (Adam)– Works 60-70 hours per Works 60-70 hours per

weekweek– Makes $150,000 per Makes $150,000 per

yearyear

Quick valuationQuick valuation– Probably around Probably around

$150,000 (1X earnings)$150,000 (1X earnings)

Business B (Bob)Business B (Bob)– Works approximately 4 Works approximately 4

hours per weekhours per week– Makes $150,000 per Makes $150,000 per

yearyear

Quick ValuationQuick Valuation– Probably around Probably around

$750,000 (5X earnings$750,000 (5X earnings

Why the Difference – And how Why the Difference – And how do we get there?do we get there?

An investor is paying for cash flow and return on An investor is paying for cash flow and return on investmentinvestment

Scenario AScenario A– If buyer has to hire GM to take over for Adam, it will lower If buyer has to hire GM to take over for Adam, it will lower

the returnthe return– If buyer wants to personally replace Adam, then they are If buyer wants to personally replace Adam, then they are

buying Adam’s salary – AND losing Adam’s influencebuying Adam’s salary – AND losing Adam’s influence Scenario BScenario B

– Buyer is purchasing Bob’s business model – it is already Buyer is purchasing Bob’s business model – it is already running on its own!running on its own!

How can we Move from Scenario A How can we Move from Scenario A Scenario B Scenario B Obviously, you need to create a business model – Obviously, you need to create a business model –

complete with Owners Manual – and it has to work!complete with Owners Manual – and it has to work!

Creating an Owners ManualCreating an Owners Manual

Documents organizational structure as well as all processes Documents organizational structure as well as all processes and proceduresand procedures– Marketing the business Marketing the business

Getting people to contact the business about products/servicesGetting people to contact the business about products/services– Sales System Sales System

Moving people to actually spend their moneyMoving people to actually spend their money– Operations Operations

Performing functions to ensure customers expectations are fulfilledPerforming functions to ensure customers expectations are fulfilled– EmployeesEmployees

Hiring, training, compensating, evaluatingHiring, training, compensating, evaluating– AdministrationAdministration

Finance and AccountingFinance and Accounting– Ensuring cash is available, tracking sales and expenses, budgetingEnsuring cash is available, tracking sales and expenses, budgeting

– ManagementManagement Tracking results in various functional areas, analyzing and creating Tracking results in various functional areas, analyzing and creating

policy based on results policy based on results

““Sounds like a lot of Sounds like a lot of Work…”Work…”

Absolutely!Absolutely! It is not EASY, but it is SIMPLEIt is not EASY, but it is SIMPLE

Payoff is worth it!!!Payoff is worth it!!!

Want more info…Want more info…

Call Brendan J. Cunningham LPBC, Pres.Call Brendan J. Cunningham LPBC, Pres.

Excelleron Business Consulting, LLCExcelleron Business Consulting, LLC

(716) 818-2526(716) 818-2526