fortune increasing value of your business aug06

August 10, 2006 We Transfer Business Success 1

Brian S. MazarPresident/CEO


Topic

Value Drivers in Business Sale

IntroductionTransition PlanBuyer’s ViewValuationsFinanceOrganizationOperationsMarketingAdministrationClosing


Value As Seen By The Market• Positioning in the market place

Strategic buyers Industry buyers Financial buyers

• Business continuity Balance short term and long term business needs Employee development and mentoring



Transition Plan Results

• Higher price Manage the factors that affect the valuation Quality financial reports inspire buyer confidence Attract a larger pool of buyers

• More favorable terms to seller• Reduction of tax liabilities• Increased satisfaction for

Business buyer (new owner) Customers Employees Suppliers

IntroductionTransition PlanValuationsFinanceOrganizationOperationsMarketingAdministrationClosing


Good Planning Eases Adversity

• Owner illness• Divorce• Death• Disability• Litigation



Business Viability Concerns• Performance relative to benchmarks

Revenues and revenue trends Income and income trends

• Expansion potential• Competitive advantages• Company background

Core competencies Company culture

• Owner dependence Is the owner the business?



Financial Concerns

• Price justification 3rd party valuation Return on Investment to buyer Payback periods in years



Business Valuation

• Financial statements are key EBITDA multiples Discretionary income multiples Cash and non-cash add backs Value derived from market data



Business Valuation

• Valuation checks Return on Investment to buyer Payback periods in years



Financial Issues

• Report all revenues and income Accurate, complete, verifiable Audited financials are preferred Have good cost accounting system

• Change from bottom line minimization to profit maximization Mindset of a public as opposed to a private

business

• Have a recent business valuation• Tax planning to reduce taxes from

sale of business



Owners Role

• Delegate more effectively Reduce reliance on business owner Formal employee training

• Succession/Exit Strategy Employees related to owner Identify and groom a successor Mentoring of key personnel

• Succession takes time and effort Complex mix of potentially conflicting issues



Partners and Employees

• Execute agreements with partners Buy/sell and buyout agreements

• Employee dependency Employee tenure/turnover Employee contracts 401(k) plans to keep employees Culture

• Human resource documentation Employee handbooks Job descriptions Personnel files



Operational Processes• Policies and procedures

Processes Core activities Systems (consistency of quality, customer service) Equipment maintenance Procedures

• Technology and automation IT current Equipment up to date

• Streamline processes Evaluate each product or service to verify contribution to bottom

line Outsource non-core activities Analyze and outsource activities that can be obtained cheaper

on the outside• Inventory control

Inventory turnover relative to industry standards Review methods (FIFO, LIFO, etc.)



Suppliers

• Supplier relations Supplier/approval selection process Long-term contract benefits Owner dependent relationships

• Cost of raw materials Review frequently Renegotiate if necessary



Customers• Customer retention

Friends or relatives of owner Customer service and support Customer loyalty

• Limited number of customers• 80% of revenue concentrated around a

small group of customers• 20% of business concentrated with one

customer• Reevaluate Marketing/Sales

Direct Reps Agents Internet – new opportunities



Marketing and Advertising• Marketing strategy/plan

Advertising Trade shows Internet Brand awareness Clear and consistent message Differentiation



Competition

• Know your competition Use industry groups Ask your customers

• Know what they do differently Articulate your advantages and disadvantages Pricing strategy

• Learn from competitors Benchmark Borrow good ideas



Legal Issues

• Intellectual property is it secure Patent, copyright, and trademark applications

• Litigation issues Settle all litigation Resolve all product liability cases Resolve all insurance claims

• Form of incorporation pros & cons C-Corp S-Corp LLC Proprietorship Partnership



Regulatory Issues

• Regulatory status Clear environmental compliance Have environmental review by reputable firm Review all permits and licenses OSHA issues Pending zoning issues



QuestionsIntroductionTransition PlanBuyer’s ViewValuationsFinanceOrganizationOperationsMarketingAdministrationClosing