wib presentation transition of ownership_final3
TRANSCRIPT
Alternate Solutions to Business Closure Due to Owner
Retirement Southern California Rapid Response Regional Roundtable Meeting
Los Angeles Trade Tech College September 17, 2015
Presented by Concerned Capital, Inc.
Critical Issue: Transition of Ownership
76 million boomers will be retirement age
by 2029 1/3 of the U.S. pop. Every 8 seconds another
baby boomer turns 65
Baby Boomer Business Owners No Exit Plan • 2006 study estimated 75% business owners don’t have an exit plan. • 2008 study- 96% of boomer business owners agree exit strategy is important. • 87% did not have a written plan. • 9 million of 15 million business owners are boomers. • One business owner turns 65 every 57 seconds.
Exit plans NFO survey 2001 ‘ baby boom’ bubble • 48% of business owners considered affluent • For them 1 in 3 will sell to external buyer • 1 in 3 will sell to family members • 1 in 6 will sell to employees • 1 in 6 will liquidate
Potential Buyers
External Buyer
Family Employees
Liquidation
GOAL: Bigger share of the pie for employees.
Retirement Issue Stats The last of the baby
boomers turned 50 in 2014.
Over the next 30 years, the 65+ population will
be larger than the younger generations –
first time ever.
42% of all after-tax income in the U.S. goes
to boomers.
Boomers and seniors have a net worth 3x
that of younger generations .
Critical Issues: Transition of Ownership Fewer than 50% of small
businesses are passed on to next generation
Small businesses are concentrated in low-
income communities/enterprise
zones and at risk to close or move .
Workers in these smaller companies, of less than 50 employees, comprise
84% of the private sector workforce.
Once these smaller companies vanish its
very difficult to attract new, living wage jobs
into these areas
Prepared for Concerned Capital by the UCLA Academy for Social Enterprise
2,000 Small Businesses are ‘at risk’ in LA’s County’s former Enterprise Zones
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2011 US Economic Census: Targeted Businesses in Los Angeles County Enterprise Zones
1050 3571 6543 923 743
Targeted Small Business
Number of Small Businesses Sold In Los Angeles Each Year 3100
Estimated number of businesses ‘at risk’ each year until 2029 2000
Interview with BizBin
Small business baby boomer owners retiring creates an urgent need for business transition solutions
12,830
So. California Jobs Annually “At risk”
0100020003000400050006000700080009000
So. California Jobs Annually “At risk” 243
2,263
591
737
849
402
472
510
333
Profile: Targeted Companies Job Characteristics Ownership Characteristics
20-75 jobs Family owned with strong loyalty to staff
Family wage, primary jobs Gross sales $ 3 - $ 10 million
Many long-term employees In Industrial/Manufacturing areas
In Mature Industries Requires new management
Potential to create new jobs Strong goodwill and solid financial history
Smaller companies are difficult to sell Customer concentration
Erratic financial performance
Market competition – domestic and global
When forced to sell – unexpected lifestyle changes
Inaccuracy and incompleteness of records – such as
unreported cash, hidden inventory, stale receivables
Owners’ Perspective on Sale
Small companies are often niche players. Their value is often
unrecognized except by their owners and
the people who work there.
Often, but not always, the children of the owners are
reluctant to enter the business
As owners age, they begin to look for an
exit strategy but can’t properly market their business and/or don’t want it known company is for sale.
Retiring baby boomers create an urgent need for business transition solutions
Sale to a Third Party May Not Give the Highest Value
It discounts or ignores intangibles
It undervalues the Real Strengths of
the Company
May view the existing workforce as more of liability
than an asset
Is commonly an Asset Only Sale– hence taxed as
income, not capital gains
Small business baby boomers retiring creates an urgent need for business transition solutions
Owners vs. Buyers– 2 Interpretations
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• Owners Think they’re Selling – repeat customers, perceived brand recognition in the marketplace, a great organization in place; a legacy of dependability and good service: INTANGIBLES
• Third Party Buyers Buy - multiples of cash flow – whether multiple of gross sale or multiple of profit or multiple of pre-tax profit (EBITDA), or a multiple of free cash flow : PROFITS
Management/worker buyouts as one successful solution
The owner generally is willing to stay in the picture
Selling a corporation ‘lock, stock and barrel’ to employees dramatically lowers owner’s tax liability – ordinary income become capital gains
Seek a quick, easy, rapid transition at the smallest expense possible
Understand the company, know its history and aren’t concerned about unknown liabilities
Why employee ownership makes sense
Adcraft : A Success Story
Small business baby boomers retiring creates an urgent need for business transition solutions
45 year old LA mail order company
Company saddled with debt and negative net worth
But owners pulled out $ 350k a year compensation for previous 10 years
Successfully sold to existing management team in 3 months
Saved 60 jobs
Characteristics of Many Management/Worker Buyouts
The business is sold lock, stock and barrel – as
a corporate entity and
going concern
Buyers have been with the company for 3 years or longer
The Buyers are motivated to make money
All parties are comfortable doing a deal
with each other and
there’s ample goodwill to
close a deal.
Transfer to Employees - Steps Key Employees
Letter of interest (LOI)
Valuation of business
Due diligence
Finance
Concerned Capital facilitates the ownership of a piece of the American dream
Ariza Cheese Manufacturing Company 40 year old artisan cheese manufacturer in Paramount, CA
Owner died and company run by 2 daughters absentee for 4 years
Starved for investment – sales ignored for lack of milk purchase
Take-over Jan. 2015 – added 6 workers and increased sales 30%
Saved 24 jobs
Concerned Capital’s Social Mission
Jobs in distressed
communities
Baby Boomers Retiring
Business
Transition Planning
We are a catalytic benefit corporation focused on bringing immediate social relief to unemployment by keeping living
wage jobs in distressed communities
We will maintain and improve the livelihood of distressed communities through small
business transitions
Concerned Capital saves jobs in distressed communities.
Employee Ownership as a Layoff Aversion Tool
Kent State Ohio Employee Ownership Center –Saving jobs by encouraging employee ownership Steel Valley Authority - Technical Assistance Services Available for
Transition of Ownership Kansas University School of Business - Transition Services Designed to
Retain Jobs Illinois Governor’s Task Force recommends employee ownership as
key to saving jobs –Governor's Task Force Report
Management Team Tomas Duran
President • Experienced urban planner and
financial manager – oversaw development of Genesis LA’s mission based funds and managed programs for Whittier Redevelopment Authority
Bruce Dobb
CEO • Chief Credit Officer for LA County’s
largest revolving loan fund and active lender in small business community
Concerned Capital Highlights
• Designed and implemented largest regional micro-lending program in LA • Launched American Apparel hiring tax credit program documenting over $ 4 million in State and Federal tax
credits • Assisted over 30 companies, formulated expansion plans and secured debt • Financial consultants to LA Mayor and former LA Community Development Agency and Fashion Biz Inc.
Questions?
.
Thank You!
www.ConcernedCapital.org (213) 787-4532
For more additional information about Concerned Capital and its programs contract Nora Almaguer, General Manager, at (213) 787-4532 or via email at
@ConcernCapital