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Without an Exit Strategy You Have No Strategy Without an Exit Strategy You Have No Strategy John Martinka - “Partner” On-Call Network.

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Presentation on theme: "Without an Exit Strategy You Have No Strategy Without an Exit Strategy You Have No Strategy John Martinka - “Partner” On-Call Network."— Presentation transcript:

1 Without an Exit Strategy You Have No Strategy Without an Exit Strategy You Have No Strategy John Martinka - “Partner” On-Call Network

2 Statistics How many medium sized businesses are predicted to sell in the next decade?

3 Statistics How many of these businesses are prepared for sale?

4 Statistics According to Kiplinger, those companies without an exit strategy will _________ _______ ____ __ ________.

5 Statistics – SunTrust Bank 75% of business owners ultimately plan to sell or pass along their business as part of their exit plan 23% of owners are looking to expand and/or acquire other businesses 60% have delayed their exit plans by, on average, two years due to the Great Recession 42% feel maximizing their business’s value is the most important part of their exit plan

6 Statistics – The Disconnect 11% of owners have lowered their expectations for the value of their business as a result of the current economy (SunTrust)

7 Where does the Financial Professional fit? Financial Planning Motivation Team coordination Protection and tax relief Tax advantaged products Compensation programs Retirement plans

8 Statistics The number one mistake small businesses make is ____________________. Those with a business plan have, on average, sales and profit growth ____% more than those without a plan?

9 Decisions What is my business worth? Is it even salable? Do I sell all or part of my business? When? Now, six months or six years? Who do I sell to?

10 Who Do I Sell To? Outsiders Insiders Public Markets And I get paid via: Cash, Stock, Notes, Consulting Agreement, Employment Agreement, Earnout…

11 Types of Buyers Financial Strategic Hybrid – Foreign – PEG

12 Financial Buyers Individuals Corporate refugees Small business owners Family Employees

13 Financial Buyers Look For Salary Profits Net worth increase Salability in future A job Manageable risk

14 Statistics There are ______ more people in the baby boomer generation than Gen X Rank the generations in terms of entrepreneurship ___ Baby Boomer ___ Gen X ___ Gen Y

15 Strategic Buyers Rapid growth potential Management structure Gross margin Employees Synergy Excess overhead Systems in place

16 Why do Strategic Buyers Buy? People – Customers, Employees, Vendors Geographic Synergies, lower overhead, etc. Equipment Eliminate a competitor To prove you can do it Scaling = options & a higher selling price

17 Hybrid Buyers Growth Employees/Management Solid practices Stable, non-cyclical industry A good “feel” (for the future) Profit and salary

18 Your Situation Who is your logical buyer? Why me? Why now? What is their motivation?

19 Insurance On the Seller On the Buyer Key Employee Buy-Sell Agreement Deferred Comp as part of the financing package

20 Why Sell a Profitable Business?

21 Why Sell? The 3 D’s a buyer looks for

22 The 3 D’s Divorce Death Disability

23 Reasons affecting the owner Divorce Death Disability Burnout Retirement Family feud Partnership dispute Life Earn a better return elsewhere Company is part of larger firm Company outgrows owner Owner is an entrepreneur

24 Reasons affecting the business Owner dies without succession plan Catastrophic natural event Uninsured damage or legal claims Large loss of sales Governmental actions or seizures Political decisions Fraud or theft Wrong business decision Strike or labor disruption Lender changes terms of financing Involuntary bankruptcy possible

25 When to sell? Experts say get prepared ___ to ___ years before selling Why? ___% of owners have to tell a “story” Sell one year _____ ___ ___ _____ ___

26 Current Conditions 2011 market conditions – Serious buyers, fewer in number though – Serious sellers, coming out from their shell – Willing banks??? What do they want? What don’t they like? – Is this business “recession proof”

27 Buy, Be Bought or Both More buyer options Higher multiple More profits along the journey More control More cash at closing

28 What’s it Worth? It’s a function of profit (EBITDA, free cash flow, etc.) If not, you better be attractive to bigger companies, or, Your value is based on your net asset value (and you’re worth less than the value based on profit )

29 What’s it Worth? From Rob Slee’s, “Midas Managers:” $1-5MM in sales = 2-3 X EBITDA $5-50MM in sales = 4-7 X EBITDA You can bet a $40MM firm will get closer to 7X than a $5MM firm Growth is the key

30 Strategic Buyers Rapid growth potential Management structure Gross margin Employees Synergy Excess overhead Systems in place

31 ACTION™ Plan A C T I O N

32 ACTION™ Plan Arrange all the affairs of the company C T I O N

33 ACTION™ Plan Arrange all the affairs of the company C oach and counsel the company. Its people, process and systems T I O N

34 ACTION™ Plan Arrange all the affairs of the company C oach and counsel the company. Its people, process and systems T ransmit and teach all the good “things” about your firm I O N

35 ACTION™ Plan Arrange all the affairs of the company C oach and counsel the company. Its people, process and systems T ransmit and teach all the good “things” about your firm I ntricacies that make your company special O N

36 ACTION™ Plan Arrange all the affairs of the company C oach and counsel the company. Its people, process and systems T ransmit and teach all the good “things” about your firm I ntricacies that make your company special Operations and management systems in place that will make a transition smooth N

37 ACTION™ Plan Arrange all the affairs of the company C oach and counsel the company. Its people, process and systems T ransmit and teach all the good “things” about your firm I ntricacies that make your company special Operations and management systems in place that will make a transition smooth Numbers, all the financials in understandable form, straightforward with no “tricks”

38 6 Seller Pitfalls

39 No selling plan Reason for selling Weak non-financial factors Not being prepared (tell a story) Poor financial systems and records Not properly screening buyers

40 Why? To get a deal done! Savings & Investments Private party loan to buyer Buy excess assets and sell off Buy inventory as needed Sell shares to employees Recruit equity partner Buy cash and Accounts Receivable Balloon payments, interest only loans, etc. SBA guaranteed bank loan – current situation 401k rollover (Guidant Financial, Bellevue) Insurance

41 Case Study – Industry Buyer Management structure Protecting trade secrets The buyer wants…? Employees Lease, etc. Culture The seller’s role post-sale

42 Case Study – Industry Buyer Service Business Quasi competitors (different cities) Buyer was 5-7X as big Weak management structure (seller) Lease, equipment, T1 lines, etc. Culture differences Seller to remain in a sales role

43 Case Study – Industry Buyer Background – the story Planning yields benefits Results Industry offers Seller’s next step The return A deal, a post-mortem

44 Case Study – Industry Buyer Insurance needs–Where do you see a need? Buyer Seller Management Pension Benefits

45 Case Study – Family Sale Who? Kids, one kid, management? Do they want the business? Do they want the responsibility? Will they put any money in the deal? Do they expect a gift? What’s it worth? How long do mom and/or dad stay on?

46 Case Study – Family Sale Distribution Company Discussion issues: – Who? – When? – How? – Future success? – If one child, what about the others? – Payment (this is mom & dad’s retirement)

47 Case Study – Family Sale Distribution Company Dad bought company Mom kept job, came on board later Dad-CEO; Mom-CFO Fast growth with both in management roles Initial valuation Business plan for growth Family succession or outside buyer?

48 Case Study – Family Sale Distribution Company Son got outside experience Hired son as salesperson Promoted to sales manager Gift of 10% of stock Daughter-in-law hired as office manager Second valuation 20-year payment plan from son to parents

49 Case Study – Family Buyer Insurance needs–Where do you see a need? Kids Parents Management Pension Benefits

50 Keep in touch John Martinka 425-576-1814 partneroncall/johnmartinka.com john@johnmartinka.com Blog: johnmartinka.comjohnmartinka.com Free e-mail newsletter “The Business Buy, Sell & Growth Advisor”


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