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Anita W. Sherman, CPA, CGMA Achieving Success in Transitioning and Retiring from Your Business.

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Presentation on theme: "Anita W. Sherman, CPA, CGMA Achieving Success in Transitioning and Retiring from Your Business."— Presentation transcript:

1 Anita W. Sherman, CPA, CGMA Achieving Success in Transitioning and Retiring from Your Business

2 Lack of Planning – 35% 50% Not Urgent Difficult Lack of prior experience What’s Going On?

3 Retirement Savings 19% between % between $1,000,000 at 65 will generate $40,000 per year for 30 years $1,000,000 at 65 will generate $40,000 per year for 30 years What’s Going On?

4 Baby Boomer Generation 40% retiring by % retiring by 2020 Family statistics – 1/3 of family businesses pass to the 2 nd generation 1/3 of family businesses pass to the 2 nd generation 13% make it to the 3 rd generation 13% make it to the 3 rd generation 40% of Work Force 40% of Work Force What’s Going On?

5   Age Range 30 to 80   A few 3 rd, 4 th and 5 th generation   Sellers, buyers, family businesses, planning, employee ownerships, company repurchase stock   Strength of Independent dealer network Purchasing volume Purchasing volume Impact on gross margin Impact on gross margin Profitability Profitability Background Info

6   20.5 billion annual sales   77% Staples and Office Depot/Max   Walmart and Best Buy   Online Retailers Current Trends

7   9,714 office supply businesses - 13,578 locations   Of the 13,578: 7,600 no employees, 7,600 no employees, 3, employees 3, employees or more employees or more employees Current Trends

8 Sales per employee - $204,000 Wages – 10.8% Wages – 10.8% Marketing – 1% Marketing – 1% Pre-tax net income – 2.4% Pre-tax net income – 2.4% The K-12 students increasing “This is the greatest business in the world – everyone needs something that we sell” Current Trends

9 Big Differences - 10% of gross 10% of gross 15-20% of gross 15-20% of gross 50% of gross 50% of gross 100% of gross 100% of gross Valuation

10 “Valued Dad’s interest higher than the formula we use in acquisitions” “Inventory at cost less 5-10%” “15 times owner’s average salary” Valuation

11 What the experts told me? 25% of gross sales plus inventory 25% of gross sales plus inventory 150% of “Seller’s Discretionary Earnings” /“Owner’s Cash Flow” 150% of “Seller’s Discretionary Earnings” /“Owner’s Cash Flow” Capitalization rate of 12% on Earnings before Interest and Taxes / EBIT Capitalization rate of 12% on Earnings before Interest and Taxes / EBIT Valuation

12 Strategies to Increase Your Value Sales volume Sales volume Profitability Profitability Management team Management team Monitor industry trends Monitor industry trends

13 “I’ve had to learn to be tougher and be quicker to pull the trigger on non-performers, especially during the recession” “I use other members of the co-op as mentors or for business ideas” Strategies to Increase Your Value

14 Options Sell to an outsider- Sell to Passive investor or non-independent dealer– “We didn’t consider this, because employees have been loyal and we wanted them to keep their jobs” loyal and we wanted them to keep their jobs”

15 Sell to new owner operator/Sell to another independent dealer Close the doors – “This may be what happens for small dealers without a plan” Options

16 “Trying to keep prior owners happy is hard because they need to act like an employee now” Acquisition mode and then sell to Management Team “Trying to keep prior owners happy is hard because they need to act like an employee now” “If you plan on changing the “company name” of the acquisition, plan on losing 20-25% of your revenue. However, changing the name may be advisable to create synergy” ESOP Options

17 Sell to key employees Cash or sweat equity Cash or sweat equity “got ½ the price as a down payment and getting monthly payments” “got ½ the price as a down payment and getting monthly payments” “If my kids aren’t interested, I have employees that could manage the company” “If my kids aren’t interested, I have employees that could manage the company” “We’re thinking we can build a management team that could own part of the company and provide a return on investment for retiring shareholder(s).” “We’re thinking we can build a management team that could own part of the company and provide a return on investment for retiring shareholder(s).” Options

18   Sell to key employees with a buy sell for next generation family   Management team bridge   Give to key employees   Company buy back   Sell to next generation   Gift to next generation Options

19 Quotes Dad left because he was burned out Dad left because he was burned out I almost quit over a disagreement with my dad I almost quit over a disagreement with my dad Plan was for dad to reduce his work schedule by 1 day per year, went from 5 to 4, stuck at 4, then fully retired Plan was for dad to reduce his work schedule by 1 day per year, went from 5 to 4, stuck at 4, then fully retired Dad gave me ownership interest Dad gave me ownership interest I can’t give it to my kids because I need to get the value out of the business for my retirement I can’t give it to my kids because I need to get the value out of the business for my retirement

20 Best Option?

21 Best Option Some Questions – How much money will I need to retire? How much money will I need to retire? What is my company worth? What is my company worth? How many years do I want to keep working? How many years do I want to keep working? Are family members interested? Are family members interested? Are they qualified now? Could they be coached? Enough time? Are they qualified now? Could they be coached? Enough time?

22 “My dad let me experiment” “My dad let me experiment” “I learned a lot from my dad” “I learned a lot from my dad” “This business isn’t as easy as it was years ago” “This business isn’t as easy as it was years ago” “We’re transitioning over 5 years” “We’re transitioning over 5 years” Quotes

23 Questions   Do I have a strong management team to ensure repayment of debt, if I sell to them?   Do we have a good history of increasing profitability?   Are we big enough to cover ESOP admin expenses?   Is our corporate culture open to employee involvement?

24 Family Businesses Do you have a - “Family Business” or a “Business where some family members work”?

25 Member Quotes: “They had worked in all or almost all aspects of the business” “They had worked in all or almost all aspects of the business” “Leave business at the business, don’t mix with family time” “Leave business at the business, don’t mix with family time” “The oldest son isn’t necessarily the best for the CEO role” “The oldest son isn’t necessarily the best for the CEO role” “This isn’t a business just for sons. Consider your daughters” “This isn’t a business just for sons. Consider your daughters” “Compensation, titles, ownership issues with siblings” “Compensation, titles, ownership issues with siblings” “Wives always think their husband carries more than their share” “Wives always think their husband carries more than their share” “Don’t pressure anyone to join the family business” “Don’t pressure anyone to join the family business” “If you work for me, you’re going to work harder than any other “If you work for me, you’re going to work harder than any other employee or you won’t work for me” employee or you won’t work for me”

26 Getting Ready to be Retired “It took dad 10 years to figure out what to do with himself after retirement” “It took dad 10 years to figure out what to do with himself after retirement” “I want to always have a place to go” “I want to always have a place to go” “I still go in to the office but I don’t rush in first thing” “I still go in to the office but I don’t rush in first thing” “My wife wants me to retire” “My wife wants me to retire” “I’m looking forward to retirement. I want to do other thing; travel, spend time with my grandkids, work on house projects., etc.” “I’m looking forward to retirement. I want to do other thing; travel, spend time with my grandkids, work on house projects., etc.”

27 Developing Your Action Plan   Start early   Identify the best option(s) for you   Consider internal vs. external   Determine your action plan   Communicate   Stay on track   Be flexible

28 More Quotes: “We started planning for retirement in our mid 40s” “Dad retired and became chairman of the board and son is CEO. During the day, dad reports to the son. After hours, son reports to dad.” “Make sure your financial statements are accurate and up to date” “A business valuation could cost 10-20k” “I’m going to get serious about this planning when I’m 57, so I can be ready to leave when I’m 62”

29 More Quotes and Tips : “A well written shareholder agreement that addresses all potential events is critical” “We make sure all spouses of shareholders know our CPA & attorney and understand the shareholder agreement” “It’s a good idea to prepare for potential tragedies, in case they ever happen” “Our members really need to be thinking today about their transitions – Time goes so fast”

30 Contact Information Thank you Anita W. Sherman, CPA, CGMA Greenwalt CPAs, Inc. (317)


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