1. How to Improve Your Business Value 18 Areas to Evaluate

2. Business Life-cycle Theoretical Strategic Tactical

3. Four Factors Financial Customers & Contracts Products & Services Management & Staffing

4. Financial Revenue Growth (12 MMT) Overall Size (Revenue) Profits (12 MMT EBIDA, Cash Generation & Net) Meeting Projections Balance Sheet Contingent Liabilities

5. Customers & Contracts Customer Focus Customer Retention Record (12 MMT) Contract Backlog Business Pipeline Contract Vehicles Prime Contracts vs. Subcontracts

6. Products & Services Business Focus Specialty Offerings Intellectual Property

7. Management & Staffing Management Team Staff Credentials Employee Development/Retention

8. Products & Services Business Focus Specialty Offerings Intellectual Property

9. Business Focus Having a recognized brand that produces: (a) a continuous stream of customers and sales, (b) a respected corporate reputation, and (c) substantial staff credentials and corporate awards in a few specialty areas is preferable to having customers scattered in widely diversified or unrelated areas.

10. Specialty Offerings High-end products/services are valued more highly by buyers than administration or low-tech products/services because they tend to deliver higher margins and be more stable in difficult economic times. In addition, corporate characteristics that give a company a competitive advantage & form a barrier-to-entry for competitors are valued highly.

11. Intellectual Property New technologies, patents, unique processes, software, websites, etc. and their proven ability to generate profitable revenue add significant value to a company.

12. Management & Staffing Management Team Staff Credentials Employee Development & Retention

13. Management Team An effective organization led my executives with proven ability, experience, and loyalty : and a well- understood vision of the company’s strategic direction and succession plan are valued by buyers.

14. Staff Credentials A staff with credentials recognized in the industry is highly desirable to buyers. For example, credentials include recognition as registered architect, Certified Public Accountant, Professional Engineer, government security clearances, and the like as appropriate to the industry.

15. Employee Development & Retention Human capital is an asset that requires continuous development. An effective employee development program that is designed (and measured) to: attract, employ, develop, and manage top tier employee is highly valuable to buyers. A better-than-industry-average employee retention rate is valued highly by buyers.

16. Today’s Situation FINANCIAL Weak 12345678910 Strong Maximum Value Actual Value % of Maximum 1. Revenue Growth. 2. Overall Size. 3. Profits. 6000% 4. Meeting Projections. 5. Balance Sheet. 6. Contingent Liabilities. CUSTOMER & CONTRACT 7. Customer Focus. 8. Customer Retention Record. 9. Contract Backlog. 6000% 10. Business Pipeline. 11. Contract Vehicles. 12. Prime Contracts vs. Subcontracts. PRODUCT & SERVICE OFFERING 13. Business Focus. 14. Specialty Offerings. 3000% 15. Intellectual Property MANAGEMENT & STAFFING 16. Management Team. 17. Staff Credentials. 3000% 18. Employee Development/Retention. 18000%

17. Today’s Situation  Evaluate each area objectively  Identify the areas that can be improved quickly  Identify the areas that will need more time  Identify the areas that are dependent on other areas

18. Today’s Situation FINANCIAL Weak 12345678910 Strong Maximum ValueActual Value % of Maximum 1. Revenue Growth.4 2. Overall Size.8 3. Profits.5603152% 4. Meeting Projections.6 5. Balance Sheet.5 6. Contingent Liabilities.3 CUSTOMER & CONTRACT 7. Customer Focus.3 8. Customer Retention Record.4 9. Contract Backlog.4601728% 10. Business Pipeline.2 11. Contract Vehicles.4 12. Prime Contracts vs. Subcontracts. PRODUCT & SERVICE OFFERING 13. Business Focus.3 14. Specialty Offerings.230723% 15. Intellectual Property2 MANAGEMENT & STAFFING 16. Management Team.6 17. Staff Credentials.6301860% 18. Employee Development/Retention.6 1807341%

19. How Did We Get Here? Relevant historical information Original assumptions that are no longer valid Original market focus – clients Products/Services

20. Available Options Tomorrow’s opportunities Tomorrow’s products/services State the alternative strategies List advantages & disadvantages of each State cost of each option

21. Recommendation Recommend one or more strategies Summarize the results if things go as proposed What to do next Identify action items

22. Questions?

23. Contact http://budjohnsonvistage.wordpress.com www.vistage.com www.vistage.com/videovault www.acceleratedprofessionals.com Bud.Johnson@vistage.com Bud.Johnson@acceleratedprofessionals.com 713-503-9263

24. Addendum FINANCIAL FACTORS Revenue Growth. Sustained year-over-year revenue growth is highly valued by potential acquirers, especially publicly-traded firms. A three-year Compound Annual Growth Rate (CAGR) in revenue of 15 percent or more is considered favorable in many industries. Higher CAGRs are frequently expected in technology-based business. Overall Size. Bigger is definitely better in terms of sale price. Other factors being the same, a company with higher annual revenue is more attractive to buyers and will receive a higher multiple. Multiples range from 0.5 to 1.0 times annual revenue in most industries. The revenue multiple frequently is higher in product-based industries and specialty industries (e.g., companies with government security clearances). Profits. Earnings before income taxes, depreciation, and amortization (EBITDA), is equal to revenue in determining the value of a company. EBITA, which is a measure of pre-tax cash flow, multiples range from three times to eight times in most industries. The multiples could be higher in specialty industries and under unique circumstances (e.g., software products with high synergy to the buyer). Meeting Projections. The ability to accurately project monthly sales, revenue, cost-of-sales, overhead expenses, and cash flow is attractive to potential buyers. Buyers value predictable performance, sound financial management practices, and a management team who understands the budget and consciously uses it in making everyday decisions. Balance Sheet. Buyers are attracted to companies with adequate working capital, short cash cycles, a simple equity structure, and few (if any) contingent liabilities. A Current Ratio (Current Assets divided by Current Liabilities) of 1.5 is considered average in most industries. Contingent Liabilities. Contingent liabilities, whether presented on or off the balance sheet, increase the risk of an acquisition and reduce a company’s value. Eliminating or reducing contingent liabilities from the balance sheet (and notes to audited financial statements) is essential to reduce the buyer’s risk in an acquisition.

25. Addendum CUSTOMER AND CONTRACT FACTORS Customer Focus. Long-term relationships with customers who have firm budgets for future requirements are valued highly, especially when there are cross-selling opportunities for the buyers. Winning multiple projects from the same customers in the same line of business is preferred, as long as no single customer represents more than 30 percent of the annual revenue stream. Customer Retention Record. A long history of winning consecutive contracts with the same customer adds value because it is interpreted as an indicator of customer loyalty and quality products and services. Contract Backlog. A strong backlog of multi-year contracts/projects is valued by buyers. A contract backlog (un- invoiced balance on signed contracts divided by average monthly revenue) of more than six revenue months is considered good in most industries (does not apply to retail and other cash-basis businesses). Four to six months is average, and three months or less is viewed unfavorably. Business Pipeline. A substantial number of bids submitted for high-value, high-probability contracts/projects with existing and new customers is valued highly. A pipeline with new business opportunities that exceed three times annual revenue (total of potential new contracts discounted for win probability) is considered good. Having a pipeline management process that accurately predicts future sales is valued highly by buyers. Contract Vehicles. Indefinite Delivery/Indefinite Quantity (IDIQ) contracts and Basic Ordering Agreements (BOAs) with customers that can be used by the buyer for multiple purposes are valued highly. Prime Contracts vs. Subcontracts. Direct customer relationships under prime contracts are much more highly valued than subcontracts. Generating more than 75 percent of annual revenue from prime contracts is considered favorable in most industries.