1. Jeff Christensen & Holly Quinn NENEDD Business Loan Specialists Economic Development Financial Professionals Accredited Business Planning Advisors How to Plan a Successful Business Exit

2. Exit & Succession What it means to your Family, Community and Region Challenges Exit Opportunities Who can Help & How

3. Lessons Learned What can go wrong? 1 st Attempts Often Fail Wrong Price Buyer not Qualified Work With Experienced Advisors Explore All Exit Options Business Value Buyer Needs Room for Improvement Last Minute Negotiations Failing to Plan….Planning to Fail

4. The Coming Wave Where Are Things Headed Impacts on the Local Community What’s started

5. Impact – What are the Factors Business Owners are Aging 52-70% of Business Owners will leave by 2017 Small to Mid-Sized Businesses 1/3 Transfer to Family 1/3 Sell to Someone Else 1/3 Sell Inventory & Close the Door Economic Downturn Business Owners Think They’ve hit Bottom Already Retirement is on Hold….Hope to Sell at a Later Time

6. Impact – What are the Factors Outside Factors will Force an Exit Less Financing Available Banks have tightened Lending Practices Due to Regulations Fewer Entrepreneurs and Buyers Lack of Qualified Buyers Buyer Lives Elsewhere – Profits Leave Community Absentee Owner Local Owners = Local Wealth

7. Uncontrollable & Risky Family Succession can by risky 65% of Family Successions FAIL 80% within the 1 st 2 years Do Family Members want the Business? Not all Exits can be controlled Owner is Key Employee – Forced Early Exit Illness, Disability, Death

8. Goals Maximize Number of Exit Opportunities Maximize Business Value Minimize Cost of Exit

9. Buyers Businesses are Sold to Individuals Seeking a Life Style Buying a Job Buyer are Looking for: Bragging Rights A Good Deal Good Management Up to Date Inventory Website/Advertising/Marketing Curb Appeal

10. Business Value Value of Business 20% of Business Owners Undervalue their Business Leaving Money on Table Business Must be Priced Correctly Over Priced to Cover other Expenses Buyers Consider Sale Based on Past Performances Future Performance/Earnings Excess Market Time = Increased Risk Loose Clients, Employees, Suppliers

11. Fair Market Business Valuation Required for a Qualified Business Deal 70% of Businesses don’t sell Seller isn’t Motivated Financials in Disarray Unreported income Self Accounting System Using Business to Pay for Items not Related to the Business

12. Business Owner’s Goals Maximize Benefits Minimize Taxes Look for all Cash Deal No owner Financing Little or no Goodwill Maximum Sales Price

13. Success - Opportunity Buyer wants more Success Looking for Opportunity – not repetition Seller must be Truthful Need to fix Financial Issues Seasonality Employees Contracts Lease/Ownership of Building

14. Financial Demands Business Must Meet 3 Financial Needs 1. Return On Equity 2. Pay New Owner Salary & Benefits 3. Make Loan Payments

15. Example $1,000,000 – Total Purchase Price $200,000 – Equity (20%) $800,000 – Loan (80%) $30,000 – 15% ROE $60,000 – Salary/Benefits $80,000 – Loan Payments $170,000 Cash Flow NEEDED

16. Financing 80/20% Required Equity Injection SBA or USDA Guaranty Lender Requirements Volatility of Market Type of Business Financial Information – Past 3 years Income & Expense Statements Balance Sheet Accounts Payable & Receivables

17. Business Reorganization Change Operation Demonstrate Opportunity Reduce Expenses Reduce Excess Compensation Refrain from Discretionary Spending Simplify Financial Reporting Report ALL Income

18. Unreported Income $50,000/year – saves approx $20,000 on taxes Reporting Income Increases Cash Flow Increases Business Value at Time of Sale Two Times Business Owner gets Money Operating the Business Time of Sale Additional Purchase Price of the Business $10,000 Additional Financing Required Leaving $40,000 Additional Cash Flow

19. NENEDD’s Business Transition & Success Program Work with NBDC Offer 9 Exit Opportunities Process Requires Teamwork Role is a Coach Work with Existing Advisors CPA, Attorney, Banker, etc. Compliment Current Advisors Provide Additional Resources Everyone Works Towards the Same Goal