Business transition planning 2015
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An introduction to busines transition planning. Whether you are selling a business, inheriting a business, transferring a business to a partner or management team, or bringing in a new partner, you need a plan. B2BPlanner presents an overview of why a plan is necessary, how to prepare a plan, and plan execution. More information is available at: http://www.ohiobusinesshelp.com/business-transition/
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Business transition planning 2015
- 1. Your Business: Legacy or Liability? Maximize return and limit risk when you sell a business Using Business Transition Planning
- 2. Plans Are Useless, but Planning? “In preparing for battle, I have always found that plans are useless but planning is indispensable.” Dwight D. Eisenhower
- 3. Reality: Owners Don’t Plan for Transition! • Denial of your mortality • Fear of an undefined future • Fear of losing identity • Think it’s too early to plan • Fear the process is complicated/expensive
- 4. Debilitating illness or death Divorce Inheritance by family – management and/ or ownership Sale of business to a third party Transfer to a business partner Sale to the company management team Business Merger Just shutting down! Types of Transitions
- 5. Elements of Successful Business Transition 1. Determine Your Required Net Proceeds 2. Get A Realistic Valuation And Cost Estimate 3. Business Improvements to Close the Gap 4. Plan to Minimize Taxes and Fees 5. Develop a Formal Transition Plan
- 6. 80% have over 50% of their wealth in their business 70% do not have a business succession plan Over 60% do not know the true value of their business Reality: The Facts About Business Owners
- 7. Planning To Sell? 5 million businesses Will go up for sale in the next 5 years Only 1 in 4 of businesses for sale are sold
- 8. ODDS AT THE CRAPS TABLE AT A CASINO? 50-50
- 9. 41% of Owners Plan For Their Kids To Take over the Business, But … Only 30% of inherited businesses survive into the second generation Planning for Inheritance? And only 12% into the 3rd generation!
- 10. Another FACT The value of executing a successful transition plan has been determined to SUBSTANTIALLY exceed $1000 per hour for the time spent by the owner.
- 11. Assess Plan Execute Getting It Done In 6 Months Phase III 45-60 Days • Inventory competencies • Individual development • Accountability • Measure Phase II 45-60 Days • Future Goals • Gap Analysis • Performance management • Action Plan Phase I 30-60 Days • Owner Commitment • Establish Team • Baseline Assessment
- 12. Business Owner Business Lawyer Accountant Business Broker Financial Planner Business Advisor Transition Coach Family Estate & Tax Planning Building A Transition Team
- 13. 0 2 4 6 8 <$499K $500K - $1 M $1M - $2M $2M- $5M $5M - $50M 2.6 2.9 4.3 4.5 5.4 Average EBITA Multiple EBITA Multiple for SCORE >80 Calculating Value Based on EBITA Increasing “Sellability” Source: “Built To Sell”, 2012
- 14. Transition Planning Guidelines • Create a Positive Vision of the Future • Define roles and responsibilities and put them in writing • Keep everyone in the loop throughout the process • Seek external advice from consultants to resolve issues objectively • Communicate a clear action plan to all stakeholders
- 15. Business risk exposure – economy, industry, individual Business “resilience” and stability Business performance Availability of financing Maximizing net value – taxes, fees, assets Ownership structure Key Transition Valuation Issues
- 16. To obtain a more extensive slide presentation, a planning worksheet, or to discuss your plan contact me at Art@Ohio BusinessHelp.com (937)985-0481
- 17. Organizations International Business Brokers Association www.ibba.org International Succession Planning Association: http://www.ispassociation.org/ Family Business Institute: www.familybusinessintit.reachlocal.com Publications: Built to Sell http://www.thesellabilityscore.com/ The Family Business Crisis, by Wayne Vanwyk “www.thebusinesstransitioncrisis.com Family Business Succession: The Final Test of Greatness McClure, Stephen L Every Family’s Business, 12 common sense questions by Thomas Dean. www.everyfamiliesbusiness.com NOLO Guide to Selling A Business by Fred Steingold www.nolo.com Additional Resources
Hinweis der Redaktion
- How many people here have a retirement plan? Why? Who has their entire retirement plan in one stock? How many have an equivalent business transition plan? Why not? A big part of retirement and business transition plans is tax and estate planning to keep as much as you can. This will be a central aspect that Chris will talk about while Gerry will discuss how to maximize the sales value of a business. A huge number of baby boomers 55 and older who own successful businesses are at a point where they need to consider how their business will impact their future, and that of their family. The statistics regarding the ability of these owners to successfully transition their business are tragic. A particularly dangerous transition that is overlooked by most owners is the unplanned inability to work due to illness or an accident. Even worse is if the owner dies unexpectedly. In these situations it is quite possible that the business could end up costing surviving spouses money. The stories we have heard from people about this situation has motivated us to put together an initiative to educate and assist businesses in the Dayton area to successfully plan their exit from their businesses.
- The process… Document goals and a choice of exit path, Consider alternatives , and React quickly to unexpected events
- Why is this? Lots of reasons, mostly emotional, and none logical
- There are a number of possibilities for business transitions. Some are planned and some are not. Too often a business is just shut down with no financial benefit to the business owner. Planning should equip you to effectively deal with all possibilities – One question a plan answers is, who is capable of running the company if the owner can not?
- The key questions that need to be answered are How much do you and your family need from your business? Is the business worth that much today? What has to be done to increase the value of the business to the amount needed? What do you need to do to retain the maximum proceeds? How will you get there from here?
- I would like you to answer these questions about your situation, or that of your clients. If you can only answer one positively, we need to talk. These facts contribute to the other fact that 3 out of 4 businesses fail to transition successfully.
- Some additional facts will not make you fell better. The fact will be a wave of over 5 million businesses for sale as baby boomers exit the workforce. But only 1 out of 4 businesses listed will actually be sold based on historical data. How do your feel about these odds for you or you clients? Would you put your 401k plan on the line with 1 in 4 odds?
- Hell, you get 50-50 odds on the craps table at a casino. Might as well do that and have more fun.
- Ok, don’t sell. Another concerning fact is that about 30% of inherited family businesses will survive into the second generation. Again, go to the casino and try you luck. Or, improve your odds significantly by taking the time to plan a business transition If this sounds to you like the discussion about retirement planning, it is.
- Because businesses can sell at a multiple of from 3 to 8 times earnings, the effort you put into improving your business benefits from financial leverage. The math is that for every $1 you can add to your bottom line, you can put up to $8 in your pocket from a business sale. The result is another fact: you can make at least $1000 per hour by executing a good transition plan.
- So how hard is it to create and execute a transition plan? Not too hard, but not too easy. In fact it can be done in a few months while still running your business. The process takes discipline and a team of knowledgeable people working with you.
- The team makeup depends on the transition type and business situation, but typically would include this group of advisors and advocates, some of whom may already be in place and some that are probably not, such as the business broker. All member should be trained in the specialized aspects of business transition.
- A multiple of EBITA or earnings before interest and taxes is one way used to value a business for sale. A sellability score has been developed by the authors of “Built to Sell” which uses a number of factors discussed to determine the EBITA multiple for a given set of business operating characteristics. They claim that businesses that can achieve a sellability score of over 80 can realize a 71% increase over a similar business with an ‘average score”. By focusing on the factors that have the lowest value, a business can increase it’s multiple by improving these individual areas. The International Business Broker Association (IBBA) and M&A Source, in partnership with the Pepperdine University, have summed up survey results from 250 respondents about businesses being marketed and sold in the United States. The data was drawn from businesses listed for sale and sold during the second quarter of 2014 from “Main Street,” defined as those with a value up to $2 million, as well as from the “Lower Middle Market,” defined as those with a value between $2 million and $50 million. There are a number of factors contributing to the sellability score, and the focus of the improvement effort is on those items having the lowest scores which are those that will most increase the multiple.
- How can we overcome the emotions of fear, anger, frustration which are all magnified when personal or family relationships are involved as is the case with most small businesses. The way to deal with this, is the same way you would in any situation – be open and communicate to build trust and remove uncertainty.