Post on 12-Dec-2014
description
Maximise the Value of Your Business
Craig West
Did you know?
(The MGI Australian Family and Private Business Survey 2013)
The average age of a family business owner in 2013 was
58 years
Would seriously consider selling business if approached
64%(Up from 61% in 2010)
(Up from 55 years in 2010)
Of business owner-managers are relying either
on a sale of their business or continuing family
business ownership as the source of funding
retirement
Of family business owner-managers see themselves working in the business beyond 65 years of age.
(The MGI Australian Family and Private Business Survey 2013)
33%
58%
55%Do NOT have a strategic plan
48%Do NOT have a business plan
(The MGI Australian Family and Private Business Survey 2013)
(The MGI Australian Family and Private Business Survey 2013)
Of owners believe it is not feasible to implementLeadership succession within their business.41%
21% intend to pass the business on to the next gen
58% indicate younger generation not interested
25% indicate low relative ability of potential successors
40% indicate current CEO likely to be succeeded by non-family member
Baby Boomers – the 18 year wave
Since 2008, almost half of business owners over age
50 have delayed their retirements due to the GFC.
of retired business owners do not have an adequately funded retirement.
(Up from 31% in 2010)
(The MGI Australian Family and Private Business Survey 2013)
(Based on a male turning 50, female would be 35.5 more years)ABS Life Tables, States, Territories and Australia, 2010-2012)
If you turn 50 today, your life expectancy
is now 32 more years.
34%
Why Business Succession and Exit Planning?
55% of all business exits are due to death, disability,
bankruptcy, receivership,liquidation or simply closing
the doors.
“if you want to have a successful enterprise, you clearly define what you’re trying to accomplish…. the extent to which you begin with the end in mind often determines whether or not you are able to create a successful enterprise.”
Stephen Covey (1932-2012)
Well known author Michael Gerber on exit planning – “Having an exit strategy is the ball game for any entrepreneur… the idea is simply to build, grow and sell – whether sell means list, pass on to family, merge, sell to employees or trade sale, there has to be a strategy!”
Australia’s mid-range market of companies, with revenues ranging from $10 million to $250 million are actually the biggest contributors to our economy.
27,000 businesses.
3.2 M full time jobs.
Generating 33 % of total revenue and accounting for
1 in 5 dollars borrowed.
Business Exit Rates 2012-2013
Big Business (200+)
Mid-Market (19-200)
Medium (5-19)
Small (1-4)
Non-employing
4.40%
3.90%
5.90%
10.20%
17.40%
Total Number of businesses exiting the market: 312, 879
Bu
sin
es
s S
ize
Business Succession and Exit Planning
Combining the Business, Financial and Personal goals of business owners to design and implement a strategic exit.
Stage 1: Identify ValueStage 2: Protect ValueStage 3: Maximise ValueStage 4: Extract ValueStage 5: Manage Value
Stage One:Identify Value
Financial Analysis
Non-Financial Analysis
Benchmarking
To
tal in
com
e p
er fe
e e
arn
er
Ne
t pro
fit pe
r pe
rson
$- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000
$269,858
$88,894
$41,592
$25,595
$384,352
$80,477
$63,969
$50,224
$251,971
$162,002
$48,676
$34,431
Income KPI's
High Turnover Firms
High Profit Firms
This firm
Your Profit Gaps relative to the Most Profitable firms
Allows us to work out…
Your total Profit Gap … as a % of current profit level
Due Diligence
Checklist of all vital information:
• Financials, tax returns, BAS.• Legal – licenses, leases , employment
agreements.• Policy & Procedures / Systems.• Intellectual Property – patents, trademarks.
Analysis presented in the form of an Insight Report
Insight Report presented in a face-to-face workshop including:• Strategic Overview
• Financial Analysis
• Cash Flow Analysis
• Sustainable Growth
• Credit Assessment
• Benchmarking Analysis
• Profit Gap Analysis
• Non-Financial Results
• Sale Readiness-Attractiveness
• Non-Financial KPI Commentary
• Valuation Summary
Stage Two:Protect Value
• $$ funding gap – Have I got enough to retire ?• How much impact will taxation have on my retirement ?• Have I got a Self Managed Super Fund ?• How do I want my estate handled ?• What other investments do I have ?
Structure Review
ASSETS
RISK
• What happens if you get hit by a bus ?
• Certainty of outcome is key:• Shareholders agreements• Buy sell agreements• Funding arrangements• Insurances
Stage Three:Maximise Value
What do you want from your business in 5-10 years?
Strategy
Income vs Equity
“The proper man understands equity – the small man, profits”
Confucius551 – 479 BC
Maximise Value
Job vs. Business
Can you leave your business for days, Weeks, months?
How can you add value to your business?
Adding Value
Efficiency or Expansion
Strategic Financial Projections
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
Dec
-12
Mar
-13
Jun-
13
Sep-
13
Dec
-13
Mar
-14
Jun-
14
Sep-
14
Dec
-14
Mar
-15
Jun-
15
Sep-
15
Dec
-15
Revenue
Revenue - Dept A Revenue - Dept B
0
5
10
15
20
25
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
Dec
-12
Mar
-13
Jun-
13
Sep-
13
Dec
-13
Mar
-14
Jun-
14
Sep-
14
Dec
-14
Mar
-15
Jun-
15
Sep-
15
Dec
-15
Headcount
Headcount
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
Dec
-12
Mar
-13
Jun-
13
Sep-
13
Dec
-13
Mar
-14
Jun-
14
Sep-
14
Dec
-14
Mar
-15
Jun-
15
Sep-
15
Dec
-15
Profit / Dividend
Net Profit Dividend
0%
10%
20%
30%
40%
50%
60%
70%
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
Dec
-12
Mar
-13
Jun-
13
Sep-
13
Dec
-13
Mar
-14
Jun-
14
Sep-
14
Dec
-14
Mar
-15
Jun-
15
Sep-
15
Dec
-15
Margin / Div Ratio
Net Margin Div payout ratio
The 5 x 5 x 5 ProcessIncreasing Business Profit & Value
How does it work?
5% improvement in three key areas of your business
EARNINGS
Gross Profit + 5%
Reduce Expenses – 5%
Increase Sales + 5%
Here’s an example:
• Board of directors• Advisory board• Independent directors
Monthly Reporting Package
Ladder to Equity1. Income
2. Incentive – commission
3. Profit Share - % profits
4. ESOP – Equity
5. Control / Management
A structure to allow employees to think and act like business owners by matching the performance of the business with their ability to build equity.
Peak Performance Trust to fund:
• Profit share based on performance• Profit used only to fund purchase of business
by same key employees• Employee retention• Improved performance and increased value
Strategy for successful succession:
Existing CEO/PartnersGradually reducing involvement
New CEO/PartnersGradually increasing involvement
Systems / Processes
Communication Strategy
• Implementation Success
• Shareholder / Key Management Communication
• Buyer Communication
• Staff Communication
• Client Communication
Stage Four:Extract Value
Net proceeds is the important $
CGT – small business concessions
Structures – who owns assets – before and after
Other costs - legal, accounting, other fees
Strategic Sales
"Price is what you pay Value is what you get "
Warren Buffett
1 + 1 = 3
Strategic Value Drivers
Strategic Valuation Examples
Strategic Valuation Examples
Strategic Valuation Examples
Sale to a listed company
ASX – PE ratio (multiple)
Private to Public Arbitrage
Historical ASX average 13.73 x
Private companies average 2.5 x
The value gap is called
“private to public arbitrage”
Listed companies have a 22 year high in CASH
Offshore buyers
The total value of transactions increased 35% over the previous
year to US$736 billion.
8.8 * earnings before interest and taxes (EBIT) average
To achieve a higher sale price, it’s much smarter to focus on HOW to sell and WHO to sell to, rather than trying to increase profit.
Equity Matrix100% owned
20% owned
Stage Five:Manage Value
• Last $$ you will ever earn !
• LIFE AFTER BUSINESS ?
• Now a different problem• Illness, divorce, children
• Update wills• Enduring power of attorney• Philanthropy – charitable foundations
Case Studies
Real Estate
Real estate office in NSW
Combined commercial office and residential sales: Central Coast
3 owners
Not in a rush to exit
Business Value approx. $2.4 m
14 employees
Outcomes• Implemented Peak Performance Trust (Engaged and
motivated 5 key staff with equity plan)• Reduced risk – staff retention• Asset protection & risk management• Tax and CGT advice• Wealth outside business structure (transfer premises
into SMSF)• SMSF to hold appreciating assets• Insured for unplanned events
Insurance Brokers
• 5 month time frame
• 3 existing partners, one potential, two possible
• 5 year plan to sell down
• Accelerate sale by partial sale to extract $$
Outcomes• Pre-documented sales programmed over 8 years
• Maximum Equity Value for outgoing shareholders
• Motivated Staff – with a predetermined program to
transition - Ladder to equity
• Recruitment / retention tool
• Accelerated thru initial sale to Austbrokers - $$ to owners
Manufacturing
C-Mac GM Steve Grylak, with the national award for best ESOP for SME’s / Succession at the Employee Ownership Conference and awards dinner last Thursday 10th May.
The engagement of employees as owners has already seen an 18 % hike in productivity at the plant.
Clearwater Filter Systems
Sale of a family owned private company at 9.5 times earnings to JWI.
Key Factors:
• Listed company as buyer.• Offshore buyer .• Strategic sale – expansion from NZ to Australia.• 5 year exit strategy.
What Next?Further information on our website:
www.successionplus.com.au
Complete feedback form to be added to our newsletter
Arrange a free 90 minute review
Craig West
1300 665 473
cwest@successionplus.com.au
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