Post on 13-Jan-2015
description
Maximise the Value of Your Business
Craig West
Did you know?
51%Of business owners plan to use their business
as their primary source of funding retirement
43%Aim for a lump sum and a third expect an
ongoing income stream
The average age of a family business
owner is 56 years.
61%Would seriously consider selling if
approached.
Baby Boomers – the 18 year wave
Since 2008, almost half of business owners over age 50
have delayed their retirements due to the GFC.
If you turn 50 today, your life
expectancy is now 32 more years.
31%of retired business owners do not
have an adequately funded retirement.
Why Business Succession and Exit Planning?
55% of all business exits are due to death, disability,
bankruptcy, receivership,liquidation or simply closing
the doors.
Covey says “ 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.”
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 Survival Rates – 2008/09Exit %7.6%
7.1%
9.9%
19.5%
TOTAL
Non-employing
Micro/Small
Mid-Range
Big Business
15.4%
Total Number of Businesses Exiting the Market: 319,867
Business Succession and Exit Planning
Combining the Business, Financial and Personal goals of business owners to design and implement a strategic exit.
Stage 1: IdentifyStage 2: ProtectStage 3: MaximiseStage 4: ExtractStage 5: Manager
Stage One:Identify Value
Financial Analysis
Non-Financial Analysis
Benchmarking
Total income per fee earner
Net profit per fee earner
$- $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
Due Diligence
Checklist of all vital information:
• Financials, tax returns, BAS.• Legal – licenses, leases , employment
agreements.• Policy & Procedures / Systems.• Intellectual Property – patents, trademarks.
Stage Two:Protect
Structure Review
ASSETS
RISK
Decrease Risk
Non- financial analysis
Owner dependence
Reverse due diligence
Advisory board
Key people
What do you want from your business in 5-10 years?
Stage Three:Maximise Value
1. Exit options
2. Job vs. Business
3. Boutique or Scale
4. Expansion or Efficiency
5. Decrease risk
6. Improve earnings – 5 * 5 * 5
7. Ownership Thinking
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
Not sure which level to pull or which switch to touch?
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:
Secure Funding
• Many plans fall over at this point• Age & Financial situation?• Internal succession funding• Equity Partner / Investor
Did you know that over 72% of Gen Y want to own their own business…
but not on their own!
Ladder to Equity1. Income
2. Incentive – commission
3. Profit Share - % profits
4. ESOP – Equity
5. Control / Management
Peak Performance Trust
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
Stage Four:Extract Value
Strategic Sales
"Price is what you pay Value is what you get "
Warren Buffett
1 + 1 = 3
Strategic Value Drivers
August 2011 – Archer accepts $1.2B for MYOB
The acquisitive private equity fund bought MYOB in February 2009 for about $500 million, and then boosted earnings by stripping out costs, raising prices and aggressively growing its customer base.
The deal is understood to have been valued at a multiple of 11.3 times EBITDA.
MYOB is used by more than 1 million SME’s in Australia and NZ.
Siri wasn’t made in Cupertino. It was actually acquired in a deal rumoured to be worth close to $200 million.
It only took only one phone call to turn Siri's Dag Kittlaus's life around. Before the call, he was the head of a Silicon Valley start-up and afterwards, he was a multimillionaire working with Apple.
Sale to a listed company
ASX – PE ration (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 buyersThe total value of transactions increased 35% over the
previous year to US$736 billion.
8.8 * EBIT average
AUSTRALIANBUSINESS
PTY LTD
$500K Profit EX
ITTRADE SALE
@ 2 x = $1 million
STRATEGIC SALE @ 4 x = $2 million
SALE TO LISTED CO @ 7 x = $3.5 million
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.
Net proceeds is the important $
CGT – small business concessions.
Structures – who owns assets – before and after
Other costs - legal, accounting, other fees.
Equity Matrix
100% owned
20% owned
Stage Five:Manage Value
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
Successors Exit Options
Smooth transition
Incoming CEO or Partners
Gradually increasing involvement
Smooth transition
Existing CEO or Partners
Gradually reducing involvement
Strategy for successful succession:
systems / processes
Communication Strategy
• Implementation Success
• Shareholder / Key Management Communication
• Buyer Communication
• Staff Communication
• Client Communication
Case Studies
Client Case Study: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
Client Case Study:Outcomes• Implemented Peak Performance Trust
• Engaged and motivated 5 key staff with equity plan
• Reduced risk – staff retention
• Restructured
• Asset protection & risk management
• Tax and CGT advice
• Wealth outside business structure
• SMSF to hold appreciating assets
• Risk minimization
• Insured for unplanned events
Recent Typical Project: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 VC / Private Equity
• 18 months of ongoing coaching/consulting
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
Client Case Study: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. C-Mac has bucked the growing national SME trend to wind up on owner retirement (The Exit Generation Needs Help – SMH 19 Sept.2011) with the introduction of an employee owned share plan ( ESOP) offered to all its employees. The engagement of employees as owners has already seen an 18 % hike in productivity at the plant.
Client Case Study: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.
Client Case Study:Sydney Software Business
• 60 year old owners - focused on reducing involvement and gradual sale.
• Peak Performance Trust involving 8 key staff.
• GM now running business – “semi retired” owners.
• Business Value now over $6 Mil.
• All other assets separated and protected.
• “truly a good story of transitional management”
Strategic Advisory
At start of engagement ( August 2011 ):
• Heavily reliant on the three owners• Owners frustrated at staff disengagement • Unclear about the vision and future of the business• Owners goals - semi-retire while continuing to grow the value of their business • Owners personally exposed to potential liability
Strategic Advisory
Key Actions:
• Overall strategy & vision defined• Improved people management & communication• Ownership Thinking implemented – move towards a business of business
people• Non-owner GM appointed to take the business to the next level and reduce
the reliance on owners
Strategic AdvisoryOutcomes:
• Staff understand and are aligned with the vision and • Management and staff are clearer about what’s expected of them• Staff are in the loop of what’s going on in the business through monthly company-wide
information sessions• The two owners who are closest to their planned retirement age have appointed and are
grooming their successors• All employees have been educated in business ownership, are now receiving information
about the performance of the business and will soon have a self-funded incentive plan to replace their ‘christmas bonus’
• Less ‘me’ focus and more ‘we’ thinking in the culture: phasing out entitlement and bringing staff on-board to a culture of purpose, visibility and accountability
• Employees are sharing the insomnia and stress of running the business
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 West1300 665 473
cwest@successionplus.com.au
Visit www.successionplus.com.au
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