1. Exit Strategy and Succession Planning From Plan to Execution Presented by Bob Gellman, CPA, MSA, PFS Managing Director CBIZ MHM, LLC Author of

2. 2 3. 3 Implications for Different Types of Individuals Consider Your Personal Situation Understand the Motivations of Others Students Employees Managers Executives Minority Owners Majority Owners President/Non-Owners Family Member Owners 4. 4 Implications for Different Types of Businesses Real Estate Retail Distribution Manufacturing Engineering Architecture Partnership Accounting Legal Internet Software Pharmaceutical Medical Equipment Family Businesses Professional Service Businesses Funded Technology Businesses Closely Held Business Multi Member VC/PEG/Founders/Mgrs 5. 5 Begin with the End in Mind Evaluate Your Personal Goals Understand Your Companys Valuation Evaluate Your Exit Strategy Integrate Your Business Plan Protect Your Assets Develop Your Team PlanningExecution On-Going Processes Strategy vs. Opportunity 6. 6 Begin with the End in Mind Evaluate Your Personal Goals Understand Your Companys Valuation Evaluate Your Exit Strategy Integrate Your Business Plan Protect Your Assets Develop Your Team PlanningExecution On-Going Processes 7. 7 Consider the Long-Term Impact of Todays Choices Business Choices Advisory Team Type of Entity Leadership Team Strategic and Operational Objectives New Opportunities Uses of Cash Personal Choices Advisory Team Investment Choices Estate Planning 8. 8 Watch for Windows of Opportunity $ T4 T7 Point B 1 . 2 . 3 . . 4 . 7 Which Business and Economic Cycles Are Important? How Can These Cycles Be Anticipated? What about changes in the law? 9. 9 Begin with the End in Mind Evaluate Your Personal Goals Understand Your Companys Valuation Evaluate Your Exit Strategy Integrate Your Business Plan Protect Your Assets Develop Your Team PlanningExecution On-Going Processes 10. 10 What Have You Dreamed of Doing? 11. 11 Targeting In On Your Dreams $10M T5 Point B T0 Consider Where? Why? When? To Determine How Much?* There are different considerations for: Closely Held Businesses Multi-Member Partnerships VC/PEG/Founder/Manager Businesses 12. 12 Begin with the End in Mind Evaluate Your Personal Goals Understand Your Companys Valuation Evaluate Your Exit Strategy Integrate Your Business Plan Protect Your Assets Develop Your Team PlanningExecution On-Going Processes 13. 13 How Can You Value Your Business for Planning Purposes? Point B Point A Real Estate Retail Distribution Manufacturing Engineering Architecture Accounting Legal Internet Software Pharmaceutical Medical Equipment Multiples of Sales? Multiples of Earnings? Comparables? Discounted Cash Flows? All Allow Leverage That Will Enable You to Get to Point B Faster (Are we there yet?) 14. 14 Begin with the End in Mind Evaluate Your Personal Goals Understand Your Companys Valuation Evaluate Your Exit Strategy Integrate Your Business Plan Protect Your Assets Develop Your Team PlanningExecution On-Going Processes 15. 15 Differing Motivations Impact Value Family Businesses Professional Service Businesses Funded Technology Businesses $ Tx Point B T0 Family Business Going Public 16. 16 Transfer Option Value Range Transfer Option Value Established By Value Range Family Seller w/in IRS Guidelines (Valuation) Low Management Seller/Valuation Middle-Low Employees Valuation Middle Partners Agreement/Valuation Middle Private Equity Investors Valuation/Negotiation Middle-High Strategic Buyers Market Value/Negotiation High Going Public Market Value High 17. 17 Transfer Options and Methods Family Management Employees Partners Private Equity Investors Strategic Buyers Going Public Gift Management Buy Outs/Ins ESOPs Buy/Sell Negotiated Consolidations IPO Self Cancelling Installment Notes Carve Out Acquisitions Stock Options Russian Roulette One-step Private Auctions Roll Up Direct Public Offerings Annuities Phantom Stock Stock Appreciation Rights Dutch Auction Two-step Private Auctions By and Build Reverse Merger Grantor Retained Annuity Trusts Right of First Refusal Recapitalizations Family Limited Partnerships Defective Grantor Trusts 18. 18 What if Your Numbers Dont Add Up? Point B Point A Point C? 19. 19 Begin with the End in Mind Evaluate Your Personal Goals Understand Your Companys Valuation Evaluate Your Exit Strategy Integrate Your Business Plan Protect Your Assets Develop Your Team PlanningExecution On-Going Processes 20. 20 How Will You Execute Your Strategy? T1 T2 T3 T4 T5 . Point B Growth Rate Business Goals Strategic Plan Annual Budget Processes KPIs Value Management Value Targets Incentive Systems Leadership 21. 21 2011 2012 2013 FCST FCST FCST NET INCOME (15% Growth) $ 6,250 $ 8,812 $ 12,507 ADD BACK: INTEREST EXPENSE 1,000 1,000 1,000 TAX EXPENSE 2,000 2,000 2,000 DEPRECIATION EXPENSE 12,000 12,000 12,000 AMORTIZATION EXPENSE 2,000 2,000 2,000 OWNERS PERSONAL EXPENSES AND ADJUSTMENTS FOR NORMALIZED PAY 0 0 0 EBITDA $ 23,250 $ 25,813 $ 29,507 INDUSTRY MULTIPLES LOW 3.0 3.0 3.0 HIGH 5.0 5.0 5.0 ESTIMATED ENTERPRISE VALUATION LOW $ 69,750 $ 77,438 $ 88,521 HIGH $116,250 $129,063 $147,534 LESS: INTEREST BEARING DEBT ($30,000) ($35,000) ($40,000) NET EQUITY VALUATION LOW $ 39,750 $ 42,438 $ 48,521 HIGH $ 86,250 $ 94,063 $107,534 What might successful execution look like? 22. 22 Linking Value to Value Management Point B Point A Real Estate Retail Distribution Manufacturing Engineering Architecture Accounting Legal Internet Software Pharmaceutical Medical Equipment How Can You Leverage Operational Performance and Get to Point B Faster? (Are we there yet?) 23. 23 Begin with the End in Mind Evaluate Your Personal Goals Understand Your Companys Valuation Evaluate Your Exit Strategy Integrate Your Business Plan Protect Your Assets Develop Your Team PlanningExecution On-Going Processes 24. 24 Eliminate Isolate Insure Manage Asset Protection Strategies RISK Business Assets Personal Assets 25. 25 Begin with the End in Mind Evaluate Your Personal Goals Understand Your Companys Valuation Evaluate Your Exit Strategy Integrate Your Business Plan Protect Your Assets Develop Your Team PlanningExecution On-Going Processes 26. 26 How Can You Ensure Timely Execution? CPAs Bankers Attorneys Insurance Advisors Business Consultants Valuation Consultants M & A Specialist/Business Broker Investment Advisors Others? What does good execution look like? Personal CFO Project Manager Prioritized Action Items Integrated Service Providers 27. 27 Exit Strategy Assessment No Cost for 1 to 2 hour meeting Should include key stakeholders Involves facilitated group participation in gap analysis Takeaways include prioritized list of business and personal action items. 28. 28 Available at Amazon.com 29. 29 Presentation By: Robert C. Gellman, CPA, MSA, PFS Managing Director CBIZ MHM, LLC (858) 795-2110 bgellman@cbiz.com On LinkedIn http://www.linkedin.com/in/bgellman 30. 30 Thank You!