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PASSING ON THE BATON

Peter Briscoe. PASSING ON THE BATON. 1662 - van Eeghen & Co. Chr. Van Eeghen (1700-1747). Jan Van Eeghen (1789-1838). Jan Van Eeghen (1729-1760). Sam Van Eeghen (1853-1934). Chr. Van Eeghen (1952 - ). Herengracht 462, Amsterdam). Succession. Business. Christian Ministry.

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PASSING ON THE BATON

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  1. Peter Briscoe PASSING ON THE BATON

  2. 1662 - van Eeghen & Co Chr. Van Eeghen(1700-1747) Jan Van Eeghen(1789-1838) Jan Van Eeghen(1729-1760) Sam Van Eeghen(1853-1934) Chr. Van Eeghen(1952 - ) Herengracht 462, Amsterdam)

  3. Succession Business Christian Ministry 1986 – 1989 CBMC Holland 1990 – 2002 Europartners 2008 – Crown Europe • 1972 - 1986 • Brent Chemicals • 1990 - 1997 • Synthesys • 2002 – 2008 • HE Space Operations

  4. Biblical succession planning • God is in charge and a successor is His choice • David’s appointment • Recognise and develop emerging leaders • Deuteronomy 6:6–9; 20–25; • Emerging leaders are to be mentored • Moses > Joshua (40 years) • Recognise limitations & step down in time • Moses would die before entering • Share leadership • Moses in Numbers 27:20

  5. Joshua’s development • selected by Moses to lead the Israelite army into battle against the Amalekites (Exodus 17:8-16) • accompanies Moses up the mountain to receive the Ten Commandments (Exodus 24:13 • guarded the tent of meeting, where Moses met face to face with God (Exodus 33:11) • present when the Lord sent His Spirit upon seventy leaders (Numbers 11:17). • chosen by Moses to be one of the 12 spies sent to spy out the land (Numbers 13:8) • God had placed His Spirit in Joshua, which shows God’s choice and God’s provision for leadership (Joshua 1:1-18)

  6. Peter now handing over to Mark MARK LLOYDBOTTOM BATON

  7. Source: The Pinch pg. 73 PASSING ON THE BATON

  8. Source: The Pinch pg. 76 PASSING ON THE BATON

  9. The Age of Inheritance (1) The “Age of Inheritance” is peaking with today’s over 55s The peak in leaving an inheritance is around 2047 Value of windfalls to date is £904 billion Today’s adults expect to receive £1.2trillion The amount of inheritance today’s adults expect to leave is £5.4 trillion Source: HSBC Age of Inheritance. Sept 2011 PASSING ON THE BATON

  10. The Age of Inheritance (2) All Britons plan to leave more than they expect to receive in inheritance Expectations of inheriting from parents have grown significantly There is a huge growth in the expectation of windfalls from property London and south east will see the greatest share ML note – I believe baby boomers will use their home equity Source: HSBC Age of Inheritance. Sept 2011 PASSING ON THE BATON

  11. A Few Quick Stats 52% of windfalls are currently under £10,000 2% are over £500,000 All Britons plan to leave more than they expect to receive in inheritance Those aged 45 and over expect to leave £230,000 Source: HSBC Age of Inheritance. Sept 2011 PASSING ON THE BATON

  12. How Will Windfalls Be Used? Essentials (34%) Holiday and travel (32%) Investment/pension (31%) Property (27%) Source: HSBC Age of Inheritance. Sept 2011 PASSING ON THE BATON

  13. PASSING ON THE BATON

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  15. ORGANISATIONAL LIFE CYCLE Late Prime PRIME Aristocracy Adolescent Recrimination Go Go Bureaucracy Infant Death Courtship GROWING AGING PASSING ON THE BATON

  16. PAEI Producer Entrepreneur Administrator Integrator PASSING ON THE BATON

  17. ORGANISATIONAL LIFE CYCLE Paei PaEi Late Prime PRIME Aristocracy Adolescent Recrimination Go Go Bureaucracy Infant Death Courtship GROWING AGING PASSING ON THE BATON

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  21. UK Business Stock There are an estimated 4.5 million private sector businesses (an increase of 94,000 since 2010 and over 1 million since 2000) These businesses employ 23.4 million people 62 per cent are in sole ownership 28 per cent are companies 10 per cent partnerships Employment: 3.3 million have no employees Source: Department for Business Innovation and Skills PASSING ON THE BATON

  22. Issues For The Business Owner Emotional: “this is my baby” Purpose and direction: “what will I do?” Maintaining strong leadership Will I have enough income? (How much is enough?) Who can I transfer the business to? or Who can I sell the business to? What is it worth? PASSING ON THE BATON

  23. Beware of the Assumptions... The business will continue to prosper The value will be maintained or even increased “I” will continue to enjoy good health My life’s goals will not change The business will never be my albatross I am the business I cannot afford to retire I am irreplaceable PASSING ON THE BATON

  24. Beware of the Challenges Letting go Bias against planning Planning ahead: Ten years is a good starting point Knowing what your options are, and Keeping all options open Staying in prime – balancing entrepreneurship and production Increasing profits PASSING ON THE BATON

  25. Passing on Within the Family Is there a successor who will advance the business? Family relationship issues – harmony or conflict? Who to choose? Issues of financial fairness – fair to whom? PASSING ON THE BATON

  26. Passing The Baton Checklist Pray at all times Seek good counsel Start planning early – Be prepared - Timing Trade sale Family MBO MBI Encourage intergenerational teamwork Put your plans in writing Plan for life beyond the business PASSING ON THE BATON

  27. Types of Exit PASSING ON THE BATON

  28. Valuation: What is the Business Worth? PASSING ON THE BATON

  29. What might retiring [accounting] firm owners be expecting?

  30. The starting point for valuing the majority of private profitable companies is a multiple of profits. The ‘profit figure’ most frequently used in this multiple is ‘Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). However sometimes EBIT can be used, depending on the company / seller / buyer. More often or not it will be the latest 12 month EBITDA which will drive valuation. The Enterprise Value (EV) is normally calculated on a ‘cash free / debt free’ basis. There is no set multiple for valuing a business, however here are some ideas based on the current marketplace: (only a guide) - Manufacturing / Engineering / Contracting businesses:5x EBITDA - Software / Technology businesses: 6-9x EBITDA - A Freehold based business e.g. Care homes / Day Care centres: 6-8x EBITDA - A leasehold based business e.g. chain of shops: 3-4x EBITDA PASSING ON THE BATON

  31. BRICK IT LIMITED

  32. Ben and Peter run a building contractor business, Brick it Ltd (“Brick it”) • Brick it operates in Bristol and the surrounding areas. • The business has grown from a small two man operation to a £4.5m (2010) turnover business over the last 10 years. • Ben and Peter now feel that the business is getting too big for them, and wish to sell to a larger contracting business. • Sales growth has been strong in the last two years, however the bank has been unwilling to increase Brick it’s overdraft facility and cashflow is now becoming a constant worry. Ben feels as though he is working for the bank, and wants out of the responsibility. • They are 9 months into their financial year, and are looking at the possibility of selling after their year end. Their advisor has provided them with the following overview of valuation.

  33. In the first 9 months of the year Brick it has made sales of £4m and an operating profit (EBIT) of £0.4m. Their advisor is helping them to place a value on the business for sale post year end. • The last three months of the year are largely expected to continue as the first nine. However there is a possibility of a large contract being won which would represent c.£1m of sales in 2011 alone. It makes the final results unknown. • The company holds a freehold property, and several pieces of equipment which produce a depreciation of £150k p.a. • The estimated EBITDA for 2011 based on the first 9 months is therefore £680k.

  34. Ben and Peter would ideally like to sell Brick it to a large contracting business, and therefore stay in the business for a further year to hand over. • As a result of being owned by a larger business the advisor has identified several cost savings which could be added back to profit. This reflects the level of profit a large corporate could expect to make when run from it’s own head office. • Ben and Peter have been paying themselves above market rate salaries. £30k additional each, providing a £60k add back. • By moving to a large head office two of Brick it’s admin/accounting staff will not be required. They are paid a combined salary of £50k. • There are further cost savings made possible by moving to a larger company. Better rates and central costs for example. These are estimated at £15k.

  35. The historic and forecasted EBITDA can now be adjusted by these add back which produces the following performance profile.

  36. The adjusted EBITDA is now estimated to be c.£810k. • The performance of the business for the full year is unknown at this point, in addition the add back are unlikely to be accepted by a buyer in full. To get an idea of a valuation range the advisor has provided the following table which shows various profit outcomes and multiples and the associated valuations. • The highlighted range shows the values that the advisor believes are most achievable. Therefore providing a business valuation of between £2.8m and £3.5m. • The final outcome will be driven by the full year performance, and the ability of the advisor to get the best deal.

  37. Taxation PASSING ON THE BATON

  38. Do Not Overlook... The purpose of the business is to glorify God God owns/owned the business Give back to God a tithe Remember that the tithe is the starting point You will not find retirement in the Bible ?? PASSING ON THE BATON

  39. Generosity There are five types of giving: Money you ______ _______ ____ ________ money ________ money ______ ______ money ________ money PASSING ON THE BATON

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