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How to Plan a Successful Business Exit

How to Plan a Successful Business Exit. Jeff Christensen & Holly Quinn NENEDD Business Loan Specialists Economic Development Financial Professionals Accredited Business Planning Advisors. Exit & Succession. What it means to your Family , Community and Region Challenges Exit Opportunities

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How to Plan a Successful Business Exit

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  1. How to Plan a Successful Business Exit Jeff Christensen & Holly QuinnNENEDD Business Loan SpecialistsEconomic Development Financial ProfessionalsAccredited Business Planning Advisors

  2. Exit & Succession • What it means to your Family, Community and Region • Challenges • Exit Opportunities • Who can Help & How

  3. Lessons LearnedWhat can go wrong? • 1st Attempts Often Fail • Wrong Price • Buyer not Qualified • Work With Experienced Advisors • Explore All Exit Options • Business Value • Buyer Needs • Room for Improvement • Last Minute Negotiations • Failing to Plan….Planning to Fail

  4. The Coming Wave • Where Are Things Headed • Impacts on the Local Community • What’s started

  5. Impact – What are the Factors • Business Owners are Aging • 52-70% of Business Owners will leave by 2017 • Small to Mid-Sized Businesses • 1/3 Transfer to Family • 1/3 Sell to Someone Else • 1/3 Sell Inventory & Close the Door • Economic Downturn • Business Owners Think They’ve hit Bottom Already • Retirement is on Hold….Hope to Sell at a Later Time

  6. Impact – What are the Factors • Outside Factors will Force an Exit • Less Financing Available • Banks have tightened Lending Practices • Due to Regulations • Fewer Entrepreneurs and Buyers • Lack of Qualified Buyers • Buyer Lives Elsewhere – Profits Leave Community • Absentee Owner • Local Owners = Local Wealth

  7. Uncontrollable & Risky • Family Succession can by risky • 65% of Family Successions FAIL • 80% within the 1st2 years • Do Family Members want the Business? • Not all Exits can be controlled • Owner is Key Employee – Forced Early Exit • Illness, Disability, Death

  8. Goals • Maximize Number of Exit Opportunities • Maximize Business Value • Minimize Cost of Exit

  9. Buyers • Businesses are Sold to Individuals • Seeking a Life Style • Buying a Job • Buyer are Looking for: • Bragging Rights • A Good Deal • Good Management • Up to Date Inventory • Website/Advertising/Marketing • Curb Appeal

  10. Business Value • Value of Business • 20% of Business Owners Undervalue their Business • Leaving Money on Table • Business Must be Priced Correctly • Over Priced to Cover other Expenses • Buyers Consider Sale Based on Past Performances • Future Performance/Earnings • Excess Market Time = Increased Risk • Loose Clients, Employees, Suppliers

  11. Fair Market Business Valuation • Required for a Qualified Business Deal • 70% of Businesses don’t sell • Seller isn’t Motivated • Financials in Disarray • Unreported income • Self Accounting System • Using Business to Pay for Items not Related to the Business

  12. Business Owner’s Goals • Maximize Benefits • Minimize Taxes • Look for all Cash Deal • No owner Financing • Little or no Goodwill • Maximum Sales Price

  13. Success - Opportunity • Buyer wants more Success • Looking for Opportunity – not repetition • Seller must be Truthful • Need to fix Financial Issues • Seasonality • Employees • Contracts • Lease/Ownership of Building

  14. Financial Demands • Business Must Meet 3 Financial Needs • Return On Equity • Pay New Owner Salary & Benefits • Make Loan Payments

  15. Example • $1,000,000 – Total Purchase Price • $200,000 – Equity (20%) • $800,000 – Loan (80%) • $30,000 – 15% ROE • $60,000 – Salary/Benefits • $80,000 – Loan Payments • $170,000 Cash Flow NEEDED

  16. Financing • 80/20% • Required Equity Injection • SBA or USDA Guaranty • Lender Requirements • Volatility of Market • Type of Business • Financial Information – Past 3 years • Income & Expense Statements • Balance Sheet • Accounts Payable & Receivables

  17. Business Reorganization • Change Operation • Demonstrate Opportunity • Reduce Expenses • Reduce Excess Compensation • Refrain from Discretionary Spending • Simplify Financial Reporting • Report ALL Income

  18. Unreported Income • $50,000/year – saves approx $20,000 on taxes • Reporting Income Increases Cash Flow • Increases Business Value at Time of Sale • Two Times Business Owner gets Money • Operating the Business • Time of Sale • Additional Purchase Price of the Business • $10,000 Additional Financing Required • Leaving $40,000 Additional Cash Flow

  19. NENEDD’s Business Transition & Success Program • Work with NBDC • Offer 9 Exit Opportunities • Process Requires Teamwork • Role is a Coach • Work with Existing Advisors • CPA, Attorney, Banker, etc. • Compliment Current Advisors • Provide Additional Resources • Everyone Works Towards the Same Goal

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