Exit Now or Exit Later

1. Exit Now or Exit Later PRESENTED BY: • Monte Pendleton, Silver Fox Advisor. • Jim Griffing, Treasurer, Silver Fox Advisors. • Howard London, President, Silver Fox Advisors.

2. Pendleton Background Monte Pendleton is a mentor to owners on how to improve sales and profits; Founder of Sun-X International with over 700 distributors in 69 countries. Past President of the Intl. Franchise Assn., U. of Mo., B.S.C.E.

3. Griffing Background Jim Griffing is both a CPA and CFE. After years of experience as a Regional Tax Partner with another firm, he founded Griffing & Company, P.C., a full service certified public accounting firm in 1987. MS in Taxation degree from Drexel University.

4. London Background Howard London is a business development expert; Forty four years of hands on administrative, technical, creative, advertising, marketing and sales experience for start-up and growth companies; Author of "Six Minute Business Plan".

5. Exit Objectives Maximize Value; Reward Loyalty; and Perpetuate the Business.

6. Potential Business Exit Strategies • Sale • Merger • Buyout • Liquidation of Assets • IPO

7. Private Businesses 10% of family businesses survive to the third generation 10% of family business owners are financially independent from their business when they retire —Grant Thornton data

8. Where Can Private Businesses Go? Go public Acquired by - Strategic buyer – often a competitor - Financial buyer – if income-producing Liquidated - Owner cashes out. - Bankruptcy.

9. Elements of Exit Vehicles * This index runs from 1 to 10, with 10 describing the exit vehicle with the greatest potential value. The values reflect a subjective opinion.

10. Don’t Let the Transfer of Your Business be Triggered by External Events: Life surprises - Death - Disability - Divorce Business surprises - Adverse marketplace - Competitive challenges - Regulatory changes

11. Plan To Exit Sell to a competitor, corporation or individual; My ideal buyer will be ___________________________________ The buyer will pay _______________________________________ I might sell in January 2011 or I might keep the business.

12. Plan To Exit Document 2 to 3 years profit; Increase the value of your business: Establish financial goals for 2010; Establish management goals for 2010; Establish marketing goals for 2010; and Produce and/or update Personnel, Policy & Procedure Manuals.

13. Financial Goalsfor 2010 Total Sales: $_________________ Net Profit Before Taxes: $_________________ Equity (Net Worth): $_________________ Credit (Bank Loans and Lines): $_________________ Number of Clients: __________________ Number of Employees: ___________________

14. Management Goals for 2010 Business Vision Statement by __________ Business Mission Statement by __________ Complete a Customer Satisfaction Survey by__________ Annual Budget by__________ Employment Contracts by __________ Write Job Descriptions by __________

15. More Management Goals for 2010 Employee Questionnaire by _____________________________ Monthly P & L Statements by ____________________________ Monthly Balance Sheets by ______________________________ Monthly Budget Analysis by _____________________________ Daily Sales, Cash, Problems, etc. Reports by __________ Weekly Proposals In Progress Reports by ____________ Weekly Work In Progress Reports by __________________

16. Marketing Goals for 2010 Produce a new website by ____________________________ Produce new marketing materials by _____________ Update customer & prospect database by __________ Create “Touch Marketing Program” by ______________ Create trade show program by _______________________ Create business network program by _______________

17. Personnel, Policy & Procedures Produce or update Policy Manuals: Personnel by ________________________ Credit by ____________________________ Audit by _____________________________ Insurance by ________________________ Safety by _____________________________

18. Personnel, Policy & Procedures Produce or update Procedures Manuals: Purchasing by ______________________________________ Selling by ____________________________________________ Order Processing by ________________________________ Hiring by _____________________________________________ Invoicing & Accounting by __________________________ Customer Service by _________________________________ Banking by ____________________________________________

19. What Is The Value? Revenue 2009 …………………………………… $1,000,000 100% Cost of Goods or Services … $380,000 38% G & A Overhead ……………….. 330,000 33% Executive Salary ………………….100,000 10% Selling/Marketing Expenses ..150,00015% TOTAL $960,000 EBITDA $ 40,000 04% 5 x $40,000 (EBITDA) = $200,000

20. Double The Value WHAT IF? Revenue 2009 …………………………………… $1,050,000 100% Cost of Goods or Services … $378,000 36% G & A Overhead ……………….. 336,000 32% Executive Salary ………………….100,000 9.5% Selling/Marketing Expenses ..157,50015% TOTAL $971,500 EBITDA $ 78,500 07.5% 5 x $78,500 (EBITDA) = $392,500

21. Triple The Value WHAT IF? Revenue 2009 …………………………………… $1,100,000 100% Cost of Goods or Services … $385,000 35% G & A Overhead ……………….. 330,000 30% Executive Salary ………………….100,000 9% Selling/Marketing Expenses ..165,00015% TOTAL $980,000 EBITDA $ 120,000 11% 5 x $120,000 (EBITDA) = $600,000

22. Triple The Value WHAT IF? Revenue 2009 ………………………………… $11,000,000 100% Cost of Goods or Services … $3,850,000 35% G & A Overhead …………………. 3,300,000 30% Executive Salary …………………. 200,000 0.2% Selling/Marketing Expenses ..1,650,00015% TOTAL $9,000,000 EBITDA $ 2,000,000 18% 5 x $2,000,000 (EBITDA) = $10,000,000

23. How Do Owners Successfully Transfer the Business to Others? Recognize the transfer will be a complex process. Keep financial reports and tax filings current. Strive for accuracy—do your due diligence now. Make yourself expendable—delegate success to your employees.

24. Negotiating and Closing Valuation methods The wide range of terms available Stock versus assets example Types of financing available Earn outs Protecting your escrow

25. Valuation Methods • Multiple of Earnings or EBITDA • Replacement Cost • Liquidation Value • Dividend Paying Capacity • Comparable Market Value • Discounted Future Earnings • Discounted Cash Flows

26. Other Issues affecting Valuation Times net asset value Discounted increase in net worth Discounted free cash flow EBITDA (Earnings before interest, taxes, depreciation and amortization) Internal rate of return (IRR)

27. Strategic Buyers Beware of under-pricing your firm to a strategic buyer. Value of your firm is driven by their internal needs. Never be the first to mention price when dealing with a strategic buyer.

28. Terms All cash Cash down with installments - Recapturing hot assets - Personal guarantees of purchase All deferred - (discussion of earn outs to come) Stock for stock, cash and stock Using gifting when selling to family members

29. Types of Financing Terms

30. Financing Terms Available by Source

31. Earn Outs Only part of purchase price is paid at closing, rest due as earnings or revenue milestones are met in the future. Risk reduced to buyer. Seller has opportunity to get higher price. Complicated by - External economic or political issues - Creates a long-term relationship - Tax implications are tricky

32. After the Close Keep valuable employees by planning a well-communicated transition to the new owner—be honest with them! If merging organizations, anticipate and manage cultural clashes—especially if they’ll affect customers. New owners will need guidance in hands-on operational questions—anticipate who’ll provide it: previous owner or employees?

33. What’s the Worst and Best that can Happen? Top Ten Reasons Owners Don’t Get the Best Deal Guidelines for keeping a business “buy-able”

34. Ten Top Reasons Owners Didn’t Get Best Deal 10. Were first one to mention price. 9. Didn’t plan to sell business. 8. Proper documentation was not demanded. 7. Didn’t correctly position business for sale. 6. Assumed they knew the best buyer.

35. Ten Top Reasons Owner Didn’t Get Best Deal 5. Tried to sell to the wrong people. 4. Didn’t get proper counsel. 3. Didn’t understand the buyer’s motive. 2. Were unrealistic about price. 1. Didn’t understand the real value of the business.

36. A Buy-Able Business Stays in Top Condition Accurate and up-to-date financial statements. Owner can be replaced—method of success is no mystery. Owner is glad to keep the business until the right buyer is found.

37. Questions?