# of Annual % of Busines Sales Busine Sell for % for Sale % that Sell ses sses < $500K $500K- $1M $1 - $2.5M $2.5- $10M $10-$50M >$50M 100

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Fay Montgomery
7 years ago
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With Succession in Mind Increasing Your Business Value For Remodelers Gregory R. Caruso Attorney, CPA, CVA Principal, 410-507-5441 gcaruso@harvestbusiness.

How to Think about this Presentation What is your Commitment to Your Future as a Leader? What is your GAP? What Actions do you need to take to meet your Commitments? How can we help?

1 With Succession in Mind Increasing Your Business Value For Remodelers Gregory R. Caruso Attorney, CPA, CVA Principal, What We Will Cover Huge Value Swing Business = ATM Continuous Planning & Implementation 2 Which man is smallest? How to Think about this Presentation What is your Commitment to Your Future as a Leader? What is your GAP? What Actions do you need to take to meet your Commitments? How can we help? 3 4 Presenter: Greg Caruso What we do MD Attorney, CPA, CVA, Real Estate Broker, 20 Years transactional attorney, succession consulting, broker, Business Valuations Valued 100 s, Advised many, Sold over Years President - Family Run Builder Developer; Delivered 70 homes year 8+ Years General Contracting 5 6 gcaruso@harvestbusiness.com 1

2 What We Do Your Business-Like Bob s? OPPORTUNITY / VALUE Work with business owners and their advisors to create opportunity and build value through succession strategies that exceed expectations. 7 8 % of Businesses that Sell # of Busines ses Annual Sales % of Busine sses Sell for % for Sale % that Sell 3.1 M < $500K 55 <$500K M $500K- $1M 690K $1 - $2.5M 566K $2.5- $10M 21 <$1M <$2.5M <$10M K $10-$50M 2 <$50M K >$50M 1 >$50M The Opportunity 12 Are You Selling Because: You Want To Or You Have To 13 Results of Have To 70% of all businesses do not sell Only 30% of family businesses get handed down Less than 50% of businesses with revenues between $10 M and $50 M Sell If you are always miserable, worn out, have no free time - why would your kids or managers want your business? 15 gcaruso@harvestbusiness.com 2

The Results of Want To Planning Works 1. More money, higher price and value 2. Obtain tax savings 3. Deal structures that excite buyers 4. Resolve family and management issues 5.

EXCITEMENT IN THE PROCESS; BETTER RESULTS 16 Leadership / Commitment Recap: Like a Running Track Race Lesson: Surge at the End 17 Create & Increase Value What Creates Value?

3 The Results of Want To Planning Works 1. More money, higher price and value 2. Obtain tax savings 3. Deal structures that excite buyers 4. Resolve family and management issues 5. Creating additional buyers 6. Realistically timing the market 7. EXCITEMENT IN THE PROCESS; BETTER RESULTS 16 Leadership / Commitment Recap: Like a Running Track Race Lesson: Surge at the End 17 Create & Increase Value What Creates Value? Huge Value Swing Business = ATM Continuous Planning & Implementation Valuation 101 Caruso s Definition of Value Is: Capitalization Multiplier Range The Belief of Repeatable Future Profits that is so strong it is Worth Paying For Working Model or ATM gcaruso@harvestbusiness.com 3

4 Improve the Business SALES - Customer Generation Increase Profits / Cash Flow Maintain Records that tell a Story Reduce Risk / Improve Transferability People (Golden Handcuffs for Key People) Systems Customer Contracts etc. New Customer generation Growth with profits Have what buyers want Creating repeatable future profits worth paying for 35 Compare the difference in transferability: Personality Chef Driven Restaurant Chipotle When you leave is the ENTIRE sales force leaving? 46 Leadership / Commitment ATM Machine / Working Model Reliable Reproducible Profitable Continuous Planning & Implementation Huge Value Swing Question: What is missing in my ATM / Working Model? 47 Business = ATM Continuous Planning & Implementation 49 Creating Value is Not Enough Planning Works It s Not What Goes In And Out of Your Pockets It s What Sticks To Your Fingers Richard Dick Caruso, My Dad 50 The Results 1. Higher Price, Creating more value 2. Obtain tax savings 3. Deal structures that excite buyers 4. Resolve family and management issues 5. Creating additional buyers 6. Realistically timing the market 7. EXCITEMENT IN THE PROCESS; BETTER RESULTS 51 gcaruso@harvestbusiness.com 4

New Customer generation Growth with profits Have what buyers want Creating repeatable future profits worth paying for 35 Compare the difference in transferability: Personality Chef Driven Restaurant

Examples of Not Obtaining Value Bob, Our Introductory Story I am making too much money to sell now C corporations purchased through asset sales Family & Management turmoil from a lack of true

5 Examples of Not Obtaining Value Bob, Our Introductory Story I am making too much money to sell now C corporations purchased through asset sales Family & Management turmoil from a lack of true communication Taxes - Your Partner Father to Son Transfer Stock Sale Old Co. / New Co. Taxes Are a Big Deal Taxes can be over 55% of the transaction price Spend appropriate time keeping what you earned Get help early this takes time Do not rely on intuition or gut it does not apply Focus on results, remain flexible on techniques Properly followed form is more important than function gcaruso@harvestbusiness.com 5

Taxes Are a Big Deal Taxes can be over 55% of the transaction price Spend appropriate time keeping what you earned Get help early this takes time Do not

6 Buyers Family Control, Fair, and Able? 68 Family Sale Control Fairness to many in and out Family relationships Taxes to individuals and as family Right child or children Ability Training and preparation Transition / Retirement Security 69 Buyers Managers Can They Really? 71 Sale to Managers Bigger Pie Sell Outright or Over Time? Down Payment / Financing Owner Mentality Training Transition Timeframes Safety Play 72 Buyer Market Sales Why does 2+2=5? Market Sale - 3 rd Parties Timing is key Wild valuation swings in cyclical businesses Roll-ups come and go Productizing of business Understanding what they must have and absolutely will not buy Still need key managers Confidentiality risk in going to market gcaruso@harvestbusiness.com 6

Retirement Security 69 Buyers Managers Can They Really? 71 Sale to Managers Bigger Pie Sell Outright or Over Time?

7 Market Sales Build a Market Timing Business Cycle - Emotions Timing Personal / Business Cycle Timelines Ownership Transfer Profile % Ow nership Years Cash Market Sale Typical ESOP 10% Per Year Typical Buyout Timelines Deal Killers How many years before the sale to Build Value Position right Managers Transition to family and keep family peace? (Think Thanksgiving Week) Time on market 3 to 10 years before sale 85 Real Estate Lease Professional liability insurance Unwanted assets or obligations Contingent liabilities, lawsuits Sloppy accounting, tax reporting Ancient equipment, General messiness, etc. Weak balance sheet 87 gcaruso@harvestbusiness.com 7

Managers Transition to family and keep family peace?

8 Positioning Real improvements or lipstick on pig What buyer really wants and absolutely will not take All or Part of business Customer list Assets Locations Real Property vs. business Positioning-Terms I will never take back any financing Every Seller Fact: Seller Financing increases the price and often cash to close Seller Financing A 2 nd Trust Can Increase Price and Cash at Closing Often acts as additional down payment for bank 2 nd becomes bonus Why wouldn t you take back financing if you got more money at closing with it? Tax advantages 92 Our Keys to Negotiating a High Price Prospect that wants it really, really, really bad Prospect that has high emotion, need, creating deal heat - will to win desire to own Determine the specific motivations and keep showing them how they will achieve them Prospect can self finance Create a win-win earn-out Fear of LOSS - multiple bidders Improving Results 97 With Succession in Mind Most Businesses Do Not Sell Start Early - this is a process Planning Works 98 Leadership / Commitment What do I want my ultimate business sale or transfer to look like? Does that rise to an actionable Commitment? What do I have to do to Create it? Start where you are now. 101 gcaruso@harvestbusiness.com 8

90 91 Seller Financing A 2 nd Trust Can Increase Price and Cash at Closing Often acts as additional down payment for bank 2 nd becomes bonus Why wouldn t you take back financing if you got more money

9 Start EARLY with an Assessment / Valuation 102 Key Plan Components What Does Success Look Like? Where am I today? What is the gap? Goals Timeline Benchmarks Outside factors Who is involved? How do I stay accountable? 104 Rules for Succession Business Value can Change Rapidly Just Because You Create Value Does not Mean You will collect or keep it You cannot fairly evaluate your children as owner/buyers Have a management buy-out option Nothing else is complete qualification for owning Never give up control until you want and you have minimized financial risk Owners should run the business You are already behind on doing this 107 Exciting Exits Gregory R. Caruso Attorney, CPA, CVA Principal, Harvest Associates gcaruso@harvestbusiness.com 108 gcaruso@harvestbusiness.com 9

104 Rules for Succession Business Value can Change Rapidly Just Because You Create Value Does not Mean You will collect or keep it You cannot fairly evaluate your children as owner/buyers Have a

Preserve, protect, and promote the value of your business. Start your business trek towards transition today.

Preserve, protect, and promote the value of your business. Start your business trek towards transition today. F e d e r a l R e s e r v e B a n k o f K a n s a s C i t y O m a h a B r a n c h i n p a r t n e r s h i p w i t h Creighton University School of Law Community Economic Development Clinic Nebraska Business