For those without an exit plan, or given thought to what they can do in preparation to get the most value for their business when it is time to sell, this is a PowerPoint presentation for a seminar on the subject. This presentation will help you understand what is important and what to do to get prepared.
- 1. SELLING YOUR BUSINESS FOR MAXIMUM VALUE Lower Mid-Market Business Brokerage, M&A, Intermediary, Consulting
2. ABOUT THE SPEAKER Robert Bob Dolan, Licensed Florida Real Estate Broker. More than 30 years of experience. Began in franchising; former owner of a printing company that grew to $900K in four years, sold after nine years and still in business today. Mergers & Acquisitions, Intermediary, Lower Mid-Market Business Brokerage, working mostly with businesses in the sales range of $700,000 to $15 million. Straight talk, good listener, patient, to the point, and does what he says he will do. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 3. REASONS PEOPLE SELL Want to be entrepreneurs versus managers. Choose not to invest the money and energy to take it to the next level. Cash in on success. Explore new opportunities. Lifestyle change/retirement. Health. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 4. TOP PRIORITY Helping my seller customers get the best prices possible, maintaining confidentiality. With the best terms possible. In all cash, or mostly cash, at closing. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 5. MOST IMPORTANT ASPECTS OF THE PROCESS Price point. Packaging of the business. Marketing of the package. Responsiveness to inquiries. Negotiating skills. Understanding the emotional issues of the parties. Ability to secure long-term financing for the transaction. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 6. STRUCTURING THE SALE Almost all transactions are asset sales. This limits liabilities for the buyer. This allows the buyer to restructure the assets and allocation of the purchase price. The seller receives the purchase price, plus trade accounts receivables as of the closing date; keeps the A/P and any Promissory Notes. Equipment leases, in most cases, are assumed by the buyer. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 7. ESTABLISHING THE PRICE POINT Sellers discretionary cash flow (SDCF). EBITDA plus add-backs (Earnings Before Interest, Taxes, Depreciation, Amortization). Add-backs lender underwriting will accept. Sales not reflected on the tax return do not exist. Value of not expensing personal expenses; resulting increased profits will pay X2 or more. Private Equity or Strategic Buyer EBIT. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 8. WORKSHEET SHOWING ADD-BACK PROCESS 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 9. PRICE POINT SHOULD BE HIGH BUT NOT TOO HIGH Unless there is something unusual, the multiple range of SDCF (Seller Discretionary Cash Flow) typically is X2X3. A/R trade accounts that seller keeps add to the multiple. Multiple factors affect the multiple to be used: SDCF the higher the number, the higher the multiple Sales trend What is extraordinary about the business The market where the business is located (metro/local) How quickly you want to sell 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 10. BUSINESSES WITH SDCF OVER $900,000 Can command a higher multiple than 3.5 With middle management in place. No customer represents more than 10% of sales. Most trade accounts (A/R) under 60 days. No major retooling needed to take sales to the next level. Equipment and tools in good condition, current technologies in place. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 11. WITH SDCF OVER $900,000 PRIVATE EQUITY Most are interested in keeping top management. Lets the seller take some money off the table. Can use Private Equity resources to grow the company to the next level. Most are interested in building the business, then selling it in three to five years. Allows the seller to share in the increased value. I am well-connected to in the Private Equity community, know who is interested in what kind of business and adding to their current holdings. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 12. PREPARING TO SELL First impressions matter. Clean up your financial statement; do everything you can to reduce costs and increase profits. Credit control clean up your trade A/R; large amounts over 60 days are not favorable. Consider your staff are they polite and professional? Consider having your accountant prepare your year-end statement. Consider how to create transferable value. Eliminate clutter. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 13. PROJECT OFFERING RECASTING P&L; MARKETING The importance of good documentation. Recasting prior years financial statement to show SDCF. Project offering for concise overview of the company history and opportunity for growth. Importance of having a complete package before going to market, being responsive. Value of a secure virtual data room with absolute control and tracking. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 14. TO INCLUDE IN OVERVIEW A focus on benefits to the buyer. What will be of interest to a prospective buyer. Spotlight on benefits of the business. ID competitors, and what makes you different. Post-acquisition training/integration to be provided. Explanation of why the business is being sold. What the seller plans to do after the sale. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 15. KNOWING THE POTENTIAL BUYER Investigate what they are interested in and why. Explore what they want to accomplish. Know their background and how it relates to the business. Ensure the business is a fit for their cash needs. Find out if they have the cash injection needed to secure long-term financing. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 16. SELLING THE FUTURE CREATES ADDED VALUE Having a plan on how to take the business to the next level will add value. The trend of the past three years is a consideration. Sellers last years federal tax return is the main consideration. The results before the financial meltdown will not be a basis of consideration. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 17. ESTABLISHING TRUST Full disclosure with no surprises. Accurate and complete information. Forthrightness. No overstating maintaining a high level of creditability is paramount. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 18. LISTENING Hearing beyond what is being said. Considering why something is being said. Noticing the way the potential buyer speaks, such as inflections. Observing non-verbal communications. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 19. REMOVING SKELETONS FROM THE CLOSET Aggressive tax deductions. Contract labor or 1099 employees. Undocumented employees. Family or ghost/phantom employees. Legal disputes, tax levies. Warranty issues. Lingering divorce issues. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 20. THE PRICE HAS TO MEET LENDER STANDARDS The buyer must be able to repay the loan, which will be amortized over 10 years at 2.75% over the WSJ prime rate. The business must be able to pay a salary to cover the buyers personal obligations with P/R taxes. There has to be a 1.25 debt coverage ratio. Profit after debt service and buyers salary/debt service. It is one thing if a buyer buys your price, but if you cant get it financed, what is the point? The price needs to be realistic. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 21. PRIVATE EQUITY, STRATEGIC BUYERS & SMALL INVESTMENT GROUPS Looked at differently than an entrepreneur. Looking more at EBIT as compared to SDCF. Will not set asking price; need to establish enterprise value & transaction structure first. Intellectual property secure provisional patent if no patent exists. Post-acquisition integration; cultural integration, financial & reporting requirements. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 22. PRIVATE EQUITY PREFERENCE = LEASE REAL PROPERTY Money in enterprises making money, not passive investments. Leasing real property. Can provide opportunity to sell property as income generator with long-term lease and strong tenant. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 23. WHAT I NEED FROM YOU The value attributes of the business. Need to ID and understand your competitors. Realistic and achievable growth opportunities. Past three years of tax returns and financials. Copies of business premises lease, equipment leases. List of top 25 customers by sales ranking (without names). Accounts receivable aging summary. Furniture, Fixtures and Equipment fair market valuation and description. Organizational chart. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 24. ADD-BACKS LENDER UNDERWRITING WILL NOT ACCEPT Automobile used in the business. Automobile fuel and repairs. Health insurance for the seller. Travel, Entertainment. Replacing more than one active owner. If seller owns the real estate, adjustment needed for FMV rent. Cell phones. Training. 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 25. ADD-BACKS THAT LENDER WILL ACCEPT FOR UNDERWRITING Extraordinary expenses, such as new HVAC unit. Moving. Paid-off equipment lease that will not have to be replaced anytime soon. Depreciation & Amortization. Interest. Family health insurance coverage (in some cases). Salary of Seller (1) 2 0 1 4 D O L A N S A L E S , I N C . 8 8 8 - 8 9 3 - 6 6 6 1 26. FUNDING THE TRANSACTION/ALTERNATIVES Unless a buyer has overwhelming financial strength, funding unavailable without an SBA Guarantee. Private Equity for transactions with SDCF over $900,000 and a strong upside potential. Seller financing (despite the risk). Selling a Note from the buyer (possible in certain cases, but not as clean). Green Card needed for