Want to Someday Sell Your Business? 5 Realities and How to Plan For Them! Control Your Exit Destiny by Creating More Options While You Still Have Time

Copyright © 2015 Ela Management Group 603-848-7194 1

Want to Someday Sell Your Business? 5 Realities and How to Plan For Them!

Control Your Exit Destiny byCreating More Options While You Still Have Time

John D. ElaCEO, Ela Management Group, [email protected]


1. Remember Why You Took ChargeAt Start-up Stage, Founders Say:• Be Your Own Boss• Pursue Your Own Ideas• Realize (Financial Or Psychic) Rewards• Build it and Sell it.• Change The WorldLater On, Successful Owner Managers Say:• For Family, Employees• For Business Legacy• For Personal Legacy, Now and Post Exit


2. Your Business Ownership Will Transfer • You cannot work or live forever.• You may want the business to continue

beyond you, for customers, employees, family, legacy, charity, etc.• You may want options.• You ultimately want to control the value

you created and determine how it is used.• Wasn’t your idea, when you started, to

build a great business and create wealth from that value?


3. “Hope and Someday” Is Not an Exit Strategy• Most business owners dream of someday selling• Few do anything about it until the end• Few know what their business is worth• Or, more importantly, how to increase the value• That often makes for an unhappy ending• 90% of businesses are never sold….

Your Company Does Not Have to Be one of Them!

Develop an Integrated Ownership StrategyFrom Day One


4. “Exit Planning” is Mentally Hard, Until You’re Really Ready.• We tell ourselves, exit planning is giving up on growth, but…• Waiting, reduces options • Waiting, allows circumstances to dictate• Waiting, eliminates your choices and control• Waiting, increases risk

Waiting Until You are Ready Makes it Much Harder

And Puts Control of Your Destiny at Risk


5. Planning For an Exit is Not “Exit Planning”• Typical exit planning begins following a trigger (health, divorce, downturn, etc.)

• Advisors are located. • Goals and available options explored, as circumstances dictate.• Value extraction commences (except for the 90%.)• The problem is…• Existing circumstances trump personal goals. • Reacting to circumstances limits options.• The so-called Exit Plan is just executing the inevitable, • After time has run out.

• If you do not plan for an exit, then typical exit planning is just reacting to circumstances


Most Businesses Plan At Some Level• Most Common Forms of Planning Include:

1. Business Planning / Budgets / Production Scheduling• How to get things done?

2. Strategic Planning• How to achieve growth by doing what our customers want better than the competition?

• Often Missing:3. Personal Strategic and Financial Planning

• What do I want out of My Life, My legacy, and How will I fund it?4. Ownership Strategic Planning

• How to Optimize your Legacies, Create and Capture Value of Your Business5. Exit Planning

• How to Best Structure the Best Deal Available for Your Needs

• The 5 Levels of Planning are “Integrated Ownership Planning”


Integrated Ownership Planning

• Without Integrated Ownership Planning, any other planning is flawed, by excluding some important goals.• Lower levels of planning are not informed and off target.• Integrated Planning increases the amount of value capture.• Strategic Planning doesn’t directly address Enterprise Value.• Businesses without Integrated Ownership Planning are less likely to

sell and have fewer options available.


1. Business Planning 101 – Get Work Done• Day to Day Planning For Execution• Budgets• Production Scheduling, ERP/MRP, Workflow• Sales Forecasting• Cash Flow Management• Product Development


2. Strategic Planning 101 – Do the Right Things• Mission• Values• Goals• Competitive Analysis• SWOT, Environmental Changes• Strategies• Tactics• Programs• Budgets – Feed 1. Business Planning for operational execution


Traditional Planning Cycle

Business Planning:Getting Work Done, Workflow, Budgets

Strategic Planning:Doing the Right Things,Mission, Values, Goals, Strategies, Tactics


Traditional Planning Ignores Planning For Exit

1. Business Planning

2. Business Strategic Planning

3. Personal Strategic Planning

4. OwnershipStrategic Planning

5. ExitPlanning Most Important

Areas of Planning Often Neglected

Strategic Planning is Done by Better Managed Companies

Business Planning is Done by Most Businesses


3. Personal Strategic Planning 101• Vision - Where Do You Personally Want To Be in X Years? • What Is Your Life Mission? Do You Have a Bigger Purpose?• Evaluate Your Situation• For Each Life Sector

• Assess Satisfaction on a scale of 1-10 • Identify Your SWOT – Strengths, Weaknesses, Opportunities and Threats

• Health• Work• Finances• Personal Growth

• Develop Personal Profile – Deeply Understand Yourself: Identity, Values, Strengths and Tendencies, Personality Profile, Needs, Wants, Etc.

Business Intermediaries Cite

Lack of Vision About Future Plans

As a Primary Reason Sellers Back out of

Deals

• Living Environment• Family• God/Spirituality• Community• Other


Life Wheel Self Assessment

1. Health2. Work3. Finances4. Personal Growth5. Community6. Living Environment7. Family8. God/Spirituality9. Other10. Other

Hea

lth

Work

Finances

Personal Growth

Comm

unity

Living Envir

onmentFamily

Spirituality

1. Assess Satisfaction on a scale of 1-10, with 10 being fantastic and 1 being a serious source of stress/pain.2. Plot using orange circle as a guide equaling 5 on scale.

Hea

lth


SWOT MatrixLife Sector Strengths Weaknesses Opportunities Threats

Health

Work

Finances

Personal Growth

Community

Living Environment

Family/Relationships

God/Spirituality

Other


Establish Personal Goals and Action Plans• Based on Self Assessment of Life Sectors,

SWOT, and Personal Profile• Develop Goals For Each Life Sector• Develop Action Plans, Or At Least First Steps

For Each Goal• Establish Some Measurable Targets• Track Results Over Time, And Revise Plan As

Satisfaction Changes In Life Sectors• Determine How to Align Business and Personal

Goals


4. Ownership Strategic Planning 101

• Strategic Planning is about creating value from the perspective of customers in light of competitive alternatives.• Ownership Strategic Planning is about creating and capturing

value of the firm from the perspective of the owner and a future buyer.• The goals, values, strategies, and tactics that result from both

types of planning can be related, but also quite different. • Ownership Strategic Planning is often put on the back burner.

Strategic Planning isCustomer Centric

Ownership Planning isOwner Centric


Ownership Strategic Planning – Building Enterprise Value, AND Meeting Personal Goals

• What Are Owner’s Goals For Business, Family, And Life Post Exit?• Is The Owner Emotionally Ready To Exit? What Will That Take?• Is The Owner Financially Ready To Exit? What Will That Take?• Is The Owner’s Wealth Protected Prior To Exit With Deferred Comp, Life Insurance,

Buy/Sell Agreements, Trusts, Etc.?• Does The Firm Have Recurring Revenue? Can It Create Recurring Revenue?• Is The Business Structured To Operate Smoothly Without The Owner Or Key Employees?• How Strong Are Management Alignment And Business Systems?


What is Enterprise Value?• Enterprise value is what A buyer says it is, but can be estimated.• Buyers always base value on expected discounted future cash

flows (CF)• Enterprise value = assets at market value + goodwill• Goodwill = present value of future expected CF, in excess of

assets ROI• So, key to maximizing value are credible forecasts of future CF• Remember, the value to owner is what you keep after tax. Deal

structure is critical.


What Makes Credible CF Forecasts?Many Variables That Can Be Managed• Comparison of past performance vs. Projections under new ownership• Restate past earnings to adjust for ownership payments beyond market rate

compensation• How critical is departing owner to current performance?• How competent is management team? Does comp plan foster retention?• How stable has CF been? Have investments been delayed?• How strong is brand?• Is there compelling IP that is not easily replicated?• Is the industry trending up?


Ownership Planning Action Areas:• Capture Some Wealth Outside of Business Along The Way.• Mitigate Personal and Business Risk, Financial Controls, Insurance.• Strengthen Management Team and Alignment, Golden Handcuffs.• Improve Employee Engagement / Accountability.• Establish Business Systems, Budgeting, Planning to Show Scalability. • Sustainable CF and Controls, Develop Metrics Including CF and

Restated CF/EBITDA.• Strengthen IP.• Strengthen Brand, Value Proposition.• Focus Growth Strategy, Specialize.


5. Exit Planning and Strategy – Structuring the Deal• Ownership Planning Precedes Exit Planning, Which

Has Become The Term To Describe Advice About Deal Structure For Ownership Transitions. • That Is A Complex Process That Needs A Team Of

Advisors With Specific Expertise: Legal, Tax, Accounting, Appraisers, Wealth Managers, Management Consulting, Intermediaries, Etc.• One Team Member, Already A Trusted Advisor,

Usually Helps Pull Together The Team And All Go To Work On The Sale Of The Company.• Historically, The Driver Was A Wealth Manager Or

Intermediary Just Prior To Transaction.


Typically, Exit Strategy Experts Focus On Your End Game, At The End Of The Game• This approach is flawed because at the end of the game, these

experts can only react to the situation they find. They may do a great job, and that is what you’ve hired them for, but without prior Ownership Strategic Planning it is a missed opportunity.

At the End, It is too late to create the situation as you want it to be, and it is too late for many options.

Ownership Planning Must Come Earlier.


Exit Options• Sell to Insiders, Buyers Without Cash:

• Family, Key Manager, ESOP

• Sell to Outsiders, Buyers With Cash: • Financial Buyer, Strategic Buyer

• Gift• Donate• Partial Sale, 2nd Bite of Apple

• ESOP, Charitable Trust, PEG Recap,

• Liquidate Assets, Sell For Whatever You Can• Short Term Life Style Model, Bleed Off Cash and Close• IPO (Becoming Rarer)• Various Combinations of Above Options

There are many ways to Exit


How Do I Know Which Exit is Right For Me?


The 5 Levels of Integrated Ownership Planning

1. Business Planning

2. Business Strategic Planning

3. Personal Strategic Planning

4. OwnershipStrategic Planning

5. ExitPlanning Most Important

Areas of Planning Often Neglected

Strategic Planning is Done by Better Managed Companies

Business Planning is Done by Most Businesses

IOP Lets You Shape Your Exit Readiness and Options


Exit Readiness Recognizes Your SituationW

ell Off But Chooses to Work

Stay and Grow the Business

I’ve Had Enough, Get Me Out at The Highest Price

Exit Planning

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ss High

Low

Low HighEmotional Readiness

Based on: Exiting Your Business Protecting Your Wealth, John Leonetti


Exit Readiness Also Defines Your OptionsM

anagement Buyout, Gift, ESOP, Stay Involved

Gift, Charity, ESOP, Sell To Insiders or Outsiders(All Options Available)

Sell Business At The Highest Price, As Is, To Outsiders, Run Away

Exit Planning

Fina

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ss High

Low


Based on: Exiting Your Business Protecting Your Wealth, John Leonetti


IOP Creates Your Situation and Expands Your OptionsI

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I have done integrated planning and maximized my options

Exit Planning

Fina

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OOPS! Time to Punt


Summary• You Will Transfer Ownership of Your Business, So, Do It Right!• Integrated Ownership Planning (IOP) Controls Your Professional and

Personal Destiny• “Plan For The Harvest as You Tend the Crop.”• IOP Helps Owners Plan for Exit, instead of a Reactionary Exit Plan.• IOP Guides You to Develop the Circumstances You Want.• Start IOP Planning Early, Even From the Beginning.• Work The Plan, Annual Review.• Depart On Your Terms With a New Life Mission and Resources to

Succeed. • Be Happy. Control Your Destiny and Write The Next Chapter of Your Life.


Thanks For Attending

• Please use BF Bootcamp App to rate speakers• Contact:

John D. ElaEla Management Group, LLC

603-848-7194John@ElaManagementGroup.comWWW.ElaManagementGroup.com

http://www.elamanagementgroup.com/

Documents

Want to Someday Sell Your Business? 5 Realities and How to Plan For Them! Control Your Exit Destiny by Creating More Options While You Still Have Time