Jeff Christensen & Holly QuinnNENEDD Business Loan Specialists

Economic Development Financial ProfessionalsAccredited Business Planning Advisors

How to Plan a Successful Business Exit

Exit & SuccessionWhat it means to your Family, Community

and Region

Challenges

Exit Opportunities

Who can Help & How

Lessons LearnedWhat can go wrong?

1st Attempts Often FailWrong PriceBuyer not Qualified

Work With Experienced AdvisorsExplore All Exit OptionsBusiness Value

Buyer NeedsRoom for Improvement

Last Minute NegotiationsFailing to Plan….Planning to Fail

The Coming Wave

Where Are Things HeadedImpacts on the Local Community

What’s started

Impact – What are the FactorsBusiness Owners are Aging52-70% of Business Owners will leave by

2017Small 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

AlreadyRetirement is on Hold….Hope to Sell at a Later

Time

Impact – What are the Factors

Outside Factors will Force an ExitLess Financing AvailableBanks have tightened Lending Practices

Due to RegulationsFewer Entrepreneurs and BuyersLack of Qualified Buyers

Buyer Lives Elsewhere – Profits Leave Community Absentee Owner

Local Owners = Local Wealth

Uncontrollable & Risky

Family Succession can by risky65% of Family Successions FAIL

80% within the 1st 2 yearsDo Family Members want the Business?

Not all Exits can be controlledOwner is Key Employee – Forced Early Exit

Illness, Disability, Death

Goals

Maximize Number of Exit Opportunities

Maximize Business Value

Minimize Cost of Exit

BuyersBusinesses are Sold to Individuals

Seeking a Life StyleBuying a Job

Buyer are Looking for:Bragging RightsA Good Deal

Good Management Up to Date Inventory Website/Advertising/Marketing Curb Appeal

Business ValueValue of Business

20% of Business Owners Undervalue their Business Leaving Money on Table

Business Must be Priced CorrectlyOver Priced to Cover other ExpensesBuyers Consider Sale Based on Past

Performances Future Performance/Earnings

Excess Market Time = Increased Risk Loose Clients, Employees, Suppliers

Fair Market Business Valuation

Required for a Qualified Business Deal70% of Businesses don’t sell

Seller isn’t MotivatedFinancials in Disarray

Unreported income Self Accounting System

Using Business to Pay for Items not Related to the Business

Business Owner’s Goals

Maximize BenefitsMinimize TaxesLook for all Cash Deal

No owner FinancingLittle or no GoodwillMaximum Sales Price

Success - OpportunityBuyer wants more Success

Looking for Opportunity – not repetitionSeller must be Truthful

Need to fix Financial IssuesSeasonalityEmployeesContractsLease/Ownership of Building

Financial Demands

Business Must Meet 3 Financial Needs

1. Return On Equity

2. Pay New Owner Salary & Benefits

3. Make Loan Payments

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

Financing80/20%Required Equity Injection

SBA or USDA GuarantyLender RequirementsVolatility of MarketType of Business

Financial Information – Past 3 yearsIncome & Expense StatementsBalance SheetAccounts Payable & Receivables

Business ReorganizationChange OperationDemonstrate OpportunityReduce ExpensesReduce Excess CompensationRefrain from Discretionary SpendingSimplify Financial ReportingReport ALL Income

Unreported Income $50,000/year – saves approx $20,000 on

taxesReporting Income Increases Cash Flow

Increases Business Value at Time of SaleTwo Times Business Owner gets Money

Operating the BusinessTime of Sale

Additional Purchase Price of the Business$10,000 Additional Financing RequiredLeaving $40,000 Additional Cash Flow

NENEDD’s Business Transition & Success Program

Work with NBDC Offer 9 Exit Opportunities

Process Requires TeamworkRole is a Coach

Work with Existing Advisors CPA, Attorney, Banker, etc.

Compliment Current Advisors Provide Additional Resources Everyone Works Towards the Same Goal