preparing to buy or sell? topics and tips for a successful transition
TRANSCRIPT
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Preparing to Sell? Topics and Tips for a Successful
TransitionPresented By
Kurt M. Trimarchi, CPA, CM&AA – Managing Partner
David B. Blain, CPA, CVA - Partner
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Kurt Trimarchi• CPA, CM&AA
• Managing Partner
David Blain• CPA, CVA
• Partner
About Us
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Webinar Agenda
This webinar will focus on key concepts in planning and preparing for a business transition.
The webinar will focus on addressing:• Preliminary planning and preparation for transition.
• Understanding business value.
• Tax consequences and tax structuring matters.
• Pitfalls to avoid and be aware of.
• Other unintended consequences.
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Begin With The End In Mind
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What should you do in advance of selling your business?
• Financial Reporting
• Team
•Valuation
• Structure
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Team
1. Third Party Support – Business/Transaction Advisory, Attorney, CPA/CVA.
2. Internal Team – Senior management, key operations personnel, finance/accounting.
3. Other Trusted Advisors
Having the right team of professionals is key to a successful transition.
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Financial Reporting
1. Review Financial Reporting Dept. and Internal Control Environment.
2. Consider an Audit (especially for financial buyer).
3. Quality of Earnings – EBITDA and Cash Flow.
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Cash Flow
• Usually defined as Free Available Cash after all expenses have been paid.
• Expenses would include all operating expenses including taxes, interest on debt and capital requirements.
• Free cash flow does not include depreciation and amortization – non-cash items.
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Free Cash Flow Calculation
Scenario 1
Revenue $1,000
Operating Expenses ($500)
Taxes ($100)
Interest on Debt ($50)
Capital Assets ($100)
Free Cash Flow $250
Scenario 2
Revenue $2,000
Operating Expenses ($1,500)
Taxes ($100)
Interest on Debt ($150)
Capital Assets ($100)
Free Cash Flow $150
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Cash Flow Analysis
• From the valuators perspective, scenario 1 provides more value – More free available cash from that business model.
• Value could be impacted by discount rates but overall the free cash flow drives value.
CASH IS STILL KING
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Valuation Consideration
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What is Business Valuation?
Establishing the Value of an Asset
• Tangible Asset Valuation• Building and Land
• Equipment
• Intangible Asset Valuation• Goodwill
• Trademark
• Customer Lists
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Asset Approach
• Adjust assets and liabilities to Fair Market Value.
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Market Approach
• Comparable transaction data.
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Income Methods
• Capitalization of benefits method -- if stable.• Cash flow/ EBITDA• Benefits = cash flow
• Discounted future benefits -- when earnings are not stable.
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Pre-Sale Ownership Structure Review
1. Review Current Ownership Structure for Planning Opportunities and Risk Management (Jurisdiction Shifting and Valid S Election)
2. Review Entity Type
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What do the different types of tax structures mean to me?
Traditional Structures
1. Asset
2. Stock
3. 338(h)(10)
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Transition Within the Family
1. GRAT
2. IDGT
3. IDBT
4. GIFT
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Pitfalls and Consequences
• Be honest about your business.
• Use highly qualified professionals.
• Communicate, communicate, communicate.
• Begin with the End in mind.
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Kurt Trimarchi• CPA, CM&AA
• Managing Partner
David Blain• CPA, CVA
• Partner
Questions?
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Building SuccessfulEmployee Relationships
A Cornerstone to Fraud Prevention
and Risk Management