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  • Slide 1
  • Presentation Title Goes Here Presenter Name Presenter Title Here
  • Slide 2
  • Succession by Design Bob Ward WARDden LLC A blueprint for wealth creation and business continuity
  • Slide 3
  • Succession One After the Other When businesses are built to endure, everyone wins: Retiring Owners Successor Buyers Employees Customers Communities
  • Slide 4
  • Every Business Needs a Plan Family Wealth Preservation Business Continuity Intentional Results vs. Chaotic Consequences Realization of Enterprise Value A Rewarding Legacy
  • Slide 5
  • Reasons to Get it Done Now Your business survives even if you dont Provides for your spouse and familys security Reduces employee turnover Increases profitability Your business is always ready for sale Time is an asset let it work for you
  • Slide 6
  • Business Continuity Activation Operational Authority Employee Retention Financial Stability System Operations Professional Resources
  • Slide 7
  • What is Your Business Worth? Assets at FMV + (Enterprise Value x Market Multiple) = Sale Value
  • Slide 8
  • Assets at Fair Market Value Accounts Receivable: Percent collectable Inventory: Cash return parts @100%, balance will be discounted to marketability Furniture, Fixtures, Equipment: Value at auction Any business debt assumed by a buyer will be subtracted from assets value to arrive at Net Assets being purchased
  • Slide 9
  • Enterprise Value Enterprise value is the cash flow generated by your people, utilizing the assets, and represents an investors Return On Investment Cash Flow = Net Income + Adjustments
  • Slide 10
  • Compelling Inspiration The growth and development of people is the highest calling of leadership. It is only as we develop others that we permanently succeed. Harvey Firestone
  • Slide 11
  • Adjustments to Cash Flow 1.Interest, Taxes, Depreciation, Amortization 2.Personal items expensed to the business 3.Non-recurring extraordinary items 4.Owner lease payments above or below market rate 5.Owners salary & benefits above or below replacement rate
  • Slide 12
  • Owners Pay Normalization 1.Owner ($50,000) is NOT REQUIRED for the successful operation of the business No replacement required: Add $50,000 to Cash Flow 2.Owner ($36,000) is REQUIRED for the successful operation of the business Market rate for replacement is $50,000: Subtract $14,000 from Cash Flow
  • Slide 13
  • Summary - Enterprise Value Net Profit As Reported$80,000 Interest Expense$5,000 Depreciation$10,000 Owner Underpaid (required staff)-$14,000 Personal Gas, Maintenance, Insurance, Cellphones, Cable$10,000 Lease Payment in Excess of Market$9,000 Net Profit As Adjusted (True Cash Flow) Enterprise Value$100,000 Cash Flow = Net income + Adjustments
  • Slide 14
  • Market Multiple A multiple (premium) of enterprise value (cash flow) that a buyer would pay in exchange for the required risk-adjusted return on invested capital Security and consistency of cash flow drives the multiple (e.g. 0 4 x $100,000) $000,000 - $400,000 Lower Risk Influences a Higher Multiple
  • Slide 15
  • Market Multiple Key Influencers Site Security: Lease Terms; Option to Purchase; FROP; FROR Revenue Trend: Company and Industry Comparable (3 years) Profit Margin Trend: Company and Industry Comparable Employee Stability: Key Employee Tenure and Responsibility Owner Autonomy: Operational Independence from Owner
  • Slide 16
  • Audience Reality Exercise - A Site Security: Lease 3y + 5y; P-Option(N), FROP/FROR(N) Revenue Trend: +2%-7%+4%+3% Profit Margin Trend:-4%-6%+9%+1% Employee Stability: 8 EEs: Average Tenure = 3.5 years Top 2 positions: #1 = 2 years and #2 = 4 years Owner Autonomy: Works 50 hours week as Manager
  • Slide 17
  • Audience Reality Exercise - B Site Security: Lease 3y + 15y; P-Option(N), FROP/FROR(Y) Revenue Trend: +5% +9% +9% +12% Profit Margin Trend:+7% +8% +12% +10% Employee Stability: 8 EEs: Average Tenure = 7 years Top 2 positions: #1 = 12 years and #2 = 14 years Owner Autonomy: Works 15 hours week Coaching Staff
  • Slide 18
  • Audience Reality Exercise - A Site Security: Lease 3y + 5y; P-Option(N), FROP/FROR(N)1 Revenue Trend: +2% -7% +4% +3%1 Profit Margin Trend:-4% -6% +9% +1%1 Employee Stability: 1 8 EEs: Average Tenure = 2.5 years Top 2 positions: #1 = 2 years and #2 = 4 years Owner Autonomy: Works 50 hours week as Manager0
  • Slide 19
  • Audience Reality Exercise - B Site Security: Lease 3y + 15y; P-Option(N), FROP/FROR(Y)3 Revenue Trend: +5% +9% +9% +12%3 Profit Margin Trend: +7% +8% +12% +10%3 Employee Stability: 4 8 EEs: Average Tenure = 7 years Top 2 positions: #1 = 12 years and #2 = 14 years Owner Autonomy: Works 15 hours week Coaching Staff4
  • Slide 20
  • Audience Reality - Results Enterprise Value = $100,000Business ABusiness B Site Security13 Revenue Trend13 Profit Margin Trend13 Employee Stability14 Owner Autonomy04 Indicated Market Multiple4 / 5 = 0.818 / 5 = 3.6 Suggested Enterprise Value$80,000$360,000
  • Slide 21
  • Compelling Inspiration Outstanding leaders go out of the way to boost the self-esteem of their personnel. If people believe in themselves, its amazing what they can accomplish. Sam Walton
  • Slide 22
  • What is Your Business Worth? Assets at FMV + (Cash Flow x Market Multiple) = Suggested Value
  • Slide 23
  • Build a Valuable Enterprise Define your objective What do you want? Work each day with the end in mind Build the business to operate without you Hire Partners Not Employees Ensure Your Succession
  • Slide 24
  • Exit Options Liquidation Unsolicited Outside Buyer Brokered Sale Inside (Employee) Buyer
  • Slide 25
  • Financing Options 1.Purchaser Cash 2.Bank Financing: Assets x (75% - 85%) 3.Owner Financing Cash / Equity Accumulation / Bank Financing Succession Creativity
  • Slide 26
  • Comparing Two Options $400,000 Cash Payment You invest @ 5% for 10 years = $200,000) = $600,000 Succession Creativity Cash / Equity Accumulation / Bank Financing Sell 5% a year for 10 years; Bank assists balance financing $200,000 + $725,000 dividends + $200,000 cash out = $1,125,000 (plus earnings on payments)
  • Slide 27
  • Letter of Intent Formal Handshake Sale Terms Conditions Contingencies Property Sale or Lease Terms
  • Slide 28
  • Succession Plan Killers Losing focus of the goal Procrastination Unrealistic expectations Business not ready for sale Skepticism, mistrust, selfishness Time Progress too slow Enthusiasm wanes
  • Slide 29
  • Succession in Real Life Doug Knutzen Long Beach, Washington Millie Showers
  • Slide 30
  • Succession in Real Life Steeleville, Illinois Matt & Andrea Mevert
  • Slide 31
  • Homework Assignments Decide what you really want in your life Maintain a Business Continuity Plan Maintain a Business Profile (Always ready for sale) Build your business to operate without you Dont hire employees cultivate Partners Plan your succession Have the essential conversation with your staff
  • Slide 32
  • The Essential Conversation Key Employee, Im working on my plan for the future of (business) and my retirement one day. Youre an important part of that planning and I want to know whats important to you and your family. Where do you want to be in the next 5 10 years? What are your aspirations?
  • Slide 33
  • Compelling Inspiration The greatest good you can do for another is not just to share your riches, but to reveal to him his own. Benjamin Disraeli
  • Slide 34
  • Its Time to Begin Perpetuating Successful Small Business in America
  • Slide 35
  • WARDden LLC - Resources Subscription Newsletters Monthly Educational Inspirational Succession In Real Life Subscription Newsletters Monthly Educational Inspirational Succession In Real Life
  • Slide 36
  • WARDden LLC - Resources Hands On, Peer Group, Case Study Workshops Online Video Library Personal Consulting Your business, your future Well help you get it done.
  • Slide 37
  • Compelling Inspiration The essence of competitiveness is liberated when we make people believe that what they think and do is important and then get out of their way while they do it. Giving people self-confidence is by far the most important thing that I can do because, then they will act. Jack Welch
  • Slide 38
  • Thank You!
  • Slide 39
  • Succession by Design Bob Ward WARDden LLC A blueprint for wealth creation and business continuity
  • Slide 40
  • Seminar Presentations Available for Download Until June 10, 2015 Seminar Website: https://napa.filecamp.com Username: EXPO Password: Seminar https://napa.filecamp.com

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