Maximise the value of your business - Business Succession

Maximise the Value of
Your Business
Craig West
B. Bus (Mgmt.), M. Bus (Acct/Finance), M. Tax Law, CPA, CEPA

The average age of a
senior entrepreneur in
2016 is 57 (up from 55 in 2010)
( ABS – 2015 )

76 % of business owners plan to transition over the next 10
years.
66 % do not have a formal succession plan in place.
80 % of businesses put on the market do not sell.
12 months after selling - 3 out of 4 business owners surveyed
“profoundly regretted their decision.
( State of owner readiness survey 2016 – EPI )

Source: 2016 State of Owner Readiness Survey
Internally (family
succession)
22%
Externally (3rd
party)
12%
Not sure
50%
Other
16%
WHAT BEST DESCRIBES YOUR COMPANY'S
TRANSITION PLAN?

76%
Are not familiar with all
the exit options that are
available
50%
Have done no planning
at all
Business Planning
18%
Have had a formal
valuation in the
last 2 years
56%
Feel they have a
good idea of what
their business is
worth
How prepared are business owners generally?
Business Valuation
BUT
Source: 2016 State of Owner Readiness Survey

Baby Boomers – the 18 year wave
(Australian Bureau of Statistics, 2014)

Since 2008, half
of business
owners over 50
have delayed
their retirements
due to the GFC.

of business owners have not prepared
adequate funds for retirement.
(Up from 31% in 2010)
(HSBC Future of Retirement Report 2015)
(Based on a male turning 60, female would be 29.1 more years)
(Intergenerational Report, 2015)
If you turn 60 today, your life expectancy
is now 26.4more years.
>45%

Why business succession and exit
planning?
50% of all business exits are not voluntary
(2016 State of Owner Readiness Survey)
Causes of exit include:
- Death
- Disability
- Divorce
- Distress
- Disagreement

“if you want to have a successful
enterprise, you clearly define what
you’re trying to accomplish…. the
extent to which you begin with the end
in mind often determines whether or
not you are able to create a successful
enterprise.”
Stephen Covey
(1932-2012)

Well known author Michael Gerber
on exit planning – “Having an exit
strategy is the ball game for any
entrepreneur… the idea is simply to
build, grow and sell – whether sell
means list, pass on to family, merge,
sell to employees or trade sale,
there has to be a strategy!”

Business Exit Rates 2014-2015
19%
13%
7%
4%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
$0-$50k
$50k-$200k
$200k-$2m
$2m or more
Business Exit Rate by Annual Turnover
(Australian Bureau of Statistics 2016)

Buyer Demand for Individual Businesses
(Australian Business Brokers Survey 2014)

Business Succession and Exit
Planning
Combining the Business,
Financial and Personal
goals of business owners
to design and implement a
strategic exit.

Stage 1: Identify Value
Stage 2: Protect Value
Stage 3: Maximise Value
Stage 4: Extract Value
Stage 5: Manage Value

Stage One:
Identify Value
STEP 3: Stage One Report-
INSIGHTS
STEP 2: Fact Find
STEP 1: Goals and Outcomes

Benchmarking
$269,858
$88,894
$41,592
$25,595
$384,352
$80,477
$63,969
$50,224
$251,971
$162,002
$48,676
$34,431
$- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000
Totalincomeper
feeearner
Totalincomeper
person
Netprofitperfee
earner
Netprofitper
person Income KPIs
High Turnover Firms
High Profit Firms
This firm

Your Profit Gaps
relative to the
Most Profitable firms
Allows us to
work out…

Your total Profit Gap …
as a % of current profit level

Due Diligence
Checklist of all vital information:
• Financials, tax returns, BAS.
• Legal – licenses, leases , employment
agreements.
• Policy & Procedures / Systems.
• Intellectual Property – patents, trademarks.

Analysis presented in the
form of a Stage One Insight
Report
Stage One Insight Report
presented in a face-to-face
workshop including:
•Strategic Overview
•Financial Analysis
•Cash Flow Analysis
•Sustainable Growth
•Credit Assessment
•Benchmarking Analysis
• Profit Gap Analysis
• Non-Financial Results
• Sale Readiness-Attractiveness
• Non-Financial KPI Commentary
• Valuation Summary

XYZ Pty Ltd XYZ Pty Ltd XYZ Pty Ltd XYZ Pty Ltd XYZ Pty Ltd
as of today
after closing the
profit gap
after achieving
best in class (EBIT
of 12%)
if attractiveness is
improved
if sold to a listed
company or a
strategic exit
Revenue $6,514,811 $6,514,811 $6,514,811 $6,514,811 $6,514,811
EBIT $347,591 $570,555 $781,777 $781,777 $781,777
Multiple 3.7 3.7 3.7 4.5 5.0
Valuation $1.3M $2.14M $2.93M $3.52M $3.91M
$1,301,756 $1,301,756 $1,301,756 $1,301,756 $1,301,756
$840,000
$1,630,000
$2,220,000
$2,610,000
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
Valuation as of today Valuation after closing
the profit gap
Valuation after
achieving best in class
(EBIT of 12%)
Valuation if
attractiveness is
improved
Valuation if sold to a
listed company or a
strategic exit
Value enhancement Value today

Stage Two:
Protect Value
STEP 6: De-Risking
STEP 5: Unplanned Events
STEP 4: Financial Planning

• $$ funding gap – Have I got enough to retire ?
• How much impact will taxation have on my retirement ?
• Have I got a Self Managed Super Fund ?
• How do I want my estate handled ?
• What other investments do I have ?
STEP 4: Financial Planning

•What happens if you get hit by a bus ?
• Certainty of outcome is key:
• Shareholders agreements
• Buy-sell agreement/s
• Funding arrangements
• Insurances
STEP 5: Unplanned Events

What do you want from your business
in 5-10 years?

Income vs Equity
“The proper man understands
equity- the small man, profits”
Confucius
551 – 479 BC

Maximise Value
Job vs. Business
Can you leave your
business for
- Days?
- Weeks?
- Months?
How can you add value
to your business?

STEP 10: Systems and
Procedures
STEP 11: Marketing and Sales
STEP 12: Corporate Governance

STEP 10: Systems and
Procedures

• Board of directors
• Advisory board
• Independent directors
STEP 12: Corporate Governance

Monthly Reporting
Package
March 2016 Dashboard Report

STEP 13: Employee
Engagement
•PPA Testing
•Open-book
Management
•Incentive Plans

Ladder to Equity
1. Income
2. Incentive – commission
3. Profit Share - % profits
4. ESOP – Equity
5. Control / Management

A structure to allow
employees to think and act
like business owners by
matching the performance
of the business with their
ability to build equity.
STEP 14: Peak Performance
Trust

Peak Performance Trust to fund:
• Profit share based on performance
• Profit used only to fund purchase of business by
same key employees
• Employee retention
• Improved performance and increased value

STEP 15: Management
Succession

Strategy for successful succession
Existing CEO/Partners
Gradually reducing
involvement
New CEO/Partners
Gradually increasing
involvement
Systems / Processes

Net proceeds is the important $
• CGT – small business concessions
• Structures – who owns assets –
before and after
• Other costs - legal, accounting,
other fees
STEP 16: Tax Planning

Multiples for Businesses Sold
between $1 mil and 4 mil
(Australian Business Brokers Survey 2014)
STEP 18: Liquidity Event

Strategic Sales
"Price is what you pay
Value is what you get "
Warren Buffett
1 + 1 = 3

Strategic Valuation Examples
Microsoft to Acquire LinkedIn
for $26.2 Billion
By JAY GREENE
Updated June 14, 2016 12:58 a.m. ET
Microsoft Corp. snapped up LinkedIn Corp. for $26.2 billion in the largest
acquisition in its history, betting the professional social network can rev up the
tech titan’s software offerings despite recent struggles by both companies.
The deal is Chief Executive Satya Nadella’s latest effort to revitalize Microsoft.
Mr. Nadella hopes the deal will open new horizons for Microsoft’s Office suite
as well as LinkedIn, both of which have saturated their markets, and generally
bolster Microsoft’s revenue and competitive position.

Apple acquires start-up Turi for
reportedly $200 million
By Jake Smith for iGeneration | August 7, 2016
Apple has acquired Seattle-based machine learning and artificial
intelligence startup Turi for around $200 million, as it looks to battle
Google, Amazon and Facebook in the artificial intelligence space.
The iPhone giant's shift into artificial intelligence was discussed by Tim Cook, CEO of Apple, on the
company's earnings call in July.
"We have been and continue to invest a lot in this," Cook said. "We are high on augmented reality
for the long run."

Marriott International and Starwood Hotels shareholders on Friday voted in favor of a deal that will
create the world’s largest hotel company. Marriott is paying about $12.4 billion to buy Starwood.
Shareholders will receive 0.8 shares of Marriott common stock plus $21.00 in cash.
Starwood, which owns brands including Westin, St. Regis, Sheraton, and Four Points, agreed to be
bought by Marriott in November.
IT'S A DEAL:
Marriott and Starwood are merging
into the world's largest hotel company
PORTIA CROWE
APR 9, 2016, 1:47 AM

Source: Pitchbook Q1 2014 for ALL buyouts
Valuation: EBIT Multiples

Historical ASX average 13.73 x
Private companies average 2.5 x
The value gap is called
“private to public arbitrage”
Private to Public Arbitrage

The total value of transactions
increased 35% over the previous
year to US$736 billion.
8.8 * earnings before interest and
taxes (EBIT) average
Offshore Buyers

To achieve a higher sale price, it’s much smarter to
focus on HOW to sell and WHO to sell to, rather
than trying to increase profit.

• Last $$ you will ever earn !
LIFE AFTER
BUSINESS ?
STEP 19: Ongoing Investment
Planning

• Now a different problem
• Illness, divorce, children
STEP 20: Asset Protection

• Update wills
• Enduring power of attorney
• Philanthropy – charitable foundations
STEP 21: Estate Planning

Real Estate
Real estate office in NSW
Combined commercial office and residential sales: Central
Coast
3 owners
Not in a rush to exit
Business Value approx. $2.4 m
14 employees

Outcomes
• Implemented Peak Performance Trust (Engaged and
motivated 5 key staff with equity plan)
• Reduced risk – staff retention
• Asset protection & risk management - Insured for
unplanned events
• Tax and CGT advice
• Wealth outside business structure (transfer premises
into SMSF)
• ESOP of the year award – 2010.

Valuation Services
 Australian-based valuer of plant and equipment.
 Family owned business – owner looking to retire.
 Sale of business to strategic buyer – AON – on
revenue multiple - with upside ( 12.5% uplift in final
price paid ).

Environmental
Consulting
Strategic advisory
Corporate governance
Employee Share Ownership Plan (ESOP)
Management succession

What Next?
Further information on our website:
www.successionplus.com.au
Arrange a free 90 minute review
Craig West
1300 665 473
cwest@successionplus.com.au
Follow us on:

Maximise the value of your business - Business Succession

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

En vedette

En vedette (7)

Similaire à Maximise the value of your business - Business Succession

Similaire à Maximise the value of your business - Business Succession (20)

Plus de Craig West

Plus de Craig West (12)

Dernier

Dernier (20)

Maximise the value of your business - Business Succession