Mike Trabert, CPA, CVA, CMAP, CEPA, CM&AA Event: Tax Changes, Family Succession Planning & Your Business (August 20, 2018)

1. Value Acceleration/
Succession Planning
(Maximize Your Multiple)
Mike Trabert, CPA, CVA, CMAP, CEPA, CM&AA
August 20, 2018

2. 2
Mike Trabert
CPA, CVA, CMAP, CEPA, CM&AA
• Mike leads Skoda Minotti’s Value Acceleration/Exit Planning Group, as
well as the firm’s Transaction Advisory Services Group
• He is a Certified Valuation Analyst, Chartered Merger and Acquisition
Professional, a Certified Exit Planning Advisor and a Certified Merger and
Acquisition Advisor
• Mike graduated from Kent State University in three years where he
received his Bachelor of Business Administration degree in accounting
• He is chair of the Leading Edge Alliance (LEA) Certified Exit Planner
Advisor Group
• He is President of the Northeast Ohio Chapter of the Exit Planning
Institute
• Mike was recognized in the National Register’s Who’s Who in Executives
and Professionals
• He has been recognized as the 2017 Exit Planner of the Year by the Exit
Planning Institute
• He is co-chair of the LEA Family Business Special Interest Group
• He is a frequent speaker nationally and internationally
• Mike has attended a regular season Major League Baseball game in over
60 venues
Skoda Minotti
Cleveland, Ohio
440-449-6800
mtrabert@skodaminotti.com

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Agenda
• Market Perspective
• The Owner Challenge
• Value Acceleration Methodology
• Five Stages of Value Maturity
• Exit Readiness

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CHANGE THE
OUTCOME
FOR BUSINESS OWNERS

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Historical Transition
Success Rates
• 70-80% of businesses put on the market don’t sell
• Only 30% of all family-owned businesses survive into the
second generation
• 12 months after selling, 75% of business owners
surveyed “profoundly regretted” the decision

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Within six years, ALL baby-
boomers will be over 60
years old
Own 63% of the 6M private
businesses in U.S.
80-90% of their wealth is
tied up in their businesses
EPI research confirms: 48%
in the next five years; 76%
plan to transition over the
next 10 years
The Age
Wave
4,500,000
Businesses
$10 Trillion
in Wealth

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What Can You Do?
• Build a system that positions the business for a successful
transition in good times or bad
• Identify what you already have
• Initiate steps to mitigate risk
• Build value
• Position the business so that
you can unlock the wealth

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What Is Exit Planning?
Exit planning is business strategy.
• Build, harvest and preserve wealth
• Focus on enterprise value
• Simplify the process and clarify the roadmap to success
• Integrates the “three legs of the stool” into one Master Plan
PARADIGM SHIFT

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Owner Paradigm Shift
From To
Future Present
Business Personal, Financial and Business
Income Value
Individuals Team
Project Process
Plans Actions
Tangible Assets Intangible Assets
Tax Number Real Number
Owner Stakeholders

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Always Be Ready to Transition
• The 5 Ds
1. Death
2. Disability
3. Divorce
4. Disagreement
5. Distress
• Unsolicited offer to sell

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Value Acceleration
A proven process that focuses on value growth and
aligning business, personal and financial goals
• Integrates the three legs into one Master Plan
• Is grounded in ACTION
• Promotes use of teams in an engaging process
• Creates a roadmap to success
• Provides owner key deliverables and metrics
• Creates a Leap in Value

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Core Concepts
• 5 Stages of Value Maturity
• 4Cs
• 3 Legs of the Stool
• Relentless Execution

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Value Acceleration Process

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Value Maturity Index
5 Stages to
Identify, Protect,
Build, Harvest
and Manage
Value

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Stage 1: Identify Value
MULTIPLE
CASH
SALES
X =
You control You control some
Predictable Cash Flow
Clean Balance Sheet
Size Matters!
Private Capital Market Conditions
Terms / Exit Option
Intangibles (Value Factors)
Simple Math

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Tangible Versus Intangible Assets
Can you measure
the value of your
intangible assets?
Traditional
accounting systems
are set up to
provided regular
feedback on tangible
assets…
…yet, your intangible
assets are the direct
drivers of business
attractiveness.

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Most Valued Companies
What do
these
companies
have in
common?

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Stage 2: Protect Value
Types of Risks
• Business risks
• Financial risks
• Personal risks

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Stage 3: Build Value
What are you doing to
build value?

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What is Intellectual Capital?
“…the sum of everything
everybody knows that gives it a
competitive edge.”
– Thomas A. Stewart

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The 4Cs
Human
Capital
Structural
Capital
Customer
Capital
Social
Capital
What builds strong capital?

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“Inside”
• Intergenerational Transfer
• Management Buyout
• Sale to Existing Partners
• Sale to Employees
Stage 4: Harvest Value
“Outside”
• Sale to Third Party
• Recapitalization
• Orderly Liquidation
Two General Categories for Ownership Transition

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Stage 5: Manage Value
Checklist for Estate Planning and Personal Financial Preparation
______ Review estate documents and updates as needed
 Will
 Revocable trust (A/B trust)
 Financial power of attorney
 Healthcare power of attorney
 Living will
______ Review life insurance policies
 Determine appropriate coverage amount
 Beneficiary designations – verify in-sync with estate documents
 Policy performance
______ Review all retirement account / pension beneficiary designations –
verify in-sync with estate documents

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Checklist for Estate Planning and
Personal Financial Preparation
______ Retitle assets to avoid probate and maximize use of estate
exemptions
______ Detailed budget including current cash inflows and outflows
• Consider any changes to this budget in retirement and quantify
______ Prepare personal net worth statement reflecting all assets and
liabilities
______ Investment policy statement
______ Global investment asset allocation review / long-term growth
analysis
______ Determine investment allocation targets and who will provide global
portfolio oversight
______ Written Contingency Plan

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Myth Vs. Reality
About Exit Planning
• Myth: Exit planning is something owners do when they are
ready to leave the business
• Reality: Exit Planning is Business Strategy. It’s about
building a management system to keep the organization
focused on building value that “one day” can be extracted,
harvested and monetized from the business
VALUE is all about transferability
Focusing on VALUE produces all other positive
outcomes

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What is Exit Readiness?
It is not the decision to sell.
It is a state of fact, not of mind.
Two considerations:
– Is the owner ready?
– Is the business ready?
• In the eyes of the current owner (“ugly baby”)
• In the eyes of the new owner (premium or discount)

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How Prepared are
Owners to Transition?
• 66% were not familiar with all exit options
• 78% had no formal transition team; 83% had no written
transition plan; 49% had done no planning at all
• Only 7% had a formal post-transition plan detailing what
they were going to do next
• 40% had no plans in place to cover the 5 Ds
• 56% felt they had a good idea of
what their business was worth, yet
only 18% had had a formal
valuation in the last two years

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How Skoda Minotti Can Help
• Corporate Training Program
• Exit Readiness and Business Attractiveness Assessments
• Business Valuation correlated to Assessments
• Owners’ Roundtable program
• Value Acceleration consulting
• State of Owner Readiness survey
• Personal Envisioning workshops
• Business Envisioning workshops

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Summary
• It takes time to get ready; starting is difficult
• Readiness correlates to value
• This is a once-in-a-lifetime event