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Value Acceleration and Exit Planning for Your Business | Webinar Recording


 

In this webinar, you will learn how to increase EBITDA by aligning goals, improving economic efficiencies, and transitioning to an enterprise value mindset. Value acceleration and exit planning is business strategy. Being ready to exit without wanting to sell, or retire, serves as a contingency plan, increases annual income and value and pushes the business to be best in class. Our Value Builder assessment can give you insights into 8 drivers of value and identify opportunities to mitigate risk and increase enterprise value. Learn more here and/or request a free 30-minute consultation.

The following is a text version of the recorded webinar presented by Windes and Bryson on December 9, 2020.

Click here to view the presentation slides.

Host & Moderator

Craig Ima, MBA is the Chief Marketing Officer at Windes. He has more than 30 years of marketing, business management, product, strategy, database, business development, and sales experience.

Presenters

Robert Henderson, CPA, MST, CEPA is a Partner in the firm’s Tax department. He specializes in providing tax advisory, accounting, and compliance services to middle market businesses, and their owners with emphasis on assisting clients to plan for and manage their income tax liabilities. Rob works with closely held and startup business owners to maximize their companies’ value, advising and assisting business owners on how to ensure that their companies are transition-ready, and prepared for exit.

Trent Bryson is the Chief Executive Officer of Bryson. He has over two decades of financial services and insurance experience. He is a frequent speaker on KTLA News, an adjunct professor at Cal State Long Beach in human resources, and the chair for the Political Involvement Committee for NAIFA. Please visit Bryson at brysonfinancial.com to learn more about cyber insurance.

DISCLAIMER: The information presented in this webinar is intended as general information and does not constitute tax or legal advice. You should always consult your tax, legal, or financial advisor for direction regarding your specific situation.

Please contact Windes for more information or questions regarding your particular situation at 844.4WINDES (844.494.6337) or via email at advisory@windes.com.


Craig Ima:

Thank you for joining our webinar today on Value Acceleration and Exit Planning for Your Business. Today, you will learn how to increase your earnings and drive value to your business as you plan your exit. I am Craig Ima, Windes’ chief marketing officer. I will be your moderator today. Our presenters will be Rob Henderson. He is a Windes tax partner. And Trent Bryson. He is the CEO of Bryson.

Windes is a 94-year old, mid-sized CPA firm. We are originally based in Southern California. We have offices in Irvine, Long Beach, and Los Angeles. Our services cover audit and assurance, tax services, advisory services, which includes cyber security, employee benefits services, mergers and acquisitions, outsource accounting services, such as outsource CFO services, consulting with paycheck protection loan forgiveness, and value acceleration and exit planning headed by Rob Henderson.

Windes has more than 5,000 clients in all types of industries, including nonprofits. We serve small- to mid-size businesses, some large size businesses as well, privately-owned, family-owned business, and high-net-worth individuals. Windes is the top 100 firm in the country, based off of revenue. We have always earned our way into the best places to work program for both Los Angeles and Orange Counties. We have been as high as number three in Orange County. We are also very proud and honored to be a civic 50 recipient, where we won the mid-size category last year. It recognizes the top 50 most community service-minded companies in the county. Were also one of the best accounting firms to work for in the country by accounting today.

Bryson is a 51-year old insurance and retirement plan firm. They also have wealth management services. They cover life insurance, property and casualty insurance, they do M&A due diligence, consulting, individual health plans, and more. They are headquartered in Long Beach, and likewise, they serve a diversified client base throughout the region and country. Bryson is regularly recognized with awards and various publications. For instance, the 401k Wire, they are a top 300 most influential defined contribution adviser. They have been named as a top retirement adviser in Financial Times. They are recipient of the city national bank entrepreneur award from the Long Beach Chamber of Commerce, in which I am a board member and Bryson’s on that board, as well.

A little bit about Rob Henderson. Rob has nearly two decades of accounting experience. He specializes in providing tax advisory, accounting and compliance services to middle market businesses and their owners. His client base covers a variety of different industries, including manufacturing, distribution, technology, real estate, and much more, including high-net-worth individuals. Rob is a CPA. He has his MST, and he is also a certified exit planning advisor.

A little bit about Trent Bryson. He is the CEO of Bryson which is a premier insurance and corporate retirement firm in the region. Trent is a certified financial planner and a registered investment adviser. He is an adjunct professor in human resources at Cal State Long Beach. A KTLA news frequent expert contributor, and officer for the Young Professionals Organization, and he is also the Political Involvement Committee Chair for the National Association of Insurance and Financial Advisers. Now, I’ll turn it over to Rob.

Rob Henderson:

I want to welcome everyone to the webinar, and thank Trent for co-presenting with me today. I’m excited to talk about exit planning and value acceleration in preparing your business for exit as a business strategy. The topic continues to receive a lot of attention, but still remains problematic for business owners. While I was studying to become a certified exit planning advisor, I was introduced to a conceptual framework creating by the Exit Planning Institute called the Value Acceleration Model. Since learning about the value acceleration model, I have been helping business owners successfully create transferable value and prepare their businesses for exit. Before I jump into the slides I prepared for today’s webinar, I think it is important to start off by commenting on one of the primary reasons why services providers like CPAs, wealth managers, and insurance providers are spending a large amount of time with business owners to discuss exit planning and value acceleration as a business strategy.

The answer is baby boomers. Baby boomers are the generation of business owners that were born between 1945 and 1965. In 2012, the first baby boomers reached retirement age, and in 2031, all baby boomers will be over 65. Why is this relevant? Baby boomers account for six million closely held businesses, and 10 trillion dollars in wealth. It is about 63% of the private businesses in the United States. Furthermore, a recent study by the Exit Planning Institute confirms that 76% of baby boomer businesses plan to transition over the next 10 years, and 48% plan to transition in the next five years. For many baby boomer business owners, their business represents 80 to 90% of their total wealth. This concentration presents a challenge for business owners looking to retire and want to cash in on their years of hard work.

Let us discuss a few of the challenges that are keeping baby boomers from completing successful exits from their businesses. Challenge number one, boomers do not want to exit their business. Their business is their baby. There is personal attachment, preventing the owner from building or fulfilling life outside of the business. Additionally, business owners often lack a plan or future vision for the next act. Challenge number two, 50% of exits are not voluntary. We call these the five Ds: death, disability, divorce, distress, disagreement. Over the last year, we now have a sixth D for disease, which we could refer to the COVID-19 pandemic. Business owners are getting bogged down by the day to day tasks to run their businesses successfully, and often times, preparing for a plan of exit is not top of mind because it is an event that is going to occur in the distant future. My goal as an exit planning adviser is to help shift the paradigm and convince business owners on the importance of being prepared. A business that is prepared to exit can exit at any time, regardless of the causes.

Challenge number three, owners are leaving money on the table because they are focused on income generation, and not focused on enterprise value, which I am going to explain in more detail.

There are two types of business owner styles. There are lifestyle business owners, and there are value creation business owners. Lifestyle businesses are set up and run by its founders with the primary goal of sustaining income and nothing more. In other words, they want to maintain a particular lifestyle. Whereas, value creator businesses are on a mission to create value for customers, employees, their owners, and their investors. All of them are linked together to maximize value, and focus on using capital and talent for the most profitable opportunities.

Many of the lower-middle market businesses that I work with fall into the lifestyle category and have no contingency plans or path to retirement. Research and data tells us that most exits do not produce the most optimal outcome. Let us look at a few more statistics which ties back to my initial call to action and the purpose for today’s webinar. Twelve months after selling their businesses, three out of four business owners regret the decision. Many business owners fail to have a life-after-business plan or goals, or they feel they left money on the table because they were not prepared to exit, or they had to abruptly exit for less value than they thought the business was worth. Nearly 80% of businesses put on the market do not sell. Again, many businesses are not prepared to sell, or their owner tries to market the business for more than it is worth, because they have unreasonable expectations of their business’ value.

Only 30% of family-owned businesses survive into the second generation. Sometimes the kids have different interests, or the family did not prepare them to take over. Remember the statistic I shared earlier, baby boomers account for six million business, and 10 trillion dollars in wealth that needs to transition over the next 10 years. If 80% to 90% of the total wealth is tied up in the business, I think baby boomers should be alarmed by the low success rate of selling their business, or transferring it to the next generation.

Here are a few more statistics. According to the Exit Planning Institute, two-thirds of business owners do not know all their exit options. Seventy-eight percent of business owners have no transition team, 83% business owners have no written transition plan, and 49% of them have no plan at all. I understand this is a lot of statistics to absorb, but I want to drive home the point that exit planning that is implemented three, to five, to seven years in advance, will help increase the chances of successful exit and maximized business value. Here is our agenda for the webinar. We are going to talk about what is exit planning, what is value acceleration, and some ideas to prepare your business for exit. Feel free to add some questions in the comments, and we will address them at the end.

Exit planning. A solid exit plan is going to focus on four core concepts. Later in the presentation, I am going to take a deeper dive into the value acceleration model, but for now, the following four concepts will lay the ground work for what we call the master plan. These four core concepts are called, The Three Legs of the Stool, Five Stages of Value Maturity, The Four Cs, and Relentless Execution. Over the next few slides, I am going to explain these concepts and I am going to provide some color on how they come together to form the master plan.

The fictional stool has three legs, and each one has a specific role in the master plan. The first leg focuses on maximizing transferable business value. Stated differently, a business owner works with a value adviser to implement a plan that focuses directly on the business. Over a period of time, optimally, three, five, seven years prior to an exit or transfer, the business owner and the value adviser works with the board of advisers to prepare for the exit. The next leg focuses on personal financial wealth to ensure the owner is financially prepared to exit. Typically, with the assistance of a certified financial planner, the owner prepares a personal financial statement, and completes a series of retirement planning models to determine net of tax proceeds needed to exit and accomplish the owner’s goals.

Here, the owner could also determine if there is a value gap. If a value gap exists, the business owner may need to reassess their strategy because the net of tax proceeds are not enough to accomplish their goals. The final leg of the stool focuses on the owner’s personal readiness to exit the business. As I mentioned before, three out of four business owners regret the decision to sell their business one year after they exit. By focusing on the third leg of the stool, owners can work with business coaches, family counselors and therapists to consider the practical and emotional factors that can lead to disappointment after an exit. As I have previously mentioned, only 30% of family-owned business survive into the second generation, the third leg would also focus on things like family disputes or preparing children to take over the family business.

The next concept is the value maturity index. The value maturity index focuses on five stages to identify, protect, build, harvest, and manage business and personal wealth. Stage 1 is identify. Here, we discover the business owner’s current wealth by collaborating with the financial adviser. We also discover the current value of the business by completing a business valuation. Attractiveness and readiness assessments are completed by a value adviser to score and identify value drivers, and risk factors. Low scoring drivers and factors are addressed to increase the value of the business. Stage two and three are protect and build. Here, we de-risk the business and the owner to protect the value and wealth that we discovered in stage one. A couple of examples of de-risking include buy/sell agreements and estate planning. After we de-risk, then we build additional enterprise value by focusing on low-scoring deficiencies that we identified in the assessments.

Stage 4 is harvest. Here, we gather the business and personal wealth that we have accumulated so that it can be managed in stage five to ensure economic continuity. The next concept is the four Cs, which focuses on building value through human, structural, customer, and social capital. To be more specific, human capital is your employees, structural capital is your infrastructure, IP and tangible assets, customer capital is your customer and the ability to generate revenue through strong, reoccurring relationships, and the last one, social capital, are the network of relationships that you’ve built overtime.

The final concept is relentless execution. Here is where the value adviser is critical and often times called the chief accountability officer. Trent is going to take over at this point, and share a little bit more on relentless execution.

Trent Bryson:

I think when you look at the relentless execution, and you are looking at statistics that Rob shared, there is a reason those statistics are there. The reason the statistics are where they are is because that is the reality. The impact of what is going to happen is a psychological impact. When you are looking at what you are going to do, I think the first decision is actually making the decision. All too often, people are at the club or talking with friends, they are hearing about what kind of valuations are being paid. They are thinking in their head, “Oh my God, is it time for me to sell?” It sounds good, and it sounds like it is the right thing to do, but the reality is, as they search and go through the process, they realize that the last 20, 30, 40 years of what they were trying to do, now there is guilt. That guilt between, “Am I letting my customers down? Am I letting my team down? What’s going to happen?” There is the guilt factor.

The second is exit number. All too often, people start to go through in their minds what their number is, or would be, or they start thinking about the sales process before they even understand if that number will actually maintain their lifestyle, what they are going to do with that lifestyle, and how it is going to impact their lives on a daily basis. As you start to think about exiting, it is (1), how do I get past that the guilt factor, or the personal time and energy that is invested in the business? Two, what is my number? What does this really look like? Does that get me to where I want to be?

The other part is your employees, those that have fought with you, those that have battled with you for years, sometimes 20, 30 years, and that becomes really important. You do not want to leave them. There is an emotional part to selling that I think is so critical. As you look at the statistics, so many people start to go through the process, and then they regret it because they did not sell for enough, they had not done enough of the emotional planning beforehand. They just thought, “Oh, it sounds great to sell. I can’t believe it, I never thought about getting a number like that.” But does that number even provide happiness?

I think that it is really important to get yourself in that mental mindset. Once you get yourself in that mental mindset, then all of a sudden, you start to think about the vision, what does it look like, and what does the plan look like? The reason it is so critical is that you will realize that everybody from the receptionist to the CEO needs to know and understand what that vision is. Every single person in the organization has to know what is happening for you to be successful, which eliminates the “he knows,” but “she doesn’t.” That fear, that guilt of what employees know or do not know. From there, you create the incentive, and you create that alignment across your entire organization. This is what we are trying to accomplish in this amount of time, and this is what it means to everybody. It could be everything from, “Hey, we’re going to give everybody a bonus when we sell, if we hit these metrics.” All the way to, “Hey, rather than me retiring or me passing it on to somebody that you don’t trust, we’re going to bring in somebody that wants to take you to the next level.” Whatever that is, it’s creating that idea of, how am I going to sell to my entire organization, how am I going to be transparent and open with everybody so that we’re all on the same page and marching at the same energy level? That is really where you start to see that value.

It is not a process where you say, “Hey, screw it. Politics just made one decision. I’m selling tomorrow.” That is when you start to regret things. But when you make that decision and you plan for it, you look at the statistics, and you start to figure out what we are going to do. That is when you are going to be happy. That is when you are going to hit the metrics that you want to hit.

The final part is accountability. There has to be metrics. We are trying to hit these metrics. This is how we are going to stay accountable to these metrics, and this is what we are going to do internally. You need to look at it as an enterprise sell instead of a lifestyle. When you look at the valuations and what the numbers are, and you look at how critical every dollar is, and every bit of performance is, that starts to create a hyper focus on accountability. Then when you trade that hyper focus on accountability, how does everybody stay on task, then it starts to make more sense. It becomes much more of an intense process if you do it right. But the amount of value you are going to get for that 18 months, or that 36 months, is exponential.

Rob Henderson:

Thanks, Trent. I am going to move to the topic of value acceleration. At the beginning of the presentation, I mentioned that I bought into the conceptual framework called, “The Value Acceleration Model.” Value acceleration is a proven process that focuses on value, growth, and aligning business, personal, and financial goals. It is going to be grounded in action, it is going to promote the use of teams in an engaging process, and it creates a roadmap to success and a leap in value. Stating it differently, exit planning is that the concept in value acceleration is going to be the process.

Value acceleration measures the value of your intangible assets which are the direct drivers of business attractiveness. Refer back to the previous slides that I had discussed the four Cs. Value acceleration is going to focus on the multiple of a business valuation. More specifically, it’s going to focus on intangibles, and building value by driving efficiencies, driving-up profitable revenue, driving cost down, driving net profits up, driving multiple up. It is more secure and de-risks the business, as well as makes easier post transition integration.

Here is the formula for computing strategic value to illustrate my point. Managing the four Cs is going to drive sales and income and multiple, which will lead to exponential impact in business value. To give you a quick math example, there is two million dollars of EBITDA at a six multiple, and the price value is going to be 12 million dollars. If we focus on increasing EBITDA by 10% at 6x, we get 13.2 million or 1.2 million dollar increase in enterprise value. But if we take two million dollars of EBITDA at a 7x multiple, that’s 14 million dollars. If we focus on increasing the multiple to 7x, we’re getting a two million dollar increase in value. By the way, if we would likely increase EBITDA, as well by focusing on the multiple. Let’s say, EBITDA increase is 10% and the multiple increases to seven, there’s now an increase in enterprise value of approximately 3.4 million dollars. My point here is that by focusing on the four Cs or the intangible assets rather than necessarily specifically on EBITDA, we could be creating exponential impacts to business value.

Here is the Exit Planning Institute’s value acceleration model. I can spend a whole day discussing the model, but today I am going to keep it limited to the three gates. The three gates are discover, prepare, and decide. During the discovery gate, we will call the triggering event, business owners are asked to complete a business valuation, a personal financial plan, and a series of readiness and attractiveness assessments. The results are compiled and the value adviser helps the business owner prepare a prioritized action plan. This is also the first stage of the value maturity index, which is called Discover. During that prepared gate, through relentless execution, or core concept number four, we de-risk and improve the business by focusing on the four Cs, the core concept number three. The business owner works with the wealth manager, estate planning attorney, and other advisers to make sure the personal financial and personal legs of the stool are covered, which was core concept number one.

Again, collaboration with the business adviser is going to be key because many parts of the exit plan overlap. It is important to have the same message. This is also the second and third stage of the value maturity index, which we called Protect and Build.

Finally, during the last gate, it is time to decide what to do. At this point, the business owner’s much more educated and prepared to exit. If they decide to keep the business, then the value creation process starts over. If they decide to sell, or transfer the business to a family member, then the selected transition process begins. This is also the fourth and fifth stage of the value maturity index, which is called Harvest and Manage. There is not enough words to describe how important it is to have a conceptual framework to follow. The value acceleration model was my chosen model to help business owners successfully exit their business for max value. Now, I am going to let Trent talk a little bit more about helping us understand blind spots.

Trent Bryson:

A lot of times you hear from your friends, or you hear what the different valuations are, and you think, “Okay, great. My company is worth this.” But some of the things, as you start to go into a process, that a potential buyer is going have are basic questions like customer concentration. If your biggest customer is 90% of your business, it is a relationship you have had for 30 years, that is pretty concentrated. We had a client that actually did all the trucking for Trader Joe’s, and they had 90% of their business there. So when they lost that contract, they lost it all. That business, which was wildly successful for so many years, once the next owner took over, basically blew it up, because they blew up the relationship. Understand what your customer concentration is. It is nice to have a diverse customer concentration. As you are going into your value creation or your value acceleration, I want you to start to think about picking up some alternative clients, so that when you go into the sales process that you are de-risking yourself.

The second is gap in insurance coverages. All too often, business owners think, we have a great work culture here, I do not need employment practices liability insurance, or I don’t need various insurance coverages that are offered. But when you have a sale or you have something that happens where that culture changes, it becomes really important for you not to have those exposures.

During this pandemic, we had a client that has 34 post termination claims on their insurance. That is firstly because they had to lay off and people are desperate. But that same coverage is, how do we book for that? How do we plan for that? How do we create the right culture? And specifically, regarding the employment practices liability insurance, you are not out buying it because it may be a certain cost. But when the company is sold, some of those liabilities go with the prior owner. That becomes really important. Just do the due diligence. Look at the gaps and what the insurance coverages are. Are you setting the expectations? We had a client that was going through a sales process and the next thing you know, they had a first time claim that they have never had, and they are always under-insured, and then that just wiped out a lot of their value.

As you are getting closer and closer to exiting your business, it is not the time to be cheap. It is the time to get in the right spot. Make sure that your insurance coverages are consistent with what you need. You do not want a claim right at the end of the sales process. Any un-forecasted liabilities usually come in wage or hour claims. It is really important to make sure that those are tightened up. Making sure that you are doing an HR audit. A lot of times, HR is maybe somebody that is an office manager or the receptionist, and they are handling a bunch of different duties, and they are handling a million different things. But it is important to bring in a true HR partner to come in and just audit. What do the handbooks look like, what do the contracts look like? When people see an owner get a big check and they do not get a big check, they see opportunity. It is the unfortunate reality of where we are today. It is important to look at what some of your un-forecasted liabilities are and just make sure that you are cleaning this up, so that you’re protected on a go-forward basis, and that you’re going into it as clean as possible.

Rob Henderson:

Thanks, Trent. The next session that we are going to talk about today is preparing your business for exit. Exit planning is a business strategy that works best when there is a group of collaborative, like-minded professional advisers with a common goal to grow, preserve, and transition the business owner. The business owner is going to be prepared when they have spent the time and money getting educated on the process of how to transition their business. Their personal, financial, and business goals are aligned. They have an established team. They have created and reviewed a contingency plan that specifies what would happen if they could no longer operate the business. They have considered all their exit options and optimum deal structure. They have a written transition plan, and they have designed a post-business life-after-business plan that is linked to their wealth management plan.

You have pre-transition value enhancement, preliminary due diligence projects underway that de-risk the business, maximize the value, minimize taxes upon transition, and improve the profitability of probability of a smooth transition to the next owner. Finally, you have a management program under way to ensure that the post transition leader team is capable of operating the business without you at the helm.

Value is going to be all about transferability. There are benefits to being ready to exit without wanting to sell. I think this is important to point out because business owners can be turned off by the strategy because they do not want to sell their business in the near future, or do not have plans to transfer it to a family member in the near future. Let me share a few things that being prepared is going to push your team to be best in class, and it will also serve as a contingency plan. Sometimes non-solicited offers do happen and you can be prepared for them. It is also going to help increase annual income and value of the business.

Trent is going to talk about economic inefficient relationships, and how to evaluate them.

Trent Bryson:

I think as you go through life, you develop different relationships. Some relationships are really efficient and effective, and others maybe were effective, but all too often, I come into a situation where a 65-year old business owner has a 65-year old insurance agent or somebody who’s been doing their taxes for forever, or an attorney who did their estate planning, who is also their corporate counsel. I want you to think about when you get into this process, that this is the time where you are going to get that one check. The friendships, while I am a huge believer in friendships, can sometimes be economically inefficient. There is a situation I walked in when I was saving somebody, there’s a little bit over half a million dollars and they were stressing about the fact that they would play golf with that person every Thursday. I thought to myself, at a multiple, at seven times, that is 3.5 million dollars. You could buy that friend dinner and drinks for the rest of their life, if you just had a transparent conversation, which is, “Hey, I’m about to have an exit event, I have to set my company up for maximum value,” and part of that relationship should be those transparent conversations.

That is where you start to look at enterprise value versus lifestyle value. The lifestyle is hey, I am running a successful company. I do not like to have changes. I like these various relationships and I like these various setups, and that works that well. The enterprise value goes, “If I’m selling something at seven times EBITDA, every dollar I create a value is an extra seven dollars. For every $100,000 of savings out there, there is $100,000 of inefficiency out there. That is $700,000. That is a nice check. Starting to get into that behavioral mindset of, I am setting this up and having those conversations with some of those key advisors, and saying, my entire company is aligned for this exit event in the next three years or 18 months. I either need you as my relationship to get hyper focused on this as well, or I need to change this relationship and I will buy you dinner at the end of the day.

That is where understanding the multiple is. We have seen businesses sell, in the last few years, multiples are beyond what we have seen before, specifically with the fear of the new tax laws. Capital gains, you are seeing everything from where we used to see four to seven, from seven all the way up to 15 times multiples. Understanding what your multiple is for your specific industry, how to get hyper focused on what that is, and then understanding what relationships do – I maybe need to update, upgrade, and look at what’s there. What you are also going to find is greater culture alignment. So often, your CFO, your HR director, your head account manager is saying, “We’re operating but the owner of these are his buddies, or this is where they are, so we can’t operate at 100%. We cannot grind out these last 18 months to get the ultimate value, because we cannot push that hard. But when you are starting to say, there is an 18-month process. We are going to drag this maximum value out here. We need the best advisers, we need the best people we can get. That is where you start to get greater culture alignment too. Because they’re not sitting there in the back of their head, saying, “Hey, we’re trying to sell this for the most amount of money, but we also know that this attorney over here is not working at full capacity, and he’s leaving some issues, or the tax planning, or the insurance planning,” so it becomes really important to understand, I’m shifting where I’m going, which is I have these relationships that I built for a long time. Some of them may be really great, and maybe the most trusted relationships, and those are the ones to keep, some of them may be in the back of your mind as a business owner where you are saying, it is great but it might be time for a change, and this is that change agent to do that.

Understanding the multiple gets you there from a mental standpoint, and then it creates that culture alignment across the board and accountability across the board, so that you’re really, again, hyper focused on there’s a number, this is the last time I’m going to have an opportunity to make money for a while, maybe you’re retiring for a little bit, maybe you’re going right back into it, but I need to drive the most value I can because the one thing that’s been constant in your life is income in your lifestyle. That fear of what is going to happen when you get that one check is okay, I am going to pay a bunch of taxes to the government and that is what I am left with. Maybe you do not want to start all over again. Maybe you do want to start all over again. But knowing what that exit plan looks like, what that multiple is, just gives you such greater piece of mind in terms of drilling down on these relationships and making sure that you are driving the most value out of all of the value-added advisers around you.

Rob Henderson:

Thanks, Trent. Back in the introductory slides, I mentioned that three out of four business owners do not know their exit options. On this slide, I have provided a few internal and external options. But my job as a value adviser is to make sure the business owners know all their options and they are well-equipped to make the right decision. Know what increases value for your exit channel by reverse engineering your exit and focusing on the big ticket items that drive value. For example, maybe your potential buyer is mostly interested in your management team, and securing them post transaction. But you are spending the majority of your time focusing on EBITDA targets. There is a disconnect here. Leverage into a value advisor and investment banker, M&A adviser, to help you really understand what drives value for your specific exit channel.

Understand what value drivers and risk factors impact transaction price, but are difficult to incorporate valuations. Ultimately, the value of your business is going to be dependent on what a buyer is willing to pay for it. Their value drivers and risk factors that can be viewed differently by different types of buyers.

Be prepared to support why your business is best in class and yields a higher multiple than other business in your industry. On this slide, there are a few of the value drivers and risk factors that can be interpreted differently.

To start wrapping this up and conclude, Windes is a full service public accounting firm. It has been traditionally focused on tax and audit services. As we have evolved as a firm and develop new advisory practices that business owners could use, we have the internal expertise to help business owners with some of the following services related to exit planning and value acceleration. Some of them include value driver and risk factor assessments, EBITDA and working capital calculations. Of course, tax and audit, Q of E reports, exit options and analysis, contingency planning, charitable gift planning, estate planning, as well as M&A services, preliminary due diligence, and post M&A services like net proceeds analysis.

Over the last six months, I’ve been working with business owners to help them complete business valuations, interview investment bankers, clean up their financial statements to prepare for audit, model asset and stock deals, project cash flow, prepare 12-month trail in EBITDA calculations, there’s many things as an accountant and a value adviser that we do to help prepare ahead of a potential exit. I want to encourage you to check out our exit planning and value acceleration web page. We have put a bunch of time into adding resources. I also encourage you to complete a 13-minute value builder score. You will receive a report and a complimentary follow-up meeting with myself, so that we can discuss A-drivers of company value.

There is also a pre-score assessment that takes about five minutes, and it will help measure your readiness as a business owner to exit on a personal level.

Trent Bryson:

As it relates to Bryson, we did over 55 due diligence for companies that were either buying or selling companies last year, so we could support on any of the insurance benefits, HR side, from the due diligence side, cost analysis. There are so many creative ways for you to drive some cost savings, specifically when you start to look at what those numbers look like. When I talk about enterprise value, how you can save money there and still deliver the same type of benefits. We can benchmark what you are paying versus what your industries are, from a benefit standpoint, from an insurance perspective, and then just strategy. We spend a lot of time supporting business owners on what to expect because we deal with over 100 private equity firms, and tons of strategic firms that are buying. We can help you just start to plan out what that looks like.

Even on the other side of, “Hey, I see what’s going on here. There’s a bunch of people on my industry that want to get out, but they don’t have a succession plan, we want to buy them up with roll up strategy.” Leverage us. Leverage our relationships. We can support you in that.

Craig Ima:

Thank you very much, Trent and Rob. Great, insightful information. One question that came in earlier is:

Question: At the end of the transaction, there is usually a working capital test performed. How do we best manage it to make sure, as a seller, you get money back? Do you slow down collections? Build up inventory? So, that after the transaction is closed, you go back to operating normally, and then get a favorable adjustment? You are supposed to deliver a reasonable amount of working capital. Can you briefly touch base on this?

Rob Henderson:

Answer:  I have two comments. The one thing I want to point out with respect to exit planning and value acceleration is that the concept is different than M&A. While we work with business owners to help them prepare working capital schedules ahead of a transactions, so that they are prepared, I think what Alberto has asked here is a pretty complex M&A question. I am going to actually defer on answering this. We have an M&A team here, Alberto, that I can get you in touch with that could give you more specific answer. If you want to reach out to me directly.

Craig Ima:

Question: If you are looking to sell your company or start the process to make the company look as attractive as possible for a future sell, how can your firm help us, and what are the costs involved?

Rob Henderson:

Answer: That is a great question. There are a couple things that we can do. The first one I would recommend is that you go to our website and complete a value builder score because it gives us an understanding of the value drivers and risk factors, and where we could potentially identify some deficiencies, as well as positives of the company. In addition to that, we would spend a lot of time focusing on aspects of financial performance. Accuracy, completeness of financial statements, if there has been an audit, and then we would dive into these EBITDA calculations, working capital calculations. Really trying to come down to what EBITDA would be with respect to what the potential enterprise value of the company is. Often times, we’ve taken some of this information and we’ve, depending on the runway to exit, we have made introductions to investment bankers to help, or if it’s a service that Windes can offer, we utilize some of our other departments to take care of those services.

Again, refer to the three legs of the stool. There is a business side of it, there is a personal financial side of it, and there is the personal emotional side of it. We are going to look at all three of them, and provide some feedback. On the business side, Windes can do a lot, and same with Bryson, to help increase enterprise value. We could help identify deficiencies in estate plans. We can work with wealth managers to make sure we know what the value gap is. There is a lot of preparatory tasks that we could help the business owner complete. The fees really kind of depends on what the scope of the engagement is. Some of the engagements could be a one-on-one monthly coaching engagement. Some of the engagements could result directly in audited financial statements. We have another opportunity to do an assessment using value drivers or risk factors, depending on what the outcome and results are of those, really would dictate what the next steps would be. There is an opportunity for fixed fee on agreed upon engagements, and there can be monthly coaching fees that are based on hourly rates.

Trent Bryson:

I will add to that. I think that usually it is a conversation, saying, “What’s your timeline look like? What are your current model setup?” In that conversation or that exploratory phone call, we can generally see, have a conversation, figure out the low hanging fruit, what you should be hyper focused on initially, and then create a strategy going forward. I think what Rob talked about regarding filling out the score is a great start and then also an exploratory phone call where, “Hey, we’ve dealt with this with 50 people in the last year, and 350 people in the last five years. What are some of the things that come up?” That becomes really important. Just have an open conversation, and then from there, the fees could be contingent basis with us, or it can be fee based. With Windes, and directly with our HR team, could be fee based as well. I think it is hard to just answer in a general question, but with an exploratory phone call, I am happy to sit with you at no cost and just, “Hey, what do you need, and what’s going to be critical here, and how do we get hyper focused on this?”

Rob Henderson:

One thing I want to point out is that every business and business owner is going to come in to an exit differently. There no real cookie-cutter approach to it. It’s really going to be personalized, and depending on the runway to exit or type of exit, and kind of the status of the business, if you will, and how much work there is to be done to prepare for exit.

Craig Ima:

Okay. Well, thank you very much, Rob and Trent. We have come up on the hour. We appreciate everyone joining us today. Thank you very much.

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Business planning and exit strategy services