Business Exit and Succession Planning

Whether selling your business, transferring ownership or seeking retirement, we can help you prepare for the process of smoothly exiting your business. Not planning on doing anything for the next 4 to 5 years? You should start planning now!

We’ll teach you proven methodologies and concepts to make this process go as smoothly and successfully as possible, including such topics as:

  • Key things that Baby Boomer business owners should know
  • The tools available to determine the value of your business including formal FocalPoint business valuations and financial benchmarks of your business so see how you’re performing compared to other businesses of your type
  • What must be done to maximize the business value prior to the sale
  • The different types of potential buyers and business exit options to consider
  • The exit planning process

Though our “Potholes” coaching process we’ll educate and coach you on 43 key topics to be addressed in your business which may impact how attractive your business is to potential buyers and/or what a buyer will pay for it.

The areas covered in the “Potholes” coaching program are:

  • Barrier Potholes:  What stops competitors? Branding, Business Name, Intellectual Property, etc.
  • Planning Potholes:  Advisors used, industry trends, management team, employee retention, family members, etc.
  • Customer Potholes:  Customer concentration, customer relationships, products sold, etc.
  • Financial Potholes:  Financial metrics, inventory turns, financial reports, equipment leases, etc.
  • Legal Potholes:  Legal Structure of the business, licenses and permits, real-estate, etc.
  • Presentation Potholes:  Why you want to exit the business, are all systems in place and working, what’s unique about the business?

Business Valuation

As you’re planning the sales or transition of your business to new owners, a key part of that, early on in this process, is to determine what the business is potentially worth. Working with our experts within FocalPoint we can provide an "opinion of value” valuation, which is determined using common valuation techniques like market comparable multipliers, income approach, buyer’s test and discounted cash flows. There are two basic “opinion of value” reports we can provide:
  1. Brokers Opinion of Value
  2. Discounted Future Cash Flow Projection

Brokers Opinion of Value

This is a report that is used by many business brokers to determine what a fair listing price would be if your business went up for sale. Similar to a real estate agent doing a market comp analysis of your home to determine its listing price.This report is typically 20 pages and includes summary financial information used in the analysis, a calculation of each of the three valuations methods, and a summary of the overall valuation.

The report calculates the value of a business using 3 different methods:

Market Method: This method estimates the value based on market multiples of previous sales of similar business. The metrics usually used to estimate this method are revenue and seller’s discretionary earnings (SDE). SDE is essentially the cash that a buyer can expect to generate from this business.

Multiples of Earnings Method: This method analyzes multiple risk factors, competition, location, and historical profits. This analysis determines a weighted average earnings multiple that is applied to the business’ SDE.

Buyers Test: This method analyzes what a new owner would generate for a return after down payment, financing and future capital expenditures.

Discounted Future Cash Flow Projection

This report is used by many sophisticated financial analysts to determine the value of an acquisition target or an asset (business or division of business) that may be divested.

The report calculates the value of a business using discounted future cash flows.  Note this is a major difference to the broker’s opinion of value, which uses primarily historical information vs. future projections.

The two major drivers of the valuation are future projected cash flow and discount rate.   The discount rate is the expected annualized rate of return an investor/buyer would need to earn to make the investment.

The future cash flows are projected out for 5 years (can adjusted to be a little as 3 years and as long as 10 years) and are predicted based on the historical trends of the business’ past three years of financial results with adjustments for known changes in the business and cost structure on a go-forward basis.

This report is an Excel model with 7 worksheets. The seven worksheets are:

  1. Scenario Dashboard
  2. Loan Analysis
  3. Projections (5 years):
    1. Income statement
    2. Balance Sheet
    3. Equity Statement
    4. Cash Flow Statement
  4. Projection Charts
  5. Financial Ratios with Industry Comps
  6. Financial Ratio Charts
  7. Valuation