Business Owner Road Map amazonaws com
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Getting business owners ready for the biggest financial event of their life.
Byron McFarland
Advisor to Business Owners Since 1986 www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
The One Page Road Map
www.byronmcfarland.com
#EO360
1
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Financial freedom to do what you enjoy
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map The Inevitable Wave
Sellers Buyers
www.byronmcfarland.com
#EO360
2
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map What’s Your Number? How much would it take in today’s dollars for you to be financially independent?
$ 2,500,000 4% $100,000 Pre-Tax Income www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Buyer’s People on the Team
Outsiders Outsiders
Strategic (in the industry) Financial (investor) www.byronmcfarland.com
#EO360
3
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Step 1 Recommendations
Get clarity on what you want Desired Lifestyle Assess your options
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Resources Business Value
Securities
Real Estate
www.byronmcfarland.com
#EO360
4
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
V = CF(ST) x M
CF = Cash Flow S = Sustainable T = Transferable M = Multiplier (number of years)
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Capitalization of Historical Earnings Method 2.5 Pre-Tax Earnings
2 1.5 1 0.5 0 2007
www.byronmcfarland.com
2008
2009
2010
2011
#EO360
5
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Capitalization of Earnings Value Calculation Year
Net Income
Weights (15)
Weighted Income
2007
1.04
1
1.04
2008
1.205
2
2.41
2009
1.447
3
4.34
2010
1.736
4
6.94
2011
2.083
5
10.42
Total Weighted Income
$25.15
(25.15 / 15)
$ 1.68
(6 x 1.68)
$ 10.08
Weighted Income Total Value (Multiple of 6)
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Discounted Future Cash Flow $ 6 5
5
4.32
4 3
3.6 3 2.5 2.1
2.11
2.12
2.13
2
2.01
Projected Cash Flow Discounted @ 20%
1 0
2012 www.byronmcfarland.com
2013
2014
2015
2016
#EO360
6
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Company Valuation Comparison of Methods 11 10.47
10.5
10.08
10 9.5 9 8.5 8 Capitalization of Earnings
Discounted Future Cash Flow
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Step 2 Recommendations
Cash Flow Projection SIC Multiple Value Estimate
www.byronmcfarland.com
#EO360
7
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Value Drivers (things that will increase your multiple)
A stable and motivated management team
Operating systems that improve sustainability of cash flows
A solid and diversified customer base
Good and improving cash flow
A realistic growth strategy
Effective financial controls
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Protect Your Business Value
Defection
Risky Assets
Under Insured
www.byronmcfarland.com
#EO360
8
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Recommendations to Grow and Protect
Cash Flow Growth Plan
Employment Agreements
Mgmt Incentives Separate Entity Team Development Insurance Audit
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Sale to Outsiders
Strategic
www.byronmcfarland.com
Financial
IPO
#EO360
9
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map The One Thing Every Venture Capitalist Wants 10X Return 12 10 $10 8 6 4 2 0
$1 Investment
Return
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Selling Your Company to Outsiders
Value Drivers
Market Forces
Sales Process
50/50 www.byronmcfarland.com
#EO360
10
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Sale to Outsider Recommendations
Inventory Company Value Drivers Pre-Sale Due Diligence Identify Potential Buyers
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Sale to Insiders Transferring your company to family or employees
www.byronmcfarland.com
#EO360
11
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Sale to Insiders Balancing Act
Seller’s Security
Buyer's Taxes
Business
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Case Study Golf Unlimited, Inc. Sale for MAXIMUM Value Fair Market Value
= $1,000,000
Cash Flow
= $1,700,000
Seller
Buyer Available Cash Flow
$1,700,000
Buyer’s Purchase
$1,000,000
Income Tax Payment
-$700,000
Capital Gains Tax
-$200,000
Total for Purchase
$1,000,000
Payment for Business
$800,000
Typical insider transaction is financed thru future taxable profits. www.byronmcfarland.com
#EO360
12
4/12/2013
How to Run Your Business So You Can Leave it in Style™ Case Study: Golf Unlimited, Inc. Sale of Business for Minimum Value Fair Market Value = $300,000 Buyer Cash Flow
$450,000
Income Tax - $150,000
Seller
$300,000
$300,000 Cash Flow
$835,000
Capital Gains Tax - $60,000 Income Tax -$275,000 Payment for Business $800,000
How to Run Your Business So You Can Leave it in Style™ Case Study: Golf Unlimited, Inc. How Income Taxes Impact Cost of Purchase MINIMIZE Value
MAXIMIZE Value Sale for
$1,000,000
Required Cash Flow $1,700,000
Sale for
$300,000
Required Cash Flow
$450,000
Deductible Cash from Biz
$835,000
Total Cash Flow Needed $1,285,000
Cash flow savings $ 415,000 = (1,700,000 – 1,285,000)
13
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Sale to Insiders Recommendations
Successor Skill Development Preferred Terms Create Collateral For Buyer
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Business Continuity
Plan
www.byronmcfarland.com
Money
#EO360
14
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Business Continuity Buy Sell Agreement Business Instructions Communication to Stakeholders
Pay for stock Terminate Personal Guarantee Retain Talent
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Business Continuity Recommendations Buy Sell Agreement and/or Instructions Terminate Guarantee Audit Insurance
www.byronmcfarland.com
#EO360
15
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Personal Planning Financial Plan
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Personal Planning Recommendations
Update Estate Plan Audit Personal Insurance Financial Needs Analysis
www.byronmcfarland.com
#EO360
16
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Clarity on Desired Lifestyle Reflect on your vision Honestly assess your options
Cash Flow Growth Plan Mgmt Incentives Team Development
Employment Agreements Separate Entity Insurance Audit
Buy Sell Agreement Or Instructions Terminate Guarantee Audit Insurance
Cash Flow Projection SIC Multiple
Pre-Sale Due Diligence
Investments Identify Potential Buyers Inventory Value Drivers
Update Estate Plan Successor Skill Development
Audit Personal Insurance
Preferred Terms
Financial Needs Analysis
Create Collateral For Buyer
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
[email protected] www.byronmcfarland.com
#EO360
17
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Create a definite plan for carrying out your desire and begin at once, whether you are ready or not, to put this plan into action. ~ Napoleon Hill
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Thank you very much for attending
Please complete your session evaluation
www.byronmcfarland.com
#EO360
18
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Getting business owners ready for the biggest financial event of their life.
Are you ready? Byronmcfarland.com www.byronmcfarland.com
#EO360
19
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Getting business owners ready for the biggest financial event of their life.
Byron McFarland
Advisor to Business Owners Since 1986 www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
The One Page Road Map
www.byronmcfarland.com
#EO360
1
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Financial freedom to do what you enjoy
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map The Inevitable Wave
Sellers Buyers
www.byronmcfarland.com
#EO360
2
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map What’s Your Number? How much would it take in today’s dollars for you to be financially independent?
$ 2,500,000 4% $100,000 Pre-Tax Income www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Buyer’s People on the Team
Outsiders Outsiders
Strategic (in the industry) Financial (investor) www.byronmcfarland.com
#EO360
3
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Step 1 Recommendations
Get clarity on what you want Desired Lifestyle Assess your options
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Resources Business Value
Securities
Real Estate
www.byronmcfarland.com
#EO360
4
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
V = CF(ST) x M
CF = Cash Flow S = Sustainable T = Transferable M = Multiplier (number of years)
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Capitalization of Historical Earnings Method 2.5 Pre-Tax Earnings
2 1.5 1 0.5 0 2007
www.byronmcfarland.com
2008
2009
2010
2011
#EO360
5
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Capitalization of Earnings Value Calculation Year
Net Income
Weights (15)
Weighted Income
2007
1.04
1
1.04
2008
1.205
2
2.41
2009
1.447
3
4.34
2010
1.736
4
6.94
2011
2.083
5
10.42
Total Weighted Income
$25.15
(25.15 / 15)
$ 1.68
(6 x 1.68)
$ 10.08
Weighted Income Total Value (Multiple of 6)
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Discounted Future Cash Flow $ 6 5
5
4.32
4 3
3.6 3 2.5 2.1
2.11
2.12
2.13
2
2.01
Projected Cash Flow Discounted @ 20%
1 0
2012 www.byronmcfarland.com
2013
2014
2015
2016
#EO360
6
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Company Valuation Comparison of Methods 11 10.47
10.5
10.08
10 9.5 9 8.5 8 Capitalization of Earnings
Discounted Future Cash Flow
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Step 2 Recommendations
Cash Flow Projection SIC Multiple Value Estimate
www.byronmcfarland.com
#EO360
7
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Value Drivers (things that will increase your multiple)
A stable and motivated management team
Operating systems that improve sustainability of cash flows
A solid and diversified customer base
Good and improving cash flow
A realistic growth strategy
Effective financial controls
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Protect Your Business Value
Defection
Risky Assets
Under Insured
www.byronmcfarland.com
#EO360
8
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Recommendations to Grow and Protect
Cash Flow Growth Plan
Employment Agreements
Mgmt Incentives Separate Entity Team Development Insurance Audit
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Sale to Outsiders
Strategic
www.byronmcfarland.com
Financial
IPO
#EO360
9
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map The One Thing Every Venture Capitalist Wants 10X Return 12 10 $10 8 6 4 2 0
$1 Investment
Return
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Selling Your Company to Outsiders
Value Drivers
Market Forces
Sales Process
50/50 www.byronmcfarland.com
#EO360
10
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Sale to Outsider Recommendations
Inventory Company Value Drivers Pre-Sale Due Diligence Identify Potential Buyers
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Sale to Insiders Transferring your company to family or employees
www.byronmcfarland.com
#EO360
11
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Sale to Insiders Balancing Act
Seller’s Security
Buyer's Taxes
Business
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Case Study Golf Unlimited, Inc. Sale for MAXIMUM Value Fair Market Value
= $1,000,000
Cash Flow
= $1,700,000
Seller
Buyer Available Cash Flow
$1,700,000
Buyer’s Purchase
$1,000,000
Income Tax Payment
-$700,000
Capital Gains Tax
-$200,000
Total for Purchase
$1,000,000
Payment for Business
$800,000
Typical insider transaction is financed thru future taxable profits. www.byronmcfarland.com
#EO360
12
4/12/2013
How to Run Your Business So You Can Leave it in Style™ Case Study: Golf Unlimited, Inc. Sale of Business for Minimum Value Fair Market Value = $300,000 Buyer Cash Flow
$450,000
Income Tax - $150,000
Seller
$300,000
$300,000 Cash Flow
$835,000
Capital Gains Tax - $60,000 Income Tax -$275,000 Payment for Business $800,000
How to Run Your Business So You Can Leave it in Style™ Case Study: Golf Unlimited, Inc. How Income Taxes Impact Cost of Purchase MINIMIZE Value
MAXIMIZE Value Sale for
$1,000,000
Required Cash Flow $1,700,000
Sale for
$300,000
Required Cash Flow
$450,000
Deductible Cash from Biz
$835,000
Total Cash Flow Needed $1,285,000
Cash flow savings $ 415,000 = (1,700,000 – 1,285,000)
13
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Sale to Insiders Recommendations
Successor Skill Development Preferred Terms Create Collateral For Buyer
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Business Continuity
Plan
www.byronmcfarland.com
Money
#EO360
14
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Business Continuity Buy Sell Agreement Business Instructions Communication to Stakeholders
Pay for stock Terminate Personal Guarantee Retain Talent
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Business Continuity Recommendations Buy Sell Agreement and/or Instructions Terminate Guarantee Audit Insurance
www.byronmcfarland.com
#EO360
15
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Personal Planning Financial Plan
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map Personal Planning Recommendations
Update Estate Plan Audit Personal Insurance Financial Needs Analysis
www.byronmcfarland.com
#EO360
16
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Clarity on Desired Lifestyle Reflect on your vision Honestly assess your options
Cash Flow Growth Plan Mgmt Incentives Team Development
Employment Agreements Separate Entity Insurance Audit
Buy Sell Agreement Or Instructions Terminate Guarantee Audit Insurance
Cash Flow Projection SIC Multiple
Pre-Sale Due Diligence
Investments Identify Potential Buyers Inventory Value Drivers
Update Estate Plan Successor Skill Development
Audit Personal Insurance
Preferred Terms
Financial Needs Analysis
Create Collateral For Buyer
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
[email protected] www.byronmcfarland.com
#EO360
17
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Create a definite plan for carrying out your desire and begin at once, whether you are ready or not, to put this plan into action. ~ Napoleon Hill
www.byronmcfarland.com
#EO360
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Thank you very much for attending
Please complete your session evaluation
www.byronmcfarland.com
#EO360
18
4/12/2013
How to Run Your Business So YouRoad Can Leave it in Style™ Business Owner Map
Getting business owners ready for the biggest financial event of their life.
Are you ready? Byronmcfarland.com www.byronmcfarland.com
#EO360
19
