Leadership Succession Plan Small Business by mef17219

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									Survive and Thrive
 Workshop Series
       Session 6
  Business Succession
    26 March 2009
     Workshop Series Hosts
 South Dakota Small Business
  Development Centers (SD SBDC)
 US Small Business Administration (SBA)
 University of South Dakota
 Regional Planning Districts & other
  Economic Development entities
         Workshop Series Dates
 Where do I stand financially? (26 Feb)

 How can I better manage my expenses? (5 March)

 How can I increase my sales? (12 March)

 How do I manage and improve my cash flow? (19 March)

 Should I have a succession plan in place? (26 March)
        Ready Talk Seminar
 For those at host locations, please sign in;
  for those on individual lines, you have
  already registered with the SBA
 Please note of any questions that you may
  wish to ask. These will be collected at the
  host locations, sent via Ready Talk Chat
  or can be sent directly to
  jean.rogers@sba.gov
           Workshop Goals
 Improve the viability of your business
 during this time of economic uncertainty by
 providing you insight as to your current
 position and empowering you to make
 financial and management decisions to
 increase the likelihood of survival
 Should I Have A
Succession Plan In
     Place?
           SUCCESSION

…the business continues

All businesses are passed-on or pass-away!
When current business owners
 will leave their businesses
 Why have a succession plan?
 Preserves relationships
 Continuity
When to plan for succession?



         NOW!
  How to plan for succession?
 Select new leadership/successor
 Transition
 Financial planning
  Selection of New Leadership
 Qualifications
 Time
 Family Issues
    Family Business Statistics
 80-90% of all enterprises are family
  operations
 78% of new jobs are created by family
  businesses
 65% of all wages paid in the US are from
  family firms
www.fambus.org
Could this be your family?
  Transition of New Leadership
 Training
 Relinquish Control
 Communication
 Exit
Some people just don‟t know
      when to exit…
       Financial Planning for
            Succession
 Retain ownership
 Outright sale
 How much is it worth?
        Business Valuations
 Physical assets
 Income stream
   How To Add Value To Your
           Business
 Clean books
 No more “extra cash”
     More ways to maximize
            value…
 Customer diversity    Effective use of
 Management depth         professionals
 Recurring revenue       Product/sales pipeline
 Proprietary             Product diversity
  technology              Industry
 Penetration of           expertise/exposure
  barriers to entry       Growth plan
      Business Value Killers
 Poor cash flow
 Complicated/confusing financials
 Questionable longevity
               GOODWILL
 Sometimes called “Blue Sky”
 Not easy to value since it is very
  subjective
A Valuation Example with Goodwill
Asking Price = $100,000 (What are you selling?)
Assume FMV of assets = $60,000

This means the seller wants $40,000 for Goodwill.


Is this reasonable?
 First – Find reasonable ROR on $60,000.
   $60,000 x .08 = $4,800 (normal earnings/yr)
 Second – Use historical financial
 information to adjust earnings
   Subtract expenses specific to current owner
    i.e. depreciation, owner draw and other perks
    AND add in anticipated new expenses
   Assume Adjusted Earnings to be $10,000
 Third – Subtract Normal Earnings from
 Adjusted Earnings
   $10,000 - $4,800 = $5,200
 Fourth – Determine a cap rate
   Difficult to determine, but rule of thumb for
    small businesses should be at least 20%.
 Fifth – Divide the cap rate into the excess
 earnings
   $5,200/20% = $26,000 (Goodwill)
 Sixth – Add net assets to Goodwill
   $60,000 + $26,000 = $86,000
          Business Brokers
 Advantages – confidential, you keep
  focused on running the business, access
  to qualified buyers
 Disadvantages – can be costly, not all are
  reputable, can be hard to find
     Business Warning Signs
 Debt to asset ratio on the rise
 Losing money and losses are increasing
 Inventory turnover slowing down
 Unable to raise more money for business
 Not fun anymore
             Resources
Prairie Family Business Association
      www.fambus.org
Nebraska Business Development Center
      nbdc.unomaha.edu
Small Business Administration
      www.sba.gov
Iowa Small Business Development Centers
      www.iowasbdc.org
      Checklist Summary
1. Start planning for your departure from the
     business now.
2.   Engage experts to assist you.
3.   Communicate with family members.
4.   Be realistic in valuing your business.
5.   Look for warning signs and try to mitigate them if
     possible.
              Checklist Summary
                            Session 1
 Do I currently get timely and accurate financials?
 Am I using Cash or Accrual basis of Accounting?
 Are there national associations with industry-specific
         information that I can be taking advantage of?
   What are my 5 largest expenses? 5 fastest growing?
   Which expenses are “fixed” and which are “variable”?
   Where does labor fall for my business?
   Do I have an advertising budget whose effectiveness is
         measurable?
   What are the trends in my Days Receivable and Days
         inventory?
           Checklist Summary
                       Session 2
What is my Break Even Point?
What are the SIC and NAICS codes for
my industry?
Compare key RMA ratios to your
business (especially Days Receivable,
Days Payable and Days Inventory)
Calculate Labor Cost % by month for
the last 12 months and annually for
last 3 to 5 years
Examine Accounts Receivable Aging to
find overdue accounts. Contact these
customers to work out a payment
                 Checklist Summary
                                Session 3
 Use process as a tool for employee engagement
 Review all expenses, giving special attention to:
          5 highest expenses
          5 fastest growing expenses
          expenses that are higher than industry averages
   Identify contracts that can be renegotiated and
          begin process, i.e., contact vendors, put out for bid
   Identify excess capacity in labor/space/equipment
   Create matrix of all debt terms and review to
          determine restructure feasibility
   Create budget and visuals for measurement
   Identify Breakeven Point for new expense levels
             Checklist Summary
                        Session 4
 Identify exactly who you are going to sell to
 Find multiple ways to segment your customers into more
    specific groups
   Segment your customer base into existing, previous and
    new
   Get serious about customer retention
   Develop a customer database – keep it up
   Develop approaches to reduce customer fears
   Make „focus on growth‟ an organizational priority – not
    just owner/manager
         Checklist Summary
                 Session 5
 Refresh of Financial Ratios having direct
  bearing on cash flow
 Commercial Banking options to bridge
  shortfalls in cash flow
 Changes in SBA programs to improve
  access to capital
 Other options to assist in cash flow
     Future Workshop Topics
 After each session, participants will be
 provided an opportunity for feedback
 through surveys. Based on survey results,
 future workshops may be developed to
 delve into greater detail in specific areas
 (i.e. factoring, Government Procurement,
 etc).
    We Want Your Feedback!
 Please provide your feedback in the
 survey at your host site, or which will be
 sent to the email address that you
 provided. This will allow us to tailor
 upcoming events to best suit your needs!
Next Session:


     Feedback or More Topics

                Contact Jean Rogers
                 (605) 330-4243 ext 0
                jean.rogers@sba.gov
         Resources Available
 For a copy of this slideshow
   www.sba.gov/sd


 For additional training and education, visit
  the SBA Resource Library
   www.sba.gov/tools/resourcelibrary/index.html
   (features Podcasts, Publications and Research)

								
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