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Welcome

Welcome. Business Valuations. Agenda. Why do your clients need valuation advice? How do you value a business? New on-line valuations tools Case study - valuing an SME business Client applications and firm benefits. Some SME Market Statistics.

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Welcome

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Presentation Transcript

  1. Welcome Business Valuations

  2. Agenda • Why do your clients need valuation advice? • How do you value a business? • New on-line valuations tools • Case study - valuing an SME business • Client applications and firm benefits

  3. Some SME Market Statistics • Estimated that the wealth of family businesses in Australia is A$3.6 trillion • Average age of a small business owner is 56 • 20% of proprietors are over the normal retirement age of 65 • 11% are over the age of 70 • 44% will sell within 10 years • More and more business will come on the market • 50% business owners expect sale of business to fund their retirement

  4. Client Need • Transition in baby boomer business wealth is creating massive demand for accurate valuations

  5. Client ExampleFamily succession Neil and Jacquie own a chain of successful car dealerships, which are managed by Neil and their son Cameron, who has been groomed to one day take full ownership. Neil and Jacquie have completed their family business succession plan to protect both the interest of Cameron and Clair, their daughter upon handover. The will pass full ownership to Cameron on the understanding that he will source an independent valuation of the business to establish a fair market price for Clair’s 50% share.

  6. Client ExampleSelling equity to staff Steve and Sharon’s business succession plan includes selling equity to Adam, a long-term trusted employee. Steve and Adam agreed that Adam is required to grow profit and value before he can exercise his option to buy shares in the business. They have agreed to have the business valued today and any future increase in growth will be shared equally. The legal documents used by Steve, Sharon and Adam through the transition process include employment and incentive, option, share sale, shareholder and buy/sell agreements.

  7. How do you value a business? Methodologies A breakthrough…

  8. 3 common methods for valuing a business The Calculator • Net asset backing • Primary production • Net present value or discounted cash flow • Future profit streams • Capitalisation of profits • Most common method for small to medium enterprises

  9. Capitalisation of Profit How do you determine the profit multiplier?

  10. Valuation Risk • Under or overstatement of value could be catastrophic for your clients • Previously a sound method to determine profit multiple has not existed • Extremely high risk for advisers if they get it wrong

  11. Valuations Tool Business Capitalisation Rate Calculator

  12. The Calculator The Calculator • An on-line Tool to determine the profit multiple when valuing a business • Applies when valuing a business using the capitalisation of profit methodology • Methodology: business must generate sufficient profits after tax to return investment funds to an owner/investor over a defined term

  13. The Calculator • Formulated on a scientific calculation that determines the profit multiple when valuing a business • Based on a business’s financial indicators as well as it’s non financial value drivers • Applies to any business, in any industry at a given point in time

  14. Case Study Valuing an SME business

  15. SME – Wholesaler (Prams) • Two equal shareholders - Ages 56 & 58 • 6 staff (ex owners) • Two are children of owners • Metropolitan Location • Established > 10 years • Sales growing by > 10% pa • Industry outlook – strong • Financial Management – OK • Business Management - OK

  16. Background information Transition Goals Business income $3.75m Smooth transition EBIT (11.2%) $421k Not ready to retire, wanting a staged exit Business valuation $1.185m Initial Transition Event Principals selling 30% (3 x 10%) Transition Activities Remuneration of CO’s $220k x 2 Grant option to buy June 06, exercise July 07 Remuneration of FO’s $72k Ave Grow income to $4.2m, improve profit to 12.5% Average of CO’s 56 & 58 Performance bonus entitlement $20K Age of FO’s 32,34&41 Parties agree to share growth in value equally

  17. 5 Inputs • Profit • Free Cash Flow Factor • Cost of Funds • Indicative Tax Rate • Investment Payback Term

  18. Valuations Tool Business Value Gap Calculator

  19. Value Gap Analysis • Current business value? • Business value needed at sale? • Value gap? • Period before you can afford to sell? • Profit target? • Growth strategies?

  20. Client ExampleValue Gap Danielle and Brad want to sell their newsagency in 3 years. Their projected retirement assets require a business value of $800,000. Their business is currently valued at $500,000 based on a net profit on $125,000. Their concern is the difference in value. Danielle’s and Brad Value Gap is $300,000. They need to increase their profit to $200,000 ($75k increase). They have identified that by selling stationery to their sons primary school they can increase sales and profit.

  21. Applications and Firm Benefits Training Use Outsourcing

  22. Applications • Buyers - Am I paying to much? • Sellers - is what I want what I’ll get? • Relationship breakdowns • Ownership changes or disputes • Succession and estate planning • Insurance and Finance • Settlements

  23. Legal Agreements • Specific clauses • Can replace expert valuation • Legal documents and agreements • Option • Share sale • Shareholder • Buy/sell • Deceased estates

  24. Practice ExampleProtect your high value clients Allen is an accountant with annual practice fees of $600K. He has commenced his firm’s succession planning process by segmenting his client base. Allen’s largest business client represents 10% of his annual fee income. The client is a family business with the son likely to take control of the business when his parents retire. This is expected to happen within the next 2 years. The concern for Allen is his lack of control over his client’s generational succession. In particular, Allen does not have a strong advisory relationship with his client’s son. In fact the son goes to a competitor for professional advice. Allen faces a potential loss in business value if the client changes business advisers.

  25. Adviser benefits • Enhance service offering • Retain clients • Attract new clients • Introduce new services • Grow income, value and profits

  26. How we work with advisers Specialisation Outsourcing

  27. 2 Options • Option 1 • Web based training $495 (incl. GST) • Transaction fee $990 per application or subscribe (lower costs per application) • Option 2 • Outsource valuation work to Bstar

  28. Adviser Kit • Professional services information sheet • Launch press release • Flyers • CD ROM • E case studies

  29. Thankyou <insert contact details>

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