A Thing of the Past

1. One Company, One Career A Thing of the Past Presented by: Marvin L. Storm

2. The Business Landscape - 2010 • Acquired • Merged • Outsourced • Downsized

3. Out of a Job? Now What?

4. Choices: Get Another Job

5. Choices: Get Another Job • Experienced people – have difficult time getting the same level of salary

6. Choices: Get Another Job • Senior people - difficult time getting the same salary • Starting over – hard to do

7. Choices: Get Another Job • Senior people - difficult time getting the same salary • Starting over – hard to do • Chances of being laid off again – a high probability

8. Get into Your Own Buisness Choices:

9. Get into Your Own Buisness Choices: • Start a business

10. Get into Your Own Buisness Choices: • Start a business • Buy a business

11. Get into Your Own Buisness Choices: • Start a business • Buy a business • Franchising: Start or buy an existing franchise business

12. Get into Your Own Buisness Choices: • Start a business • Buy a business • Franchise start or buy an existing franchise • Consult

13. Starting a Business Ingredients: • Have an Idea • Have skill set • Have a product • Have people with specialized skills

14. Starting a Business Financing • Angel Financing • Venture Financing • MCI Plan • Personal Capital • Credit Cards –Home Equity • 401 K –SBA

15. : The Process Buying aBusiness Finding- • Pick an Industry and Research It • Business Broker • Online Internet Research

16. : The Process Buying aBusiness Due Diligence – The Big Why? • Research • Industry • Competition • Market 2.Survey Employees 3.Talk to Vendors

17. : The Process Buying aBusiness Due Diligence- 4. Talk to Customers 5. Talk to CPA; yours and theirs 6. Financials; unaudited vs. audited

18. Valuation: An Art vs. a Science Multiple Earnings- EBITA = Earnings Before Interest, Taxes, Amortization & Depreciation

19. Valuation: An Art vs. a Science Multiple Earnings- No earnings applied to cash flow or gross margin

20. Valuation: An Art vs. a Science Multiple Earnings- Multiple formulas vary: “Will pay 4 to 5 times EBITA if there are growth prospects and no requirements for additional capital.”

21. Valuation: An Art vs. a Science Multiple Earnings- Multiple formulas vary: “Will pay over 5 times EBITA if net worth is 60 percent or more of the selling price.”

22. Valuation: An Art vs. a Science Multiple Earnings- Multiple formulas vary: “Will pay 5 to 6 times EBITA for companies with a 15 to 20 percent return on investment.”

23. Valuation: An Art vs. a Science Multiple Earnings- Multiple formulas vary: “Will pay 5 to 6 times EBITA if there are consistent earnings, good management, and company has market leadership.”

24. Valuation: An Art vs. a Science Multiple Earnings- Multiple formulas vary: • Industrial companies 5-7 x • Initial public offerings 7-9 x • Consumer product companies 8-10 x

25. Rule of Thumb: • If you buy a new machine for a factory, you should be able to pay for it in five years from the resulting labor savings.

26. Rule of Thumb: • Likewise, a business should be able to pay for itself in three to five years, assuming that the earnings remain exactly the same for that period of time.

27. Valuation: An Art vs. a Science Multiple Earnings- Benchmarking: 1. Some buyers will raise or lower their EBIT multiple for valuation purposes based on the relationship to the proposed selling price 2. Some buyers will use only multiples of 4.5 to 5 times EBIT. If book value is higher than half the selling price, some buyers will use a 5 to 6 multiple.

28. Book Value Definition: Total Assets less Total Liabilities *Used if a company is losing money

29. Discounted Cash Flow Discounted cash flow is what someone is willing to pay today in order to receive the anticipated cash flow in future years.

30. Discounted Cash Flow The appropriate rate for discounting the company’s cash flow stream is the weighted average of the costs of debt and equity capital.

31. Discounted Cash Flow For example: • If a company’s after tax cost of debt is 6% • Estimated cost of equity is 16% • Plans to raise debt capital 20% and 80% equity, it computes the cost of capital at 14% as follows:

32. Discounted Cash Flow

33. Service Companies Factors: • Key employees • Customer list • Business systems

34. Service Companies Example: • $3 million of annual billings • Reconstructed net before tax of about $300,000. • Is this business worth $1.5 million (5x)?

35. Service Companies Possibly: • More important is the payout period • Will owner will remain in the business to train new owner • Will key accounts be retained – Structured payout

37. Condition #1: 1. Owner works for two years at base salary or for one year plus two years as a consultant.

38. Condition #2: 2. Any loss of an account existing at the time of closing will reduce payout by 50 percent of one year’s billing of that account.

39. Condition #3: 3. A loss in the third year will reduce the payout by 25 percent of one year’s billing.

40. Adjusted Net Cash Flow Calculation

41. Adjusted Net Cash Flow Calculation

42. Adjusted Net Cash Flow Calculation

43. Adjusted Net Cash Flow Calculation

44. Adjusted Net Cash Flow Calculation

45. Adjusted Net Cash Flow Calculation

46. Adjusted Net Cash Flow Calculation

47. Adjusted Net Cash Flow Calculation

48. Adjusted Net Cash Flow Calculation

49. Adjusted Net Cash Flow Calculation

50. Apply: Type of Business?