GETTING GREAT RETURNS ON YOUR BUSINESS SALE (EDITED ON LINE VERSION)

About You
Your industry?
Your biggest challenge? Your timescale to exit?

First, the bad news In Australia, (like the rest of the world) business values are, on average, falling.

Why?
Baby boomers retiring en masse
Lack of availability of bank credit Economy recessionary tendencies ( .. or fear

of) Performance hurdles on full sale price being introduced Less barriers to entry for start & build rather than buy.

The Australian Age Wave

A tidal wave of family business sales will occur in the next two years as baby boomers look to sell up and retire
SmartCompany 28th July 2010

The key to doubling the value of your business is.....

Recreating your business so that a dream purchaser will want to pay top dollar for it.

Todays Agenda

SELECTION Most valuable subset of potential buyers.

STRATEGY Anticipating buyers needs & defining company around them

SELLING Marketing, negotiating & closing

Factors Affecting Value

Type of Income Growth v Stability Profit Margins
Stability Competitive Advantage Industry Lifecycle Reliance on Owner operator Anticipated Effects of Market Change

New business or nurturing customer base? Can it be improved on?

Time in business? Growth? Reputation? Customer Base? Barriers to entry? Relative maturity? Potential to capitalise on growth? How well run currently? How reliant on current owner? Macro economy? Demographics?

Strategic Buyer

Why will they pay top dollar?

Why Strategic Buyers Buy

Sale to BigCo Tom McKaskill

Products or technology opens up a market for BigCo.
BigCo large client base buying my product.

BigCo selling their products to my customers

BigCo modifies my products for widespread

penetration. My products / customers allow BigCo to access new growth market

Part Two - Strategy

SELECTION Most valuable subset of potential buyers.

STRATEGY Anticipating buyers needs & defining company around them

SELLING Marketing, negotiating & closing

Creating Value

Creating Competitive Tension

Doing the Deal

Six Strategies

Future Vision

2010-2015 Richard Watson

Major Trends

a self-fueled cycle of learning that could be as significant as the invention of print.

Education Future Considerations

Changing Consumer Requirements

New Market Entrants

Government Trends

Supplier Power

Your Company & Your Competitors

Buyer Power

Technological Trends

Substitutes

Legal, Social & Environmental Trends

Michael Porters Five Forces Model - Adapted

Customer Empathy

Nasty sound on front right side of car ..

Customer Retention
Satisfaction = Retention
Average company loses 20% of its customers each year

Acquiring new customers can cost 5-10x as much as satisfying existing ones.
The customer profit rate tends to increase over the

life of the retained customer. 80 /20 Rule

Value Curve - Wine

LOW Enological Terminology in wine communication Above the line marketing Aging quality HIGH

Vineyard prestige and legacy

Wine Complexity Wine range Easy drinking Easy selection Below the line marketing Price
SOURCE: Blue Ocean Strategy - W. Chan Kim and Renee Mauborgne.

Yellowtail

Budget

Premium

The Customer Service is the Brand

Theodore Levitt Success Through Differentiation

Problems
PROBLEM
Speed and cost of patent registration & approval process Food freshness Foreign ownership of food companies Mobile businesses unable to accept credit card transactions Smelly, dirty, portaloos

Pizzas tasty, but bad for you

Solutions
PROBLEM
Inovia IP Speed and cost of patent registration & approval process

SOLUTION
Automate the process of filing different patents in separate countries Free home delivery service for Australian made fresh goods minus middleman. Mobile payment solutions PDAs to process transactions, print invoices etc. Dunnies with Dignity Healthy pizza with tasty, innovative toppings.

Aussie Farmers Food freshness Direct Foreign ownership of food companies Mint Wireless Mobile businesses unable to accept credit card transactions

Viking Rentals Pizza Capers

Smelly, dirty, portaloos Pizzas tasty, but bad for you

Drive for Profitability

Ways to Grow A Business

SOURCE: Keith Abraham

Potential Revenue Sources

Complementary products Packaged bundles of product Upgrade revenues Support revenues Training revenues Service revenues Licensing revenues Consulting revenues Accessory revenues Installation revenues

Overall Profitability A Quiz

If your business:
Increases sales by 4% Decreases cost of sale by 4%

Reduced expenses by 4%

What is the resulting % increase in profit?

76%

Incremental changes lead to larger bottom line changes

Existing Sales $1,000,000 Movement 4% Result $1,040,000

Cost of Sales
GROSS MARGIN Less Salaries & Expenses

$500,000
$500,000 $400,000

-4%
-4%

$480,000
$560,000 $384.000

EBIT

$100,000

+76%

$176,000

Order Recorded Order Fulfilled Invoice Issued

Retainer

Cash

Revenue Received
Payment upfront

Receipts (Customer Payments)

Invoice / statement / records mgmt

Credit checking

Payments (Raw Materials, Labour)

Follow ups

Interest / discount

Raw Materials

Goods Produced

WIP Finished Goods

Part Three - Selling

SELECTION Most valuable subset of potential buyers.

STRATEGY Anticipating buyers needs & defining company around them

SELLING Marketing, negotiating & closing

Strategic v Financial Sale

Competitive Tension
In order to create the Venture Archetypes, right conditions for a sale, Heat Formula: the firm needs to satisfy

two conditions;
have time on their side have more than one

potential buyer.

Sales Process
Enquiry 1 Page Info Qualify Interest Yes Confidentiality Agreement Information Memorandum Indicative Offer Formal Offer Contract Inspection & Meeting with Owner Due Diligence Sale No Other Business

Record Database

Questions

Negotiations

SOURCE: Peter Hickey, Sell BizPro

Shorter Term Strategy

Eliminate inefficiency & Draw up list of potential

wastage Benchmark performance Programme for continuous improvement Senior management succession plan IP / Contracts formalised & can be assigned.

acquirers Industry acquisition activity monitored Business plan & budget used and updated. No potential stakeholder litigation employee, customer, supplier.

Process
Approaching targets
ISSUES: Competitors, confidentiality, use of

brokers

Broader marketing
ISSUES: As above

Documentation, Negotiation & Due Diligence

ISSUES: Trust, confidence, rapport, vision

Sale & Post Sale

ISSUES: Value, terms, post sale commitment,

transition, fate of other stakeholders.

Framework for Due Diligence

SOURCE:

Alternatives to Selling
Family Succession
Employee Buyout Partner Buyout

SOURCE:

How Knowledge 2020 Assist

For More Information

Direct - Mark Ostryn
0411 742400 markostryn@knowledge2020.com

www.knowledge2020.com

On Line
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