Adding Business Owner Exit Planning to Your Practice CPA ...What is an Exit Strategy Plan ? An Exit...

Adding Business Owner Exit Planning to Your Practice

CPA Academy

July 2017Pinnacle Equity Solutions, Inc.

www.PinnacleEquitySolutions.comwww.PinnacleExitPlanners.com

© 2017, Pinnacle Equity Solutions www.pinnacleequitysolutions.com

We are pleased to provide these PowerPoint slides for your note-taking purposes for the CPA Academy Webinar. However, this proprietary content is the property of Pinnacle Equity Solutions, Inc. and is not to be reproduced, transmitted or otherwise used in any manner beyond your own use in viewing our webinar.

Pinnacle’s content is licensed for our Member’s use. If you would like information on how you can obtain a license to use and present this and other exit planning material you can contact our office at 781-821-2608 or e-mail Jessica at [email protected]

Please note that these are not all of the slides that will be presented in today’s webinar, but rather a summary of the content that will be covered for your note taking purposes.

Thank you.


Copyright & Privacy Notice

AgendaAgenda

1. Introduction

2. The Exit Planning Opportunity

3. Pinnacle’s Six Step Process

4. Pinnacle’s Training, Certification, & Membership Program

5. Closing Thoughts – Q&A


About Pinnacle Equity Solutions

John M. Leonetti, Esq., M.S. Finance, CM&AA, Certified Business Exit Consultant™

Managing Director, Pinnacle Equity Solutions

Pinnacle Equity Solutions was founded by John M. Leonetti who, for fifteen years, has served as a principal, a manager, a transactional advisor, a legal advisor and a financial advisor to privately held businesses, their owners, and their advisors.

John brings to the Exit Strategies practice an extensive education to go with his hands-on work experience. He earned his Law Degree from Suffolk University and is a non-practicing attorney in the State of Massachusetts. Along with the Law Degree, John also completed a Masters Degree in Finance at Suffolk's Sawyer School of Management. John's undergraduate work in Finance was completed at Providence College.

Academic achievements include teaching Retirement and Estate Planning courses at Suffolk University for those studying to earn the CFP® certification and a 'first of its kind' Private Capital Markets course being offered in the Spring of 2007. In the Fall of 2008 John released his book, Exiting Your Business, Protecting Your Wealth: A Strategic Guide for Owners and Their Advisors.




www.CertifiedBusinessExitConsultant.com

Agenda

1. Introduction






How many businesses exist in the United States today?

500-999

Employees

100-499

Employees

20-99 Employees

1-19 Employees

Non-Employees

Source: United States Census Bureau https://www.census.gov/ces/dataproducts/bds/data_firm.html

22,491,080

4,458,108

497,144

84,541

20,533


27,551,406 !

The Owner Marketplace

How many are planning prospects ?

500-999

Employees

100-499

Employees

20-99 Employees

1-19 Employees

Non-Employees

Source: United States Census Bureau http://censtats.census.gov/cgi-bin/cbpnaic/cbpsect.pl

22,491,080

4,458,108

497,144

84,541

20,533


581,6852.1 % of total

Publicly Traded

Lack of Mgmt Team

The Owner Marketplace

Are the Owner, Company and MarketAll Ready for a Successful Exit?

Are the Owner, Company and MarketAll Ready for a Successful Exit?

Personal Readiness Company Readiness Market Readiness

Is your owner personally, mentally, and financially ready to exit the business?

Do they know what else they will do after the exit?

Is your owner’s company ready for a new owner?

Does the business run without the owner?

Are systems, procedures, agreements, and financial statements in order for a new owner?

Are the market conditions favorable to transact?

Are lenders lending money to finance acquisitions?

Are buyers in a ‘buying season’?

© 2017, Pinnacle Equity Solutions

What is an Exit Strategy Plan ?

An Exit Strategy is:

The written goals for the succession of a business’ ownership and control, derived from a well thought out and properly timed plan that considers all factors, all interested parties, and the personal goals of the owners in a manner and a time period that is accommodative to the business, its shareholders, and potential buyers.


The Exit Planning Marketplace


Provided by: Rob Slee

Agenda

1. Introduction






Exiting Your Business, Protecting Your Wealth:A Strategic Guide for Owners and Their Advisors

Part IPlanning Your Exit

Part IIExit Options

Part IIIExecute Your Exit

Strategy Plan


A Six Step Process

Financial Readiness

Identify Type of Exiting Owner You Most Resemble

Learn & Choose Your Exit Option

Execute Your Exit Strategy Plan to Reach Your Goals and Protect Your Wealth

Understand the Value of the Option You Choose

Set Exit Goals

Mental Readiness

1.

2.

3.

4.

5.

6.


Financial Readiness

• Exit Strategy Planning Question to ask the exiting owner: What amount of investable assets in your account will be sufficient to satisfy your post-exit lifestyle ?

• The exiting owner’s Financial readiness for an exit will be a strong determinant of what options are realistically available for her exit.


Asset Base Required

$3,000,000

Savings: $ 1,000,000

Value Gap

$ 2,000,000

Financial Readiness


•

• Higher Financial Readiness =

More exit options available.

Financial Readiness


A Six Step Process

Financial Readiness





Set Exit Goals

Mental Readiness

1.

2.

3.

4.

5.

6.


• Because how the owner views their exit is critical to the advice that you give.

• Too many business owners are emotionally attached to their businesses.

• When truly seen for what a business is (which is an investment) the business owner can make better financial decisions.

Mental Readiness


The Exit Quadrant Chart

••


A Six Step Process

Financial Readiness





Set Exit Goals

Mental Readiness

1.

2.

3.

4.

5.

6.


The Exit Quadrant Chart

Four Types of Exiting Owners


The Business Exit Readiness Index™ (BERI) Survey


Survey MethodologyThe BERI® survey asks twenty (20) questions related to an

owner’s financial and mental readiness

Survey Results

84% of owners who took the BERI® survey scored themselves as having a LOW mental readiness for an exit

www.pinnacleequitysolutions.com

BERI™ Report Survey

A Six Step Process

Financial Readiness





Set Exit Goals

Mental Readiness

1.

2.

3.

4.

5.

6.


1. Sale of the Business

2. Private Equity Group Recapitalizations

3. Employee Stock Ownership Plans (ESOPs)

4. Management Buyouts

5. Gifting Programs

Five Primary Exit Options


Exit Options

The primary exit options fit into our Exit Quadrant Chart


Exit via Sale to a Competitor

Sale to an Outside Buyer

• Owners may choose to exit their business via a sale to an industry buyer.

• This type of exiting owner is generally aware that this is the way to get the highest price.

Sale to an Outside Buyer Synergy Value


Recapitalization

• Owners will not receive the highest value.

• Investment value includes a multiple of earnings, no synergies.

Recapitalization Investment Value

Exit via Recapitalization


How the ESOP transaction works

Bank

Business

ESOP

1. Bank lends $$ to Business

3. Business lends $$ to ESOP

4. Note from ESOP to Business

7. Business makes annual deductibleem’ee contributions to ESOP

8. ESOP repays ‘inside loan’

5. ESOP buys $$ shares from owner

2. Note from Business to Bank

6. Shares transfer to ESOP trust

9. Employees get annual allocations

of shares to a retirement account

10. C corporation sellers (with 30% sold to the ESOP) elect for tax deferral under IRC

sec. 1042.

11. Diversify assets through QRP investment


ESOP

• Owner receives lower value.

• They do not sell control or bring in new partners.

• Owner keeps their job, salary, perks.

• Owner participates in future value of business.

• A properly installed ESOP can boost moral of employees.

ESOP Fair Market Value

Exit via ESOP


Management Buyout

• Owner may choose to exit by selling the company to the management team.

• A High Level of financial readiness is recommended due to the inherent uncertainties involved with converting employees into owners.

Management Buyout

Investment Value

Exit via Mgmt. Buyout


Gifting Program

• You may choose to make gifts of stock to family members or others.

• A High Level of financial readiness is recommended due to the fact that the owner is gifting away assets.

• Larger estate planning techniques are likely required.

• Intra-family transfers can have lots of drama.

Gifting Program Fair Market Value

Exit via Gifting Program


Gifting Program

• Estate Tax Issues include getting assets out of your estate.

• Two discounts apply to the value to help move more assets out of an estate in a tax-efficient manner.

Gifting ProgramFair Market Value

Less: Discount for Lack of Marketability

Less: Discount for Lack of Control

Exit via Gifting Program


A simpler way to view these transfer options is to see them as:

Internal vs. External Transfers


Internal Transfer External Transfer

Employee Stock Ownership Plan (ESOP)

Recapitalization

Management Buyout Sale to an Outside Buyer

Gifting

A Six Step Process

Financial Readiness





Set Exit Goals

Mental Readiness

1.

2.

3.

4.

5.

6.


Affordability is determined by Value

Range of Values Intro.

Internal Transfer External Transfers

Gift,

ESOP

Fair Market Value

Private Equity Group ‘Recap’

Sale to Competitor

“Market Value”

Exit Options Exit Options

Discounts may applyInvestment

ValueSynergy

Value

Management Buyout


A Six Step Process

Financial Readiness





Set Exit Goals

Mental Readiness

1.

2.

3.

4.

5.

6.


Exiting Your Business, Protecting Your Wealth

A Strategic Guide for Owners and Their AdvisorsPart III: Planning Your Exit, Protecting Your Wealth

Ch. 11: Deal Structuring and Taxes

Ch. 12: Exit Strategies and Estate Tax Planning

Ch. 13: Legal Agreements

Ch. 14: Forming an Exit Strategy Advisory Team

Ch. 15: Pulling it All Together


Business Owner

Exit Strategies Advisor: CPA

Legal Advisor

Financial Planner

M&A Advisor

Insurance Advisor

Deal Structuring / M&A ProcessLegal Agreements, Estate

Planning

Financial PlanningEstate Planning, Wealth Protection

The Advisory Team


Agenda

1. Introduction






Pinnacle’s Mission & Vision

The vision of Pinnacle is that all Lower-Middle Market Business Owners have an exit plan.

Our mission is to empower advisors to deliver these services to the marketplace.



Pinnacle’s Core Values

Education

Excellence

Integrity

Creativity

Helping Others



Exit Planning Online Workshop

Certified Business Exit Consultant™

Course

Pinnacle’s Membership


Application Required

Optional, Discounted Rate

Step 1:

Step 2:

Step 3 (optional):

Core Training

Pinnacle’s Training



Content

• Twelve (12) online modules that take you through Pinnacle’s 6-step process including a case study that represents the typical exit planning engagement

• New this year: we are including four (4) facilitated review calls designed to provide additional insights into the material, and to further prepare those wishing to continue into the advanced course.

Learn More at www.ExitPlanningCourse.com

Exit Planning Online Workshop



8 Remote Training Modules Where We Will Discuss:

Pinnacle’s 6 Step ProcessAdvanced Technical TrainingEngaging the OwnerDelivering the Exit PlanFee SharingQuarterbacking the Exit Planning Engagement

We also have presentations made by experts in tax, estate planning, ESOPs, life planning, valuation, growth consulting, & more.

Certified Business Exit Consultant™ Course

Curriculum

Thirty (30) hours of prerequisite work (includes the Exit Planning Online Workshop)

Eight (8) Remote Training Modules Held Weekly Oct. 10th through Dec. 5th, 2017

On-site Boston Live Review and Final Exam – Dec. 7th and 8th.



Certified Business Exit Consultant™ Course


Pinnacle’s Membership – Tools & Support

How to Get Started Today


www.ExitPlanningCourse.com

Option 1:

Core Training: $650

Option 2: (Includes Core Training)

CBEC® Training: $2500

CertifiedBusinessExitConsultant.com

How to Get Started Today


If you are interested in attending our Certified Business Exit Consultant ™course, you may apply for our next class that runs from October through December 2017

•The dates for our upcoming online Courses are:

• October 10th – December 5th – Weekly Remote Course Training Modules

• December 7th & 8th – Boston Live Review Membership Discussion, Final Exam

• Certification Cost: $2,500

Contact Pinnacle today to sign up – 781-821-2608

Jessica LeClair [email protected]

Agenda

1. Introduction






Concluding Thoughts


• You can add value to your conversations with owners by understanding their exit needs, options, and special planning issues.

• Education is the key to having this conversation.

• Differentiation is the key to you working with owner’s on this specialized need.

Thank You for Attending

Questions?


Pinnacle Equity Solutionswww.PinnacleEquitySolutions.com345 Neponset Street, Second FloorCanton, MA 02021(781) 821-2608

[email protected]@pinnacleequitysolutions.com

Adding Business Owner Exit Planning to Your Practice CPA ...What is an Exit Strategy Plan ? An Exit...

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