Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors...
Transcript of Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors...
![Page 1: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/1.jpg)
Exit Planning Strategies
www.gma-cpa.com
How to Get Real Value for
Your Construction Business
Presented by
Stephen K. Ball, CPA, CVA, CCIFP
David M. Lanchak, CPA, CVA, CCIFP
![Page 2: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/2.jpg)
Succession Reality
• 70% of closely-held businesses die once the
founder is no longer around
• Only 10% make it to 2nd generation
• 20% of those make it to 3rd generation
Source: Association of General Contractors of America (AGC)
![Page 3: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/3.jpg)
Valuation Multiples from Private Transactions
Valuation Multiples — EBIT (earnings before interest and taxes)
Commercial & Heavy Construction Contractors 5.9
Residential Construction Contractors 6.2
Electrical Contractors 5.5
Plumbing & HVAC Contractors 5.2
Roofing, Siding & Sheet Metal Contractors 3.0
Landscaping Services 2.4
Source: Pratt's Stats 2014
![Page 4: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/4.jpg)
Planning for Succession
Assuming the desire to receive fair
value for the business and the desire
to leave a legacy — which would
exclude an outright gift or liquidation —
the owner is typically left with a sale to
a third party, family member, or key
employee or group of employees.
![Page 5: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/5.jpg)
Planning for Succession
An ESOP (employee stock
ownership plan) is an alternative,
but has significant hurdles and
administrative costs. Generally,
it’s not a practical solution for the
average construction company
that has less than $25M in
revenue.
![Page 6: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/6.jpg)
Factors that Impact Value
![Page 7: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/7.jpg)
What Do You Have of Future Value?
• Elevator asset company
• Recurring services or one-offs?
• Why it is better not to have your name on the
business
• Relationships
![Page 8: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/8.jpg)
Third Party Considerations
Hurdles limiting sale to a third party at an
acceptable price to owner:
• More volatile earnings stream given nature of contracts
and challenge to maintain backlogs
• Lack of management of depth and impact on nature of
goodwill
![Page 9: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/9.jpg)
Third Party Considerations
Hurdles limiting sale to a third party at an
acceptable price to owner:
• Potential buyer generally looking to pay lower multiple of
earnings than owner expects
• Strong skepticism of goodwill typically looking at book
value plus earn-out of backlog
Real life stories
![Page 10: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/10.jpg)
Family Considerations
Live Above the Line
Hurdles limiting sale to family:
• Demographic changes from prior generation smaller
families
• Other opportunities for children college
Often sale to key employees is the only realistic
option that involves accepting certain realities
![Page 11: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/11.jpg)
Internal Sales Considerations
• BYOWYOM
• General reluctance to
accept risk like prior
generations did
• Lack of access to
capital
![Page 12: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/12.jpg)
Planning for Internal Succession
• To produce a plan that incorporates a win-win
requires a fairly long buy-out term of 7-10 years
• Requires identification of potential employee or
group with plan for leadership training
• Education, communication, review, education, etc.
— takes time to settle in and give a vision for how
the plan can work
• Value must be realistic with future cash flow
![Page 13: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/13.jpg)
Planning for Succession
Discussion of real life
transfers to key employees
![Page 14: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/14.jpg)
Who is Steve Ball?
• Specializes in working with
contractors and architectural/
engineering firms
• Profitability strategies
• CPA, Certified Valuation
Analyst (CVA) and Certified in
Construction Industry
Financial Professional
(CCIFP)
![Page 15: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/15.jpg)
Who is David Lanchak?
• Specializes in working with
construction contractors
• Exit and succession planning
• Business valuation
• CPA, Certified Valuation
Analyst (CVA) and Certified in
Construction Industry
Financial Professional
(CCIFP)
![Page 16: Exit Planning Strategies - Information – Education · Roofing, Siding & Sheet Metal Contractors 3.0 Landscaping Services 2.4 Source: Pratt's Stats 2014. Planning for Succession](https://reader034.fdocuments.us/reader034/viewer/2022050200/5f53cad1f9d4a52349706324/html5/thumbnails/16.jpg)
Who is Gross Mendelsohn?
We’re a CPA and consulting firm
that helps construction
companies grow and become
more profitable
• Accounting, auditing, tax
• Exit planning
• Profitability improvement
• Business valuation
• Technology consulting