Brandon Flashcards
____% of owners have no formal life after plan.
93%
What are the two paths?
Personal & Financial; Business
Owners are much more likely to need ____ than life insurance.
Disability Coverage
___ is when a PEG sponsor lacks exiting management team to buy out current majority shareholders.
Management buyout
What % HNW individuals would like help on choosing which giving vehicle to use?
47%
Only ___% considered their financial advisor as their most trusted advisor, and for insurance and bankers, they ranked at ___%
8%; below 2%
In a charitable __ trust , the CHARITY/DAF Gets Income Stream During Term of Years and the assets then Return to DONOR after a term.
lead
___________ is predicated on a specific future look at economic benefitsFinancial projectionEBITDA and EBIT the future stream of benefits is discounted by an appropriate rate of return (Cost of capital or discount rate)
Discounted Cash Flow
___ is when a PEG sponsor backs new management team to acquire business from existing shareholder.
Management Buy-In
____% of a business owner’s wealth is typically tied up in their business.
80-90%
___ denotes all industries not in existence today; untapped market space; demand creation; opportunity for high profitable growth. Competition irrelevant because the rules of the game are waiting to be set
blue oceans
Distribution Model: 5 Pillars of Growth
1) Capital Budgeting Process; 2) Lean Manufacturing; 3) Improve Capacity; 4) Create & Protect Intellectual Property; 5) Open new end markets. **Note: I previously had this answer labelled as the 5 Pillars of Growth for Service Model. That was incorrect. These are the 5 pillars of growth for the DISTRIBUTION model.
Most private companies have the opportunity to DOUBLE their value over a 3-5 yr period by adopting a disciplined, methodical approach to reducing _____ and increasing ____
reducing company-specific risk; increasing quality
Owners are leaving $ on the table because they are focused on ___, not ___.
income generation, not enterprise value
What multiple would relate large cap stock’s cash flow to a business?
8x
___ combines the plan, concept, effort and process into a clear simple strategy to build a business that is transferable through the 4Cs
exit planning
ESOPSs are regulated by ___ & ___.
IRS & DOL
There is a___ carry-forward for unused deductions.
Five-year
What % of owners net worth is the business?
70%
What % of entrepreneurs donate money, both personally and through their companies?
90%
____ is the sum of everything everybody knows that gives it a competitive advantage.
Intellectual Capital
Each Champion uses ____, which are proposed projects along with the opportunity or problem, describing what you are proposing to do… guidelines, not absolutes.
Opportunity Assessments
True or false: risk management includes all forms of insurance and legal documents.
true
Pros of ____: Good option when Asset Value exceeds Value of Going Concern; Sum of the parts are greater than the whole (asset division produces value); Efficient way to exit; May be less expensive than some of the other options
Orderly Liquidation
___trust advantages include that (1) Trust assets receive a step-up in basis at the Grantor’s death; (2) The Grantor can be a beneficiary; (3) Transfers will not use up a Grantor’s applicable exclusion amount or annual gift amount; (4) those established as a separate taxpayer in this state are not subject to income taxes in the Grantor’s home state (as long as certain requirements are met); (5) assets will be protected against creditors of the Grantor and other beneficiaries
NING
Cons of ___: Complicated and expensive; Requires securities registration exemption; Company compelled to buy-back shares from departing employees; Generally suitable only for gradual exit over time
ESOP
What would usually be completed in the Delivering action plans?
Hosting a team accountability workshop; meeting with the priority champion to discuss progress.
Pros of ____: Allows partial exit; Reduces owner risk; diversifies asset concentration; Provides growth capital; Second bite at the apple; Works well with other Exit Options
Recapitalization
Protect – Derisking stage – In ___ stage
Prepare
NINGs only work for ___ property.
intangible (for example, you can’t put a physical real estate property in a NING, but you can put in company stock)
When is an Opportunity Assessment completed?
Before the scoreboard/team communication protocols are developed; After the personal vision is established and the 90-day personal actions are selected.
“___ is the power in a life insurance policy to: change beneficiary, assign policy, revoke assignment, borrow,
surrender policy, collateralize a loan, etc.”
incidents of ownership
What is this a list of?: market strategy, community relations, corporate reputation, access to capital
external qualitative factors
Total Enterprise Value of businesses $25-50m? (range of value)
4.5x - 7.7x
Why are ESOP DLOMs often small?
Put Rights for employees exceep the rights of typical shareholders in closely-held companies
Cons of _____: Uncertain proceeds; No guarantees; No $ for goodwill; Emotional Stigma?; Hard to predict costs; Damage to employees/jobs; Higher tax (C-corporations)
Orderly Liquidation
What % of clients continue on after a triggering event
70%
What are the 3 types of asset approach to valuation?
Reported Book Value, Adjusted Book Value, & Premise of Value
What % of HNW individuals are interested in receiving help to understand what assets to contribute?
70%
What multiple would relate real estate’s cash flow to a business?
9-11x
____ is complimentary to DCF; best used when future cash flows are expected to be consistent and based on past performance
Capitalization of Earnings Method
3 Questions Asked in a Start-Stop Workshop
What 3 things do we already do well?; What 3 things should we start doing?; What 3 things should we stop doing?
“In an IDGT, transfer is “Incomplete” for ___ tax purposes – the Grantor retains enough control over the IDGT to have the IDGT qualify as a Grantor Trust; and “Complete” for ___ tax purposes – anything contributed to an IDGT by the Grantor will be excluded.”
“Incomplete” for income; “Complete” for estate
Corporate Responsibility Assets can increase market value by ____%
4-6%
In common sense scoring system, what is a premium score?
72%+
Buyers typically buy ___ earnings, but will use an average of past periods for ___ businesses.
future; cyclical
What % have no plan at all
49%
Businesses with ____ are best served by business brokers
less than $5m; micro market
5 Items looked at when evaluating Management by PEG firms
Cultural fit, what does the bench look like, Where are the gaps, What is the vision, Key non-owner managers?
Businesses with ____ are best served by Wall Street
> $1b
In a ____, company is finding new ways to “fund the company’s balance sheet.” Essentially brings in a lender or equity investor to act as a partner in the business.
Recapitalization
Creating action plans is associated with which activity of Relentless Execution?
Alignment
Elements of Net Proceeds?
1) Determine Value of Business; 2) Add or Subtract Balance Sheet Targets, Working Captital True up/True Down, Unrecorded/off-balance liabilities, and Escrows/Holdbacks; 3) Add any earnouts; 4) Subtract fees and expenses; 5) Subtract taxes.
Distribution Model: 4 Pillars of Growth
1) Develop new geographic markets; 2) Add service-based revenue streams; 3) Resolve real estate and/or warehouse issues; 4) Improve MIS and inventory MGMT systems.
Three gates of Value Acceleration Process
Discover; Prepare; Decide
Rhythm is developed through _____ which are completed in the ___ gate.
repetition of 90-day sprints; prepare gate.
For a 1042, how much of the company stock must sold to the ESOP?
30%
For a 1042, how long does a seller have to identify a qualifying replacement property?
1 year
____ drive the deal, not price.
Terms
How does a private equity value a business?
EBITDA*multiple, how the company makes money, the company’s growth opportunities, and the type of business.
This is a sample card.
This is a sample answer
Ignore this one
:)
___ is the difference between your max value in the range of multiples versus where you actually place based on your present scores and benchmarks.
Value Gap
What percentage have no plan to cover the 5 Ds
40%
____ is a specific set of Behaviors and Techniques that companies need to master in order to have competitive advantage. A Systematic Process of rigorously discussing the hows and whats, questioning, tenaciously following through, and ensuring accountability. A core element of an organization’s culture. A relentless pursuit of Realty, coupled with processes for constant improvement.
Relentless Execution
Cons of ____: Family Dynamics; Illiquid Buyers/Lack Funds; Lower Sale Price; Key Employee Flight Risk; Tradition May Outstrip Good Strategy; Path of Least Resistance but not always a path to growth or success
Inter-Generational Transfer
EBITDA stands for…
Earnings before interest taxes depreciation amortization
In a ___ private equity transaction, the owner ends with the most liquidity but the least control.
sale to a third party.
In common sense scoring system, what is a discount score?
50% or less
Who owns the company stock in an ESOP?
the trust
Every business trades within a range of value, and the stronger the industry, the ___ the range.
broader
Converting an investment in a closely held company to cash may involve ___
uncertainty and substantial risk
The #1 Goal of the Financial Advisor ….
is not to pick the hottest investments, but to help control client behavior.
What does the Value Acceleration Methodology focus on?
Value Growth and aligning business, personal and financial goals
What is the primary objective for most Irrevocable Trusts and FLPs?
Remove business (or other asset) and future appreciation out of the estate.
What is the second paradigm shift
Value is all about transferability
Cons of ___ include lower sales price as it can ONLY pay FMW; owners do not get 100% cash out at closing; sometimes long and complex closing process
ESOP
Value Gap = ?
((Adjusted EBITDA + profit gap) * Best In Class Multiple) - ((Adjusted EBITDA) * Actual Multple)
Minority Recap - 3 Transaction examples
Growth capital, Working Capital, Debt Refinancing
____ is the direct negotiator for the business terms of a deal and should be highly trained & highly experienced in capitalization, sale, or acquisition of business entities.
Investment Banker
In common sense scoring system, what is a mid score?
51-66%
A ___ is “Prospective financial statements that present, to the best of the responsible party’s knowledge and belief, given one or more hypothetical assumptions, an entity’s expected financial position, results of operations, and cash flows”.
Financial Projection
The 5 M&A documents, in order?
1) Acquisition Profile/Teaser; 2) NDA; 3) CIM; 4) Indication of Interest/LOI; 5) Definitive Agreement
Majority Recap - 3 Transaction examples
Recapitalizations, Family Successions, and MBOs
Next in bucket for retirement accounts?
Taxable Bonds; High Yield Bonds; Small Stock Funds
2 formulas for strategic value?
Equals recasted EBITDA * market multiple; Equals recasted sales * market muliple
% have done no planning at all
49%
Of the three value enhancement strategies (investors, innovators, and efficiency experts), which has the least average annual growth rate? What is their annual rate of return?
Efficiency Experts 7.4%
What are the 5 Ds
Death; Disability; Divorce; Distress; Disagreement
On average, the transaction multiple of _____ will aplly for most closely held companies.
5 times EBITDA, rule of 5
Only ___% indicated their wealth manager was on their transition team
26%
What 5 things make a team effective?
trust; conflict mgmt; commitment; accountability; results
Range of Multiples: High Risk = ___ x TTM Recasted EBITDA [estimate used for ignition controls problems]
3
Corporate Responsibility Assets can increase customer commitment in the core segment by ____%
up to 20% (the total segment of 60%)
Between readiness and attractiveness, which is potentially more important of the two because it includes personal & financial?
Readiness
Only ______ of family-owned businesses transition to the second generation and only ______ survive to the third.
30%, 12%
What deliverables are useful to help sustain action and deliver the master plan?
A monthly 1:1 and a monthly team accountability workshop
___ allows you to sell property, businesses, and/or stock and keep up to your basis in cash; you must re-invest “gain” (and any basis) within 180 days into businesses and or real estate location
Qualified Opportunity Zones
If the asset contributed to a NING is a business interest in anticipation of a sale, certain time restrictions apply to avoid the transfer and sale of the business being considered a ____.
Step Transaction
___ represent all industries in existence today; crowded; profits and growth prospects reduced; commoditized products and services; cutthroat competition
red oceans
__% have not done strategic review or value growth project.
86
Controlled auctions work best in a ____ climate and with interest from BOTH strategic and financial buyers
strong M&A
Build – Risky – In ___ stage
Prepare
____% of HNW individuals are interested in receiving help to understand what assets to contribute.
70%
Innovators are most likely to be ___ or ___ owned, in contrast to investors, who are most likely to have private equity ownership.
private or family
4 benefits of Wealth Management
Cash Flow; Risk Management; Investment Planning; Distribution
Pros of ____: Higher price (highest of the options); More cash up front; Walk away faster; Stability of deal terms; Business refresh (growth, new energy); Cost-effective; Breaks deadlock @ management level with family
Sale to a Third-Party
A business valuation correlated to a personal, financial and business attractiveness and readiness assessment to determine where the business value lands in the range of value
Deliverable #1 - the Triggering event
On occasion to be competitive, a buyer will pay more than 5 times EBITDA to secure a deal. This phenomena is known as ___.
the Super Rule of 5
___ is the final outcome of the first two cornerstones of relentless execution (vision and alignment)
Action Plan
Alignment is in the ___ gate.
Discover
Bringing on a ___ can be a fundamental step towards achieving the highest possible gross proceeds over the long run.
Private Equity firm
What is the Super Rule of Five?
If the growth rate is fast enough (or synergies compelling enough) that the effective multiple paid 1 or 2 years out is 5x, the deal may be priced right.
Use a ____ when the client has high-basis assets and is looking to transfer those assets outside his or her estate for estate tax purposes.
IDGT
Pros of ___: Business stays in the “extended family”; Shares purchased with pretax dollars; Taxable gain on the shares sold by the owner may sometimes be deferred; is an employee benefit; May cause employees to think and act like owners
ESOP
__ is an Irrevocable Trust; Goal is to move wealth to the next generation while minimizing estate and gift
GRAT
___ is the preliminary due diligence M&A document that acts as a sales document and communicates opportunities and weaknesses; it should not hide problems.
Confidential Information Memorandum (CIM)
True or false: creating a business valuation is the same process or formula for every business.
false
In the business model of ____, investment merits include (1) established, long-term customers; (2) integration with stakeholders; (3) proprietary/consumable products; (4) exclusive territory rights; (5) proprietary sourcing reltaionships
Distribution
____ essentially brings in a lender or equity investor to act as a partner to the business.
Recapitalization
Intergenerational Transfers: ___% want this option; only ___% actually do.
50%; 30%
______ is the price at which the transaction will occur between a “hypothetical” willing buyer and seller
Fair Market Value
Who are the limited partners of a PE group?
Investors - pensions, insurance companies, HNW individuals, family offices, endowments.
What is a mid-range business attractiveness score?
57%
Six Critical Factors of Succession *
- Assets; 2. Taxes; 3. Protection; 4. Children; 5. Voting control; 6. Spouse’s income
To buy owner’s shares, do MBOs use before or after tax dollars? What about ESOPs?
MBOs - after; ESOPs - before
___% of business owners indicated they have not established a formal transition advisory team
74%
Identify –In ____ gate
Discover
Organizing principal of cepa teams?
3 legs of the stool & the master plan.
_____ can potentially generate greater after-tax proceeds than third-party sales structured as an asset sale.
ESOPs Stock Sales
_____ is when owner sells all or part of the business to the management team. Management uses the assets of the business to finance a significant portion of the purchase price.
Management buyout (MBO)
Delivering action plans is completed in the ___ gate.
Prepare
Ideal for rebalancing: ____ expected returns, ___ volatility, ___ correlations
similar expected returns, high volatility, low correlations
The 4 inside ownership transition options?
- Inter-generational transfer; 2. Management buyout; 3. Sale to existing partners; 4. Sale to employees
Rank the 4 Fundamental M&A Options from Most to Least Control.
1) Debt Recap; 2) Minority Recap; 3) Majority Recap; 4) Sell 100%
Two components of ___ are (1) a periodic reassessment of a business enterprise and (2) Development of prioritized initiatives to strengthen the business
Business road mapping
A proven process that focuses on value growth and aligning business, personal and financial goals.
Value Acceleration
What % have no written transition plan
83%
Corporate Responsibility Assets can reduce company’s staff turnover rate by ____%
up to 50%
Range of Multiples: Below Average Risk = ___ x TTM Recasted EBITDA [estimate used for ignition controls problems]
7
Is recapitalization an inside or outside exit option?
outside
Only ____% indicated a corporate attorney was on their transition team
52%
Larger companies command ___ multiples.
higher
