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CEPA Flashcards

1
Q

What are the 5 D’s?

A

Death
Divorce
Disability
Distress
Disagreement

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2
Q

Why are owners leaving money on the table?

A

They are focused on income generation not enterprise value

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3
Q

The advisor of the future:

A

Focuses on value creation
Acts as quarterback of team
Oversees master plan
Helps other advisors get engaged

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4
Q

What is the mission of EPI and CEPAs?

A

Change the outcome

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5
Q

How does EPI and CEPAs change the outcome?

A

Create awareness
Fostering team play
Adopting a process

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6
Q

What percentage of private businesses are owned by baby boomers?

A

63%

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7
Q

What percentage of baby boomers plan to transition over the next 10 years?

A

76%

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8
Q

How many business owners profoundly regret selling their business?

A

3 of 4

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9
Q

What percentage of businesses on the market don’t sell?

A

70-80%

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10
Q

What percentage of family owned businesses survive the 2nd generation?

A

30%

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11
Q

What is the purpose of exit planning?

A

Maximize value of business at time of exit
Minimize taxes
Ensure owner can accomplish all personal/financial goals

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12
Q

What does exit planning include contingencies for?

A

Illness
Buronout
Divorce
Death

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13
Q

What percentage of business owners have done no exit planning at all?

A

49%

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14
Q

What is the first paradigm shift that needs to be made?

A

Exit planning is a good business strategy

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15
Q

What are the 5 stages of exit planning?

A

Identify
Protect
Build
Harvest
Manage

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16
Q

What are the 4 capitals?

A

Human
Customer
Structural
Social

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17
Q

What are the 3 legs of the stool?

A

Business
Personal
Financial

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18
Q

What are the the paths of relentless execution?

A

Vision
Alignment
Accountability
Rhythm

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19
Q

How much of a business owners wealth is normally tied up in their business?

A

70-90%

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20
Q

Why focus is value (versus just income)?

A

You can have both income and value, but need to focus on value first

Focusing on value drives all other positive outcomes

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21
Q

What are the 2 types of business owner styles?

A

Lifestyle
Value creator

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22
Q

What is intellectual capital?

A

The sun of everything everybody knows that gives it a competitive edge

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23
Q

What percentage of a company’s value rests within its intangible assets versus tangible assets?

A

80%

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24
Q

Why was value acceleration created?

A

To focus on management of intangible assets
Gives the owner holistic view of their entire net worth

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25
Q

What are the 3 gates of the Value Acceleration Method?

A

1-discover
2-prepare
3-decide

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26
Q

The value acceleration methodology is based on a management philosophy called what?

A

Business enterprise

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27
Q

In what gate is the triggering event delivered?

A

1

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28
Q

What is the total timeframe it typically takes to move a business owner through the full value acceleration Methodology process?

A

3.5 years or more

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29
Q

What is the definition of estate planning?

A

Process of planning for and documenting the transfer of assets with minimal taxes and transfer costs

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30
Q

How can business interests be sold to a third party or transferred to family or key employees?

A

Sale
Gifts
Trusts
Partnerships

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31
Q

What is the primary objective for most irrevocable trusts or FLPs?

A

Remove the business (or other asset) and future appreciation out of the estate

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32
Q

Are assets contributed at FMV into a FLP?

A

NO

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33
Q

What is a continuum that includes balancing equity, asset, and jurisdictional changes?

A

Asset protection

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34
Q

What percentage of entrepreneurs donate money to charity?

A

90%

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35
Q

What percent of HNW individuals give to 5 or more charities?

A

51.8%

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36
Q

What kind of assets can be gifted?

A

Cash
Marketable securities
Illiquid assets
Insurance policies
Accounts that create income for a beneficiary

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37
Q

What are considered illiquid assets?

A

C corp
S corp
LLC
LP
residential or commercial RE
mineral rights
Personal property

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38
Q

In 2016 charitable gifts exceeded what amount?

A

$390 billion

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39
Q

What percent of entrepreneurs company profits were reported as dedicated to charitable income?

A

3%

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40
Q

What percent of HNW individuals are interested in receiving help to understand what assets to contribute to philanthropy?

A

70%

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41
Q

What are 2 most highly valued gifts made to foundations/trusts/charitable organizations?

A

Business or business stock and real estate

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42
Q

How many US companies will try to exit by 2030?

A

250k or 5M-100M in sales

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43
Q

How many of the 250k companies will be deemed market ready to sell in 2030?

A

50k

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44
Q

How many business sales out of 250k will transact in 2030?

A

30k

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45
Q

How many out of 250k businesses will sell with concessions by 2030?

A

16k

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46
Q

How many businesses out of 250k on market in 2023 will sell at their desired value?

A

14k

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47
Q

Are public or private companies viewed as less risky?

A

Public

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48
Q

What are the four categories to increase enterprise value internally?

A

Revenue growth
Operating margin
Asset efficiency
Business architecture

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49
Q

What is the timeframe should most private companies can increase their value and should begin value growth?

A

3-5 years

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50
Q

How are risk and discount rate compared to each other when valuing businesses?

A

The lower the discount rate, the lower the risk and vice versa

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51
Q

What is business road mapping?

A

Periodic assessment of a business enterprise and development of prioritized initiatives to strengthen the business

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52
Q

In the value growth process, the advisor should encourage their business owner client to primarily focus on what?

A

Internal and external qualitative factors

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53
Q

What is a deliverable?

A

Report, meeting, workshop, or event that represents the conclusion of an assessment, step, stage, task or action

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54
Q

What does a deliverable represent?

A

What the client pays for

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55
Q

What should the deliverable lead the client to?

A

The next stage of work

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56
Q

How many actions should be completed every 90 days in gate 2?

A

No more than 5 personal and 5 business

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57
Q

How often do triggering events get owners to take action?

A

70% of the time

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58
Q

What is strategic value

A

Simple math

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59
Q

What is the formula for strategic value

A

Cash and sales x market multiplier

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60
Q

Where a business places in the range of value is determined by what?

A

Business attrativeness score
Exit readiness score
Financial benchmarking

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61
Q

What is the common sense scoring system

A

Premium-72%+
Mid-51-66%
Discount-50% or less

Target-67%

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62
Q

In gate 2 what deliverables can you use?

A

Master plan
Validation
Five business action items

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63
Q

What does SMART stand for?

A

Specific
Measurable
Aspirational
Realistic
Time based

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64
Q

How long does a vision take to implement?

A

3-10 years

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65
Q

What 4 words should be used to test an owners vision?

A

Belief
Passion
Opportunity
Focus

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66
Q

Creating action plans is associated with which activity of relentless execution?

A

Alignment

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67
Q

Protecting value is the first step of what?

A

Building value

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68
Q

What are the 4 cornerstones of relentless execution?

A

Vision
Alignment
Accountability
Rhythm

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69
Q

What does STEP stand for?

A

Spiritual
Things
Experiences
People

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70
Q

What is the price at which the property would change hands between a hypothetical willing buyer and hypothetical willing seller; when the former is not under any compulsion to buy and the latter is under no compulsion to sell

A

Fair market value

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71
Q

What is the value to a particular investor based on individual investment requirements and expectations?

A

Investment value

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72
Q

What is the value that an investor considers, on the basis of an evaluation of available facts, to be true or the real value that will become the market value when other investors reach the same conclusion?

A

Intrinsic or fundamental value

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73
Q

What is the valuation discount of fair value?

A

The price that would be received to sell an asset or paid to transfer a liability to an orderly transaction between actual market participants at the measurement date

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74
Q

What is the litigation definition of fair value?

A

With respect to the dissenters shares, means restore me to equity with the valuation on an enterprise level with no discount for lack of marketability

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75
Q

What is emotional value?

A

What a buyer and seller perceive
Most commonly an unrealistic seller expectation

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76
Q

What are the types of buyers and sellers?

A

Hypothetical buyer and seller
Financial buyer
Strategic buyer
Family members

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77
Q

The 3 schools of business include:

A

Investment banking
Formal FMV
Smallest companies rules of thumb

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78
Q

What gates are the Relentless execution in?

A

Vision-1
Alignment-1
Accountability-2
Rhythm-2

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79
Q

What are the drivers and influences of vision?

A

Personal identity
Financial security
Health status
Family responsibilities
Partner and family situations

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80
Q

What are the conflicting value systems?

A

Management
Family
Owner

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81
Q

When is a good time to establish goals and objectives with a business owner within the value acceleration method?

A

After discovering and discussing themes from the triggering event with the business owner

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82
Q

What gate is creating an action plan part of?

A

1

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83
Q

What is the final outcome of the first 2 cornerstones of relentless execution?

A

An action plan

84
Q

What is the key to passing through gate 1 into gate 2?

A

An action plan

85
Q

What should be the first type of action to be completed when prioritizing business actions?

A

Create a contingency plan

86
Q

What gate is delivering the action plan completed in?

A

2

87
Q

What is the 4th core concept of value acceleration?

A

Once the action plan is created it needs to be relentlessly executed

88
Q

What is a specific set of behaviors and techniques that companies need to master in order to have a competitive advantage?

A

Relentless execution

89
Q

What is a systematic process that rigorously discusses the how’s and what’s, questioning, tenaciously, following through and ensuring accountability?

A

Relentless execution

90
Q

What is the relentless pursuit of reality, coupled with processes for constant improvement?

A

Relentless execution

91
Q

What is a method to systematically assess accomplishments and disappointments to determine why we were successful or not successful in accomplishing the 90 day priority?

A

Accountability

92
Q

What workshops are useful to reinforce action?

A

Monthly 1:1
Monthly team accountability
90 day renewal
Annual retreat

93
Q

Most private equity firms are managed how?

A

Privately
Not in the on a day to day basis

94
Q

Can a private equity firm be a strategic buyer?

A

Yes!

95
Q

What is the formula for investment criteria

A

Firms charter + firms partners

96
Q

What are examples of outright sales?

A

Corporate divestitures
Owner retirement
Management buy-ins

97
Q

For businesses- what are the investment risk factors?

A

Customers
Industry and end markets
Suppliers
Competition
Management and financials

98
Q

Private equity groups look to invest in what types of businesses?

A

Manufacturing
Distribution
Service

99
Q

Main advantage of a strategic buyer

A

Willingness to pay a premium for control
Limited dependence on owner
Shorter time to exit

100
Q

Main disadvantages of strategic buyer

A

Confidentiality issues
Employee layoffs
Culture shocks

101
Q

Main disadvantages of financial buyers

A

Complex financial structures
Highly leveraged
Difficult due diligence

102
Q

What is the greatest unaddressed issue in the business world today? It’s absence is the single biggest obstacle of success

A

Execution

103
Q

What are the first types of actions a business owner should focus on when setting priorities in an action plan?

A

Mitigating risk

104
Q

How should you plan and execute according to value acceleration?

A

Plan backward
Execute forward

105
Q

Protecting value is the first step to what?

A

Building value

106
Q

When conducting a series of post triggering event workshops, which workshop would an owner share their vision?

A

Strategic framework 1

107
Q

What is a specific set of behaviors and techniques that companies need in order to have a competitive advantage?

A

Relentless execution

108
Q

What does the WOW curve chart?

A

A business owners enthusiasm over time

109
Q

The value acceleration methodology is based on a management philosophy called what?

A

Master planning

110
Q

Can a private equity firm be a strategic buyer?

A

YES!

On test

111
Q

Are ESOPS primarily or exclusively invested in employer stock?

A

Primarily
Can have other investments

112
Q

Who owns shares of an ESOP?

A

Trustee for benefit of employees

113
Q

esop eligibility

A

One years of service
21 years old
1000 hours minimum

Or 3 year cliff

114
Q

What are the 3 parts to an ESOP transaction?

A

Owner
Companies
Employees

115
Q

Are participants buying the shares in an ESOP?

A

No-they are beneficiaries of the trust

116
Q

What percent of owners have a formal transition team?

A

14%

117
Q

What are the pros of teamwork?

A

More connected product
Mindshare
Referrals
Emotional intelligence

118
Q

What are the cons of teamwork?

A

Slower
Group think
More expensive
More complicated

119
Q

What makes a team effective?

A

Trust
Conflict
Commitment
Accountability
Results

120
Q

What are the organizing principles of the CEPA team? And who is at the center?

A

The 3 legs of the stool

The business owner and their family

121
Q

What exit option most often presents a deal structure that favors the buyer

A

Financial third party

122
Q

After investing in a business what is a typical timeframe before the private equity group exits that business themselves

A

3-7 years

123
Q

What do accounting systems typically focus on?

A

Tangible assets

124
Q

Why was value acceleration created?

A

To focus on managing intangible assets

125
Q

What is a process that focuses on value growth, and aligning business, personal and financial goals?

A

Value acceleration methodology

126
Q

What are the main characteristics of a lifestyle business?

A

Good income
Can’t be sold
Owner dependent

127
Q

What are the main characteristics of a value creator business?

A

Premium income
Sold at a premium
Owner independent

128
Q

What are the 4 major areas in wealth management we can’t control?

A

Taxes
Time horizon
Inflation
Rate of return

129
Q

What are the 4 areas in wealth management that we can control?

A

Cash flow
Risk management
Distribution of money for life
Investments

130
Q

What percent of business owners do not have a written financial plan?

A

75%

131
Q

The value acceleration methodology is based on a management philosophy called what?

A

Master planning

132
Q

What are benefits of focusing on value?

A

Very predictable results
Gets employees thinking like owners
Mitigates risk

133
Q

What percentage of privately held businesses that are offered for sale each year ultimately do not sell?

A

80%

134
Q

What are the triggering events for a buy-sell agreement?

A

Death
Disability
Divorce
Offer by outside party to buy owners interest
Termination of owners employment

135
Q

When would you use a IDGT?

A

When the client has a high basis asset and is looking to transfer that outside their estate for estate tax purposes

136
Q

What are the tax effects of the NING?

A

incomplete for gift tax purposes
Complete for income tax purposes

137
Q

What are the tax effects of the IDGT?

A

Incomplete for income tax purposes
Complete for estate tax purposes

138
Q

How does the intermediated installment sale trust work?

A

Defers capital gains taxes on the sale of almost any type of highly appreciated asset

139
Q

Is asset protection a process or an event?

A

Process

140
Q

What are the best ways to accomplish asset protection?

A

Insurance
Legal docs
Asset placement
Jurisdiction
Beneficiary trusts

141
Q

Is asset protection a form of insurance?

A

Yes

142
Q

How does asset protection level the playing field?

A

Avoids lawsuits
Settle a dispute for less than owed

143
Q

What is a strategy that makes assets difficult or impossible to reach?

A

Asset protection

144
Q

Why do some charitable organizations say no to some direct gifts?

A

Doesn’t further mission
Excessive cost burden
Mortgaged property
Unidentified market
Location
Family considerations

145
Q

HNW individuals give how many times the amount to charity?

A

10 times

146
Q

What percent of HNW individuals intent to increase their giving or maintain it in the next 3 years?

A

83%

147
Q

What is a personal, financial, business assessment correlated to the business range of value?

A

Triggering event

148
Q

All engagements should begin with what?

A

A triggering event

149
Q

What is the formula for value?

A

R/EBITDA or R/SALES x multiple

150
Q

What is the number of a business that is calculated by adjusting the financial statements, called financial recasting

A

Real number

151
Q

Can a business control its range of value?

A

No. Determined by a private capital market

152
Q

What determines where you land in your range of value?

A

Attractiveness and readiness scores

153
Q

When talking about readiness, is the decision to grow or sell a state of fact or a state of mind?

A

State of fact

154
Q

Over what timeframe does a private company have the opportunity to double their value?

A

3-5 years

155
Q

What are the 3 approaches when determining market value?

A

Income
Market
Asset

156
Q

What are the 2 income approaches to valuation?

A

Discounted cash flow
Capitalized earnings method

157
Q

When do you use capitalized earnings method for valuing a business?

A

Steady predictable company
History to demonstrate

158
Q

When do you use discounted cash flow for valuing a business?

A

Cyclical company
Projection of growth looks like hockey puck

159
Q

What time period does DCF look over?

A

3-5 years

160
Q

Why don’t some people like DCF?

A

Can be a crystal ball approach and more complex

161
Q

Is the capitalized earnings method based on past or future performance?

A

Past

162
Q

What are the 2 market approaches to valuation?

A

Public company guideline method
Guideline transaction method

163
Q

What is the public company guideline method based on?

A

The pricing multiples of publicly traded companies

164
Q

What is the guideline transaction method based on?

A

Sale of an entire company to a buyer

165
Q

What are the 3 asset approaches to valuation?

A

Reported book value
Adjusted book value
Premise of value

166
Q

What kind of companies is the asset approach to valuation good for?

A

Companies that have heavy equipment

167
Q

What does the asset approach to valuation look at?

A

Real value of fixed assets

168
Q

What are the advantages and disadvantages of a stock sale?

A

Advantages:
Capital gain treatment
Simple and easy

Disadvantages:
Need for additional warranties
Liability concerns
No step up in cost basis

169
Q

What are the advantages and disadvantages of an asset sale?

A

Advantages:
Reduces reps and warranties
Avoid contingent liability
Step up in cost basis
Refuse unwanted assets

Disadvantages:
Potential double tax

170
Q

What are the gate 2 deliverables?

A

Monthly 1:1
Monthly team accountability workshop
90 day renewable workshop
Spin off projects

171
Q

What are the gate 3 deliverables?

A

Keep or sell workshop
Exit option analysis
Spin off projects

172
Q

What are gate 1 deliverables?

A

Triggering event
Personal/business envisioning statement
Team education
Strategic roadmap 1 and 2
Management alignment
Metrics/dashboard
Rhythm

173
Q

In what gate do you utilize a business valuation?

A

1

174
Q

What are the 3 schools of valuation?

A

Formal FMV
smallest company rules of thumb
Investment banking

175
Q

Are companies under 2M in revenue suitable for formal valuation?

A

No

176
Q

3 ways to increase enterprise value

A

Increase earning
Reduce risk
Position as best in class

***reducing risk has greater value than increasing earnings

177
Q

Top value drivers of a business?

A

Recurring revenue
Owner independence
Concentration
Succession planning
Financial systems and reporting

178
Q

Value acceleration must deliver atleast 2 of the 3 what crucial benefits?

A

Clarity
Liquidity
Legacy

179
Q

What is the purpose of an action plan?

A

Create a roadmap showing you how to realize your vision

180
Q

How should you prioritize your action items?

A

De-risking
Strategy
Efficiency
Growth
Culture

181
Q

How do you build an action plan and align it with goals and objectives (in order)?

A

Vision
Themes
Projects
Tasks
Milestones
Deliverables

182
Q

When is an opportunity assessment completed?

A

Before scoreboard and team accountabilities are developed
After the personal vision is established and 90 day personal actions are selected

183
Q

What is a continuous loop of prioritizing, executing, measuring, reconnecting, and recalibrating every 90 days?

A

90 day sprints

184
Q

What percent of business owners indicates they have not established a formal transition advisory team?

A

74%

185
Q

What are 5 core characteristics of an effective team?

A

Trust
Conflict management
Commitment
Accountability
Results

186
Q

What percent of business owners want to do an inter generational transfer versus how many actually do so?

A

50% want to
30% actually do so

187
Q

What are the ways that you can sell your business to a third party?

A

Strategic buyer
Financial buyer
Private equity group

188
Q

How do you value a business for a private equity group?

A

EBITDA x Multiple

189
Q

What is a firms charter?

A

Is what private equity groups tell their LPs what they do

190
Q

What is the typical company size for a private equity group?

A

$10-100 million with EBITDA of $2 million +

191
Q

In which type of equity transaction does the owner or shareholder end with the most liquidity but the least control?

A

Outright sale

192
Q

What is our role in third party sales abs M&A process?

A

Maintain confidentiality
Create active market
Maximize value

193
Q

Does maximizing value of a business always mean the highest price?

A

No

194
Q

What is the micro business market?

A

Less than $5 million in sales

195
Q

What is the middle business market?

A

$5 million to $1 billion

196
Q

M&A documents (in order)

A

Acquisition profile/teaser
Non disclosure agreement
Confidential information memorandum
Indication of interest/letter of intent

197
Q

What is in the confidential information memorandum?

A

Preliminary due dilligence document
Sales document
Communicates opportunities vs weaknesses
Doesn’t hide problems or issues

198
Q

Who is the direct negotiator for business terms in third party sales and M&A?

A

Investment banker

199
Q

What are 2 fatal mistakes in third patty sales and M&A?

A

Don’t confuse team members and their roles
Avoid end runs

200
Q

What is a family enterprise?

A

Family business
Family wealth

201
Q

What is a family Geogram?

A

Graphical representation of a family tree that displays detailed data ton relationships among individuals

202
Q

What is a dynamic process that occurs over a long period of time?

A

Continuity

203
Q

A family enterprise can be described as a what?

A

System

204
Q

In a typical leveraged ESOP formation, who would a bank directly loan money to?

A

The company NOT the trust

205
Q

What is the standard transition time for implementing an ESOP

A

4-6 years

CEPA (1 decks)

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