What Every Business Owner Should Know

Outline UVU/KT Family Enterprise Center Presentation Purpose/Mission: 1. Bring together Family-Owned, Privately Held Family Business Owners in a Safe Environment to a. Network b. Engage Roundtable discussion on issues currently facing them c. Education on: i. Economic Conditions ii. Legal and Income Tax updates iii. Business Value Optimization iv. Funding Growth/Expansion v. Exit Planning 2. UVU/KT Motivating Facts a. UVU considers first-hand, on the job training a critical component of a student’s education. b. UVU wishes to partner with Utah companies to deliver that critical component. c. Most UVU grads tend to stay in Utah d. Therefore, UVU seeks to support Utah companies and their owners to thrive and grow. e. According to Forbes and US Census: i. 86.4% of all businesses in the US are privately held – not publicly traded. ii. In Utah 99.3% of all businesses are privately held. 3. Today we will focus on just one of the 5 items listed above: Exit Planning 4. What are some of the critical challenges facing privately held, family-owned businesses? a. According to the Exit Planning Institute’s State of Owner Readiness annual studies (conducted since 2012 in 12 states): i. On average, 80% of the owner’s/partner’s wealth is tied up in the equity of the business. ii. Only 2 or 3 (depending on the year) of every 10 companies put on the block this year will sell. Therefore, either 70% or 80% of the businesses that are on the block for sale this year will not close. 1. Can you afford to be one of the 8? iii. Therefore, 70% or 80% of business owners will not harvest the equity of the business this year. iv. 75% of owners who do sell profoundly regret their decision 12 months after selling. v. Only 46.7% of owners sell at their desired price. vi. Of the sales that close, 50% closed because of one of the 4 D’s: Distress, Disagreement, Divorce, Disability and Death. b. According to the Family Firm Institute: i. 30% of family-owned businesses survive to the 2nd generation. ** ii. 12% of family-owned businesses survive to the 3rd generation. ** iii. 3% of family-owned businesses survive to the to the 4th generation. ** 5. Why does this happen? a. Many owners don’t know the real value of their business i. Think the business is worth more than it really is ii. Don’t know how to value the business iii. Don’t know how their business compares to other businesses in the same class as theirs. b. Businesses are valued based upon 4 types of Capital: 3 are Intangible, 1 is Tangible: c. 80% of the value of the business resides in the Intangible (non-financial) Capital of the business: i. Received a lower multiple /sales price due to due to factors that include poor or nontransferable intangible capital.* d. Why? Did not, or cannot answer the question, “What happens after?” i. They don’t know if they can continue their lifestyle after. ii. They don’t know if they will have significance after. 6. Common Questions of Family Business Owners a. What is our business truly worth? b. Could it be made more valuable? c. Which characteristics make it different/unique from my competitors? d. If we sell, would there be enough, after taxes are paid, to secure my lifestyle and my family’s future? e. If we don’t sell, how do I transition it? To whom and when?