Executive summary

Business Transitions

Mr. Sussman developed the Business Transitions consulting process to help owners of small and medium size businesses improve and enhance the value of their companies. This process is now the Business Transitions Program for Value Building.

Business Transitions is the culmination of Mr. Sussman’s years of practical experience in the Corporate environment; where he worked in Finance, Strategic and Operations management positions; the small to mid-size enterprise environment; where he founded, financed, operated and exited via sale transactions five different companies (2 to public companies, 2 to strategic acquirers, and 1 turnaround and sale in a private transaction); and as an investment banker, where he has acted as an M&A advisor on numerous sale, capital raises, recapitalizations and joint venture transactions. Throughout this journey, Mr. Sussman has frequently encountered good businesses, where the owners, stakeholders and management are unable or unwilling to exit or raise capital because the value of their business is not what they need it to be, in order to take that next step. Business Transitions for Value Building addresses this issue.

Business Transitions begins with an assessment of where the business is today, both internally and externally on the value scale. The next step is working through each area of the value chain and for each; putting in place the plans, operations, systems, processes, procedures and controls to improve and enhance performance, efficiency, revenue and earnings growth, and corresponding increases in free cash flow or EBITDA. EBITDA, Earnings before interest, taxes, depreciation and amortization is the key measure of business valuation, thus it is also the key measure for Value Building. For most every business, whether the purpose is to raise capital, growth through acquisitions, or a liquidity event; the greater the EBITDA and the more sustained the EBITDA growth, the greater the value of that company.

Business Transitions for Value Building is a corporate training program that effects, and drives change throughout a company. Throughout the company is important to keep top of mind. Over the course of this training program, the key aspects of your business that power its stability and current state will be analyzed, reviewed and effected with the common goal of building the value of the company.

The root cause of why most training programs designed to drive meaningful change throughout a company are unsuccessful is the that the focus is on the wrong areas and thus, the training itself is not appropriately focused and therefore frequently does not involve the relevant employees. Owners who want to drive improvement and build value within their company must implement training that addresses their business as an entire entity and focus on the key items that drive value. This limitation is addressed with Business Transitions.

Business Transitions is all about organizing and operating a company with a view towards the future goal and that future goal can take many forms; organic growth, growth via acquisitions, sale, pass to the next generation, semi-retirement or full retirement. Value Building is essential for each.

Organic Growth: Capital is generated by the business via increased sales or reducing expenses, or a combination thereof. In today’s fast paced, competitive business world it can be challenging to readily increase sales, but it is possible with discipline and, a proven and repeatable sales process. On the expense side, a strategy of pure cost cutting may have a meaningful impact in the year implemented, however, it is not a process with meaningful year over year improved results. A meaningful process for expense reduction is operational processes that are designed with the most efficient operation for sustainable operations.

Acquisitive Growth: Acquisitive growth with cash or equity. If cash, the cash must have been generated by the company or obtained from a third party. If the cash is raised via debt, the lender will evaluate the loan based upon the value of the underlying assets of the combined entity and the ability to repay the debt out of future cash flow. If equity is to be utilized value continues to be key. The greater the value of the company, the less equity the company will have to provide to the company being purchased or to a third party to raise the required cash.

Sales and Recapitalizations: Sales and recapitalizations of the company is the exchange of company for consideration such as; cash or equity in another company. Sales can be total sales, or majority or minority recapitalizations. A majority recapitalization is where a third-party purchases 51% or more of the company, while a minority recapitalization is the purchase of less than 50% of the company. In each case, value of the company is key. Company value determines the amount of consideration to be received, which in turn determines the next step in the owner’s life; exiting or remaining and continuing to manage the business. Owners frequently exit and move to the next phase in their life with a total sale. In a majority or minority recapitalization, owners typically remain with the company, execute a growth plan with the new majority or minority owner and then sell their remaining equity at hopefully greater value in the future. This is frequently referred to as “having a second bite at the apple.” Essentially what the third party knows and expects when making the recapitalization investment is that they will be able to successfully implement their version of a building value and increase the value of the company substantially to achieve their intended financial return on investment.

Pass Business to the Next Generation: Many times businesses are transitioned from one generation to the next. Unfortunately, historical statistical data shows that 70% of these businesses fail when passing from the first generation to the 2nd and 90% fail when passing from the second to the third. This is not a desirable outcome. The cause? Most frequently is the lack of proper planning, structure and organization of the business. The current business does well for the owners, but the structure, people, processes and the like are not in place to sustain the business. These are all essential elements for Business Transitions and all, if in place, significantly build value of the business.

Business Transitions provides options for company owners to take control of their business and generate the greatest return on their own efforts.

The outlook for improving business valuations remains very strong and will continue to grow into the future. For the most part, buyers and investors buy earnings. And strong and increasing earnings drive value. Thus, there is no doubt that building value is as much the future as it is the current, and the past.

Based upon demographics, it is safe to estimate that 12 million +/- businesses are owned by baby boomers and will be sold or transitioned in some method over the next 10 to 15 years due to retirement or other factors. Many owners of these businesses face the uncertain dilemma of their business not being valuable enough in a transaction that enough cash proceeds will remain after taxes to support the lifestyle to which they have become accustomed. Thus, building value today is essential for their future.

Similarly, although not as large a number, almost 8000 businesses are owned or backed by private equity in the US. The typical private equity firm has a time frame on the holding period for their investments due to maturity dates of their investment funds. This means that within their holding period, typically 5 – 7 years, the value of the businesses they own must increase. Only by increasing value of those businesses is the private equity fund able to sell that business at a multiple that represents a sale price enough greater than the purchase price and investment over time to provide their target return to their investors. Private equity funds that do not provide adequate returns to their investors have difficult times raising subsequent funds.

Finally, public companies also focus on earnings. Share prices represent multiples of earnings. The greater the earnings, the greater the share price and correspondingly the value of the company. Overall, building value is the central key to success for all businesses, from the smallest to the largest. Greater values, driven by increasing EBITDA is the key to increasing equity for the owners and other stakeholders of all businesses. With increased value, it provides the flexibility and ability of companies to drive their own futures in a way that meets the needs of the owners and stakeholders in the business.