Highlights from the September 21, 2022, webinar by Jim Dascenzo, CPA, Principal, HBK Manufacturing Solutions, and Keith Veres, CPA, CGMA, CEPA, Principal, Director of HBK Corporate Finance
Two separate topics:
Review of recent White House executive orders: one to kick-start CHIPS and Science Act and another to advance domestic biotechnology.
Executive order on CHIPS & Science Act
- Will establish a 16-member implementation council, including officials and cabinet secretaries, national security advisor, and director of the White House Office of Science and Technology Policy
- Priorities include providing oversight so the process moves along with the speed and efficient they hope for.
- $52 billion in new funding to turbo-charge chip manufacturing to ensure long-term leadership in microelectronic sector
- Focus on intensive review of compliance and how the funds are used
- Seek additional private capital to move effort along and expand the range of stakeholders
- Commerce Department has launched a website: chips.gov, which will be the go-to for all resources including funding and timelines
Executive order on advancing biotechnology & biomanufacturing innovations for a sustainable, safe & secure Ameircan bioeconomy
- Encompasses everything from pharmaceutical manufacturing to plastics to innovative fuels, a vast array
- A reaction to increasing competition from China’s strong biotechnology development program. To safeguard the dominant position we currently have in biotechnology
- No funding amount release yet
- Government understands it needs to support our biotechnology industry
- Extends beyond drug development to such things as agricultural feed supplies and biomass fuels
- Supports the core of the biorevoluaiton: computing, data sources used in computing, hard infrastructure used in DNA synthesis and fermentation
Selling Your Manufacturing Business
Keith Veres works with HBK client business owners on their exit strategies. How are business owners going to realize the value of what they’ve built over decades and sometimes passed down through generations through succession and exit planning
- 70-90 percent of owners’ wealth is tied up in their businesses
- 70-80 percent of businesses on the market for sale do not sell
- 80 percent don’t have a written plan
- 78 percent have no transition team</li
- 66 percent don’t know their options
- 49 percent have done no planning
Never too early to start your transition planning.
Your exit plan is your personal plan to exit your business: when, how much you’re willing to sell it for, how new owners will be successful.
A succession plan is how the business will continue without you. Are there family or management team members who can step into your shoes or do you need to look externally?
1. Having a realistic market valuation for your business
- Will help you know if unsolicited offers are flattering or offensive
- Half of businesses have to sell sooner than they thought as a result of the 5Ds: death, disability, divorce, distress, disagreement
- A realistic price will attract more potential buyers
- Important to have a discussion with an investment banker or business broker: they help business owners market their businesses externally to other strategic buyers in the industry or private equity groups
True Owner Benefits:
- Understand the true value drivers of your business, what is valuable to someone who is looking at your business
- Will uncover elements of risk in your business
- Considers value you receive beyond actual compensation: buyer should pay for all those benefits
2. Determine if the realistic market valuation will net the proceeds necessary to meet your ongoing financial goals
- Plug the valuation process into your personal financial plan to determine if that will be sufficient to retire or if you need to work more years
- Consider growing your business organically or through acquisition to increase its value
- Important to have a clear picture of your life after the sale of the business. Without a plan, many business owners, who are Type A personalities, have trouble finding something to keep their juices going
3. Determine what makes your business attractive to the buying market: from the buyer’s perspective
- Understand the difference between buyer’s motivations and seller’s
- Understand your company’s strength, opportunities, problems and risks as perceived by a buyer. This requires having the right professional team around you to help you make those determinations: what buyers will find attractive and what they might see as downsides
- Address what can be fixed, the low hanging fruit
- Start implementing new programs and opportunities, like a new line or product, to get some results on paper to show buyers it can be done successfully Will help you get more interested parties to the table
- Allow your team to be candid with you as they look at it form the buyer’s perspective
4. How ready is your business for a transition? How ready are the owners?
- How easily can the business, including your contracts, be transitioned?
- Do you want to stay on to help new ownership group be successful, in particular if you have some remaining ownerships take? Or do you want out immediately?
- Does the new owner need specific licenses or certifications or unique skill sets?
Summarily, first get that realistic value to generate enough interest and not waste anyone’s time, and to allow you to dictate your price and terms. Two, determine if your value accommodates your personal financial plan. Determine the things you need to change or address to make your business more attractive, to put it in the best possible light. And finally, understand what is necessary so that your business and you are able to transition effectively when the new owner steps into your shoes.
What is the difference between selling internally or externally?
- Internal sales can feel more comfortable by transitioning to family members or your management team. But it might not be best for you because family members or management team members do not have the financial wherewithal to make your personal financial plan work. You could still be on the hook for multiple years, and might have to come back in to save the business. Also trailing liabilities may still be attached to you.
- On an external sale, you might get full payment upfront. Or you might maintain, typically, 20 percent of the business, and when the business grows and is sold, your 20 percent is more valuable. Selling to an outsider can be much more lucrative.
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