Successfully Exit Your Business on Your Terms

Successfully Exit Your Business on Your Terms

The 100% Business Guarantee You will leave your business at some point. 1. Will it be as you imagined or planned? Or 2. Will you work until you can no longer add value; then you or your family liquidate it?

Business Transition Plan Survey Show of hands for your current Exit thoughts Family Transition Generational transitions 1 st to 2 nd, 2 nd to 3 rd, 3 rd to 4 th or higher Sell Business External Internal Partners, Leadership Team/Key Employee, ESOP Liquidation

Exit Readiness & Preparation Preparation for success 1. Mental Readiness 2. Financial Readiness 3. Business Readiness 4. Time

Successful Transition Characteristics They have a PLAN! Terms and Vision for Exiting are defined Personal and Business Readiness inventory taken Time horizon is defined Focused on working their plan

This image cannot currently be displayed. Your Head & Heart How many years until you exit your business? Do you see your exit as gradual or swift? Why? Do you want the business to survive you? Mentally when will you know you are ready? What does life look like without the business? Have you shared your exit thoughts with your spouse and family?

Can You Afford Your Vision? Financial Readiness Checklist This image cannot currently be displayed. ü Personal Financial Planning ü Business Valuation ü Proceeds Analysis ü Insurance ü Wealth Gap

Exit Quadrant Chart Adapted from Exiting your Business, Protecting your Wealth, by John Leonetti TRANSITION OPTIONS Internal Buyout Management Team Partners Family Transition/Gifting ESOP TRANSITION OPTIONS Sell to External Buyer Internal Buyout Family Transition/Gifting Professionally Managed ESOP FINANCIAL READINESS HIGH LOW WELL OFF BUT CHOOSES TO WORK STAY & GROW RICH AND READY TO GO GET ME OUT AT HIGHEST PRICE LOW HIGH TRANSITION OPTIONS Grow Biz & Increase Savings Sell to Investor Group Family Transition upon inability to work or death Liquidation upon inability to work or death MENTAL READINESS TRANSITION OPTIONS Sell to highest price External Buyer Internal Buyer Liquidation no buyer

Ownership Transfer Characteristics INTERNAL OWNERSHIP TRANSFER Transition can be gradual Buyer(s) successors are known Culture & methods maintained You may stay involved & in control You hire and develop your successor Buyer has NO MONEY You finance buyout over 5-10 years Increased risk - possible loan default Low business value likely/poor terms Lower taxes and fees EXTERNAL OWNERSHIP TRANSFER Transition is immediately Buyer may be stranger/competitor Culture/methods may change No future involvement or say New owner brings new leadership Buyer brings cash/financing Get paid immediately No/low risk of default Higher business value/better terms Higher taxes and fees

Personal & Financial Readiness Define your Exit Vision Your Head & Heart Your Financial Plan Your wealth gap? Business s financial contribution required What s the business worth, how to enhance value? Start building an Advisor Team Estate Planning Contingency Plan Protect my family

Business Readiness Transition option(s) Time horizon Leadership team development Business value enhancement Increase profitability

Financing Business Transitions Using SBA to finance transitions Jennifer Fern, KeyBank VP and SBA Specialist

How to Attract the Cash

The Beauty of the SBA Allows for the extraction of sweat equity enabling the departing party the cash necessary to move on with their life. Legacy - Can help to ensure the business lives on with the least amount of impact to operations thus helping to preserve existing jobs. Takes into consideration the health and viability of the business by allowing for longer repayment terms (10 year term) thus providing reduced strain on cash flow. Allows for the financing of goodwill without 100% collateral coverage. Job creation/retention = economic growth

Common Misconceptions of the SBA SBA loans are NOT funded by the government. The bank provides the capital, the government provides the guarantee. SBA is not the lender of last resort - the government guarantee allows the bank the get comfortable with credit deficiencies such as lack of collateral, longer than industry repayment terms, higher risk industries and lower down payments. SBA is not riddled with red tape provided you are working with experienced professionals and have the right people advocating for you. I will work with your client from beginning to end to ensure that the process is as seamless as possible. Contrary to popular belief, SBA loans have similar due diligence requirements as conventional loans.

Real Life Dreams Come True

Client Example #1 Hardware Store Employee Acquisition of Business

Hardware Store Need: Creative buy-out financing and working capital line of credit. Business Info: Business has in business for over 75 years. The company has a good reputation and a strong market share. The existing owners had been in place for decades, 50/50 brothers. One brother died suddenly of a heart attack. The other brother didn t want to continue to run the business without him. Existing long term employees were then given the opportunity to buy the business. Buyers had many years experience in subject business and were existing employees. Buyers were fiscally conservative however were young without the benefit of time to amass much net worth or cash.

Hardware Store The SBA Solution: Provided new buyers with a buy-out loan with only 4% down. Seller carried $161K note on standby to assist with equity injection. Provided a $200,000 working capital line of credit to support operations. Buy-out Loan Term = 10 years

Hardware Store Uses Sources % Acquisition of Existing Business $ 1,268,500 KeyBank SBA 7a Loan $ 1,090,000 Working Capital - LOC $ 200,000 KeyBank SBA Express LOC $ 200,000 Soft Costs (Fees/Costs) $ 46,775 Seller Carry Note $ 161,850 Other $ - Equity Injection $ 63,425 TOTAL $ 1,515,275 $ 1,515,275 Source Amount Detailed Source of Equity Injection: Cash - Guarantor #1 $ 31,713 2.5% Cash - Guarantor #2 $ 31,713 2.5% Standby Seller Carry Note $ 161,850 12.8% Financial Metrics $ 225,275 17.8% Cash Flow Coverage 1.54x Collateral Coverage 0.06 Time in Business 89 years Management Experience Strong - been with company since 1993 Debt to Worth 5.20X Current Ratio 4.85x KeyCorp Public 20

Hardware Store The Result: Two existing employees were able to become a business owners with little cash down. Seller was able to extract the majority of his sweat equity from the business. Retained all jobs as the company was able to live on under new ownership. Business is thriving. They are currently in negotiations to purchase a building. At least 2 new jobs have been created.

Client Example #2 Metal Fabrication Plant Partner Buy-Out

Metal Fabrication Plant Need: Existing owner was looking to transition. Business Info: The business had been operating for over 30 years. The company has a good reputation and a strong market share. The existing owners have been in place since inception. Sales and financial metrics were stable. The owner did not have anyone identified to take over. He recruited a young man who he struck a deal with to work there with the intent to take over and over 3 years he would be awarded ownership if he met certain metrics. At the end of 3 years this young man had 3 years experience and 30% ownership.

Metal Fabrication Plant The SBA Solution: Provided new buyer with a buy-out loan to purchase 70% of the business. No cash down was needed due to his 30% ownership. Refinanced and existing laser. Provided a $200,000 working capital line of credit to support operations. Buy-out Loan Term = 10 years

Metal Fabrication Plant The Result: Young man was able to become a business owner with no additional cash down. Seller was able to extract his sweat equity. Existing employees were able to keep their jobs as the company was able to live on under new ownership. Business is now thriving. They recently bought a building and acquired another metal fab company to expand. At least 10 new jobs have been created.

The Dirty Details This image cannot currently be displayed.

SBA Requirements Companies/Guarantors must meet the following criteria: Maximum SBA Aggregate Exposure = $5 million For Profit Businesses Only Company Must Meet Size Criteria Business cannot have a tangible net worth that exceeds $15 million and an average net income of greater than $5 million over the past two years. Pyramid sales, Gambling, Speculative Businesses, Pornography, Private Clubs, Financial Lenders, Religious Institutions, are not eligible Business Valuation Engaged by Bank is Required Owners Must be of Good Character with Strong Management Skills Personal Guaranty of Any Owners of 20% or More Life Insurance Policy and AOC Trust Deed Filing on Personal Residence may be Required on Guarantors.

Underwriting Highlights Most Important Underwriting Criteria 1. Adequate Cash Flow Coverage (minimum = 1.15:1.00) 2. Management Experience 3. Positive Financial Trends 4. Personally Fiscally Responsible 5. Good Credit and Moral Character Guarantors Clean Personal Credit - (Guideline = Beacon Score of 670 or greater) Post Injection Liquidity - (Guideline = 9 to 12 months of debt payments) Personal Debt to Income Ratio - (Guideline = 40% or less)

What is Most Important to YOU? Are you ready to retire? Is it important that your legacy live on after you exit? Are your employees like family? Is your business in that space where strategic buyers are not a viable option? Are you looking to extract the majority of your cash now? Is your sales price less than $5 million?

Business Transition

Jennifer Fern VP & SBA Specialist jennifer_fern@keybank.com 4735 SW Hall Blvd Beaverton, OR 97005 Mobile: 503-750-8507 Philosophy I specialize in working with businesses in the Oregon and SW Washington markets with SBA transactions. I am passionate about delivering creative and intelligent financing solutions and work closely with my clients throughout the SBA process. I'm a strong proponent of the SBA program and the impact it has on our local and national economy. There's nothing better than having a direct contribution in helping a client reach the next level of success. I have the rare opportunity in helping make my clients dreams come true, which is a true joy to me. Experience I started my banking career in 1996 as a teller and since have worked in various roles throughout the bank. Of my 21 years in banking I spent 10 as an underwriter with 6 of those in commercial banking. During my time in commercial banking, I analyzed some of the larger more complex relationships in the bank, which has given me unique qualifications in my current role and a strong grasp of business financials and fundamentals. Additionally, I hold a degree in both finance and management from Portland State University s School of Business Administration and have a Master s in Banking from Pacific Coast Banking School.

The CabDoor Story Salem manufacturer of hardwood cabinetry components for independent cabinetry shops in NW & CA. (200 employees) Transition Planning Focus Closing the Wealth Gap Leadership team development Business value enhancement

Family Transition Story Family transitions can have 3-generations in the business or financially drawing on it at once. Transition Planning Focus Planning horizon 30+ years. Building personal wealth Estate Plan protect family wealth & business Family & leadership team development

Internal Transition to Key Manager Second generation metal manufacturer selling business to key internal manager. Transition Planning Focus Transition Plan developed 3 years ago Key manager approached owner Business Value Enhancement Transition works for both parties

Exit Strategy Planning

QUESTIONS THANK YOU