Keep the End in Mind Starting, Operating, and Exiting Your ABA - - PowerPoint PPT Presentation

Keep the End in Mind

Starting, Operating, and Exiting Your ABA Business

Presented to BHCOE by McLaughlin Advisors, Inc. July 14, 2020

Agenda

Introduction Building Your Business Primary Strategic Alternatives Adjusted EBITDA Calculation The Selling Process

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McLaughlin Advisors

John McLaughlin (Sioux Falls, SD)

• Chancelight – past EVP and current board

member

• Behavioral Innovations – past Managing

Director and board member

• Author of three books and dozens of articles
• PhD Educational Administration

John Bergstrom (St. Paul, MN)

• Investor, entrepreneur, advisor to small

businesses

• Board member for 25+ growth companies
• Education, technology, and marketing

focuses

• MBA Finance

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Your Stage as a Business Owner

Just getting started In business a few years Things are going great Long-planned transition juncture Unsolicited

• ffers have

arrived Change in personal circumstances Partnership difficulties Business distress

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Poll Question

Number of Owners in Business

1 2 3 4+

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Poll Question

How Many Years Have You Been in Business?

<2 2-5 6-9 10+

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Poll Question

Key Interests

• f Buyers

Geography

Profitability

Consistency

Redundancy

Growth Rate Revenue

Predictability

Systems

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Building Your Business

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As You Start Your ABA Business

Ownership Considerations

• Founders’ ownership equal or a different arrangement
• Possible involvement of passive owners as advisors
• Plans regarding possible additional partners in the future
• Need for cash – solved by using debt or selling more
• wnership

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As You Start Your ABA Business cont.

Things to Discuss in Advance

• Philosophy on life and work
• Lifestyle business or an entrepreneurial undertaking
• Time frame expected
• Consider any differences in age or circumstance among owners
• Interplay of compensation levels and profit distributions
• Do workload levels vary for the owners

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Legal Agreement Among Owners

• Highly advisable
• Often called a Buy-Sell Agreement
• Lays out
• What happens if one of the owners dies, becomes disabled, retires, resigns,
• r is terminated
• How additional owners buy into the business in the future

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• Periodic valuation of the business is typically established as the basis for any

buying or selling of ownership that may occur

Primary Strategic Alternatives for Exiting Your Business

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Variations on Exit Approaches

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Sell Minority Sell Majority Sell All

• Sell less than half, keep control
• May be part of long-term sale plan
• Take some money off the table
• Method to involve key employees
• Sell control, keep minority
• Private equity firm favorite
• Retirement planning
• Keep some taste of upside
• Sell 100% for complete transaction
• May remain as employee for transition
• Large operator favorite
• Fastest route to complete exit

The Value of Your Business

www.mclaughlinadvisors.com Single Most Important Concept in Finance

All financial assets are worth exactly the present value of their expected future cash flows.

Important Concepts in Valuation

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• Present value
• Cash flows
• Future cash flows

Adjusted for both time and risk Most often estimated based on EBITDA (earnings before interest, taxes, depreciation, and amortization) Most often estimated by historical actual cash flows with expected growth rate over time Sometimes evaluated based on revenues, which are in turn capable of future cash flows

Adjusted EBITDA Calculation Example

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GAAP Income Statement GAAP Income Statement

Modest revenue growth rate Improving margins of revenue ~63% Stable operating expenses Operating income ~17% Credit line and equipment lease debt Income taxes paid as C Corporation GAAP Net Income

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Actual Actual Forecast $000's 2018 2019 2020 Revenue $ 11,749 $ 12,083 $ 12,532 Margin $ 7,343 $ 7,612 $ 7,958 Op Expenses $ 5,597 $ 5,597 $ 5,602 Operating Income $ 1,746 $ 2,015 $ 2,356 Interest $ 124 $ 124 $ 108 Taxes $ 402 $ 402 $ 375 Net Income $ 1,220 $ 1,489 $ 1,873

EBITDA Calculation

From GAAP income statement Part of operating expenses

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Actual Actual Forecast $000's 2018 2019 2020 Net Income $ 1,220 $ 1,489 $ 1,873 Interest $ 124 $ 124 $ 108 Taxes $ 402 $ 402 $ 375 Depreciation $ 208 $ 195 $ 201 Amortization $ 45 $ 44 $ 43 EBITDA $ 1,999 $ 2,254 $ 2,600

Adjusted EBITDA with Add-Backs

Non-cash expense for employee stock options Difference between market and actual salary Savings from centralized finance and accounting Personal expenses inadvertently included

• Adjusted EBITDA

www.mclaughlinadvisors.com Actual Actual Forecast $000's 2018 2019 2020 EBITDA $ 1,999 $ 2,254 $ 2,600 Non-Cash Compensation $ 21 $ 54 $ 25 Excess Owner Compensation $ 132 $ 140 $ 145 Cost Take-Outs $ 200 $ 200 $ 200 Personal Expenses $ 48 $ 45 $ 35 Adjusted EBITDA $ 2,400 $ 2,663 $ 3,005

Actual Actual Forecast

$000's

2018 2019 2020 Notes

GAAP Income Statement

Revenue $ 11,749 $ 12,083 $ 12,532 Modest revenue growth rate Margin $ 7,343 $ 7,612 $ 7,958 Margin approx 63% of revenue and improving Op Expenses $ 5,597 $ 5,597 $ 5,602 Stable operating expenses Operating Income $ 1,746 $ 2,015 $ 2,356 Operating income approx 17% of revenue Interest $ 124 $ 124 $ 108 Credit line and equip lease debt Taxes $ 402 $ 402 $ 375 Income taxes paid as C Corp Net Income $ 1,220 $ 1,489 $ 1,873 GAAP Net Income

EBITDA Calculation

Interest $ 124 $ 124 $ 108 From GAAP income statement Taxes $ 402 $ 402 $ 375 From GAAP income statement Depreciation $ 208 $ 195 $ 201 Part of operating expenses Amortization $ 45 $ 44 $ 43 Part of operating expenses EBITDA $ 1,999 $ 2,254 $ 2,600

Adjusted EBITDA with Add-Backs

Non-Cash Compensation $ 21 $ 24 $ 25 Non-cash expense for employee stock options Excess Owner Compensation $ 132 $ 140 $ 145 Difference between market and actual salary Cost Take-Outs $ 200 $ 200 $ 200 Savings from centralized finance & accounting Personal Expenses $ 48 $ 45 $ 35 Personal expenses inadvertently included Adjusted EBITDA $ 2,400 $ 2,663 $ 3,005

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The Selling Process

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Sale Process Approaches

Passive Active Broker

Wait for ideal buyer to express interest Respond to inquiries, attend conferences, reach

• ut to buyers

Hire a business broker or investment banker to manage process

Tactics

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Types of Potential Buyers

Existing Relationships Strategic Operators Investment Firms

Key Employee Competitor Entrepreneur National Brand Regional Operator Healthcare Provider Wealthy Family Unfunded Sponsor Private Equity Firm

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In Preparation for Exiting

Clean up Make Enhance Extend Consider Focus

Tough decisions you’ve been putting off Contracts with agencies and school districts Organizational structure BCBA productivity Real estate options On the goal – operate like you’re not selling

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Where McLaughlin Advisors Adds Value

Helps start your business with the exit in mind Provides a strategic assessment of value and exit options Helps prepare during the year prior to the sale process Helps hire brokers and

• ther professionals

Supports you through the sale process

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Helps start your business with the exit in mind

For more information related to this presentation, please visit:

www.mclaughlinadvisors.com Thank you.

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