CEPA - Value Acceleration Methodology Exam Questions And Answers

Master planning - three key legs to a successful transition? - ANS Personal plan, financial plan and business plan maximizing the value of the business, ensuring you are personally and financially prepared to maximize net proceeds, and ensuring you have a plan for what you are going to do next. What are the three gates of the Value Acceleration Methodology? - ANS Gate 1 - Discover Gate 2 - Prepare Gate 3 - Decide What are the five stages of Value Maturity? - ANS 1. Identify Value 2. Protect Value 3. Build Value 4. Harvest Value 5. Manage Value What is the first step in the value acceleration methodology? - ANS Triggering Event - a business valuation correlated to a personal, financial, and business attractiveness and readiness to determine where the business value lands in the range of value. Where your business is in the range of value depends on what 3 factors? - ANS (1) the results of your financial analysis and benchmarking; (2)your attractiveness score; and (3) your readiness score. What are the deliverables from the Discovery gate? - ANS - A specific and qualified list of personal, financial, and business strengths and weaknesses - Correlated and used to justify present value and potential value - To establish a dollar value with regard to what value enhancement is worth What are the steps in the Discovery process? - ANS P Recast income statement and balance sheet P Complete financial analysis P Pull benchmarking data • Industry performance • Recent trade multiples P Complete a Personal, Financial, and Business Assessment which scores the business's attractiveness and the owner's personal, financial, and business readiness P Correlate the interview scores with the business valuation and financial analysis Final Step in Discover Gate? - ANS Prioritized Action Plan is created P Personal / Financial actions P Business actions How do you get Recasted EBITDA? - ANS you adjust any number on the income statement that does not reflect a true picture of the cash flows of the business. Which financial benchmarks should you focus on? - ANS Concentrate on gross margin as a percent to sales and EBITDA as a percent to sales. What is the formula for determining the value of your business? - ANS It is "recasted" cash, usually expressed as EBITDA, times a cash market multiple and recasted sales times a sales market multiple What are the four C's that can help increase the value (multiple) of the business? - ANS Human Capital Structural Capital Customer Capital Social Capital What determines the range of multiples for your business? - ANS The market will take this range up and down depending on the state of the private capital markets, economy, and the industry you are in. You can't control this. BUT YOU CAN CONTROL WHERE YOU FALL WITHIN THE RANGE If your value using EBITDA is less than your value using sales, what does that tell you? And how can you double-check this? - ANS indicate that you are underperforming financially compared to similar companies in your industry. Double check by calculating industry average EBITDA as % of sales and If you multiply these percentages by your TTM sales, you produce a theoretical average and best-in-class recasted EBITDA benchmark Profit Gap? - ANS The difference in cash flow your are producing vs BIC. Calculated by taking BIC EBITDA as % of Sales and multiplying that by your TTM sales. Subtract BIC from your number = Profit Gap Business Attractiveness Score: what is average? Red Flag? Premium? - ANS 58% - Average Below 50% - Red Flag 72% and above - Premium what should be the target Business attractiveness score? - ANS 67% Exit Readiness Score - ANS Same process but determines how ready you are personally, financially and business wise to exit. 95% of M&A advisors indicated this as the number one reason business don't sell. - ANS owners perception of the business value versus its real value. What % of businesses don't sell? - ANS 80% What % of businesses fail to tranistiion to the next generation? - ANS 70% What % of business owners regret selling their business a year after their exit? - ANS 75% What three things must you consider when completing the attractiveness and readiness assessments: - ANS • First, how attractive is the business from an outsider's point of view? • Second, is the business ready? • Third, are you ready? What are common deal killers? - ANS • Owner dependence • Lack of documentation • Lack of transferable systems and processes • Product liability • EPA/safety issues • Lawsuits How do you correlate your readiness scores to your range of value? - ANS if you scored poorly, it is likely that your financial performance as benchmarked against others in your industry is poor as well. Compare your EBITDA as % of sales to the industry. How do you determine your company's value gap? - ANS Multiply your the BIC recasted EBITDA (using the BIC EBITDA as % of sales against your own TTM) against the BIC multiple. That will show you BIC Value... Then subtract your current value. You have to assign your company a multiple based on the readiness score! Definition of Value Gap - ANS the value gap is the quantified dollar value of the difference between your present value and the value of similar best-in-class businesses in your industry What is after the triggering event? - ANS Creating a prioritized action plan What does the timeline look like - ANS Vision - 3 years Theme - 1 year Projects - 90 Days Tasks - 90 days Milestones - 30 days Deliverables Your first 90 day improvement cycle will be dedicated to? - ANS will likely be entirely dedicated to organizing and creating your action plans.