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Summary of Podcast on EP19 - Cruella de Vil Part 1 - Making the Best Presentation for your ESOP - special feature guest "The English ESOP Guy" - The Grid Wiki

EP19 - Cruella de Vil Part 1 - Making the Best Presentation for your ESOP - special feature guest "The English ESOP Guy"

Journey to an ESOP & Beyond

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| June 28, 2022

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When should a business owner start succession planning?What advice do business owners who sold to third parties have to offer me?Will all of my employees become owners if I sell the business to them?

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Original Description

This episode is going to focus on preparing for the Confidential Information Memorandum or CIM - this is the presentation that will provide a thorough overview of the industry and company information to prepare for negotiations of your ESOP.

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Well hello this is the ESOP guy but the English is up guy we're going.  On this journey to an ESOP so thank you for joining I'm filling in for the American ESOP guide today.  And would just want to say first off I'm super super privileged and honored to be here today with you yeah the American eats up guy actually took us some summer vacation and so here I am to take his place.  Now want to start off with this Esau podcast because of first of all I'm super intrigued by The Americans.  And the whole concept of an ESOP in the tax breaks that you get in America or just phenomenal I realize now that this podcast is so valuable and it's enriching because what it does is it really  really provides a resource for those that are thinking they might want to go.    [1:02] Create an ESOP for the company and you need this because it's so important to know exactly what might happen so as you go through each of the processes and the steps that you have to get to become an ESOP in so seriously on this is today's topic.  And I'm going to start off with this again inspiration and we'll see from there.    [1:28] In the very beginning.    [1:31] Music.    [1:48] A psycho.  A psycho that's what she says or you might realize and recognize that from.    [2:02] Very popular story and a very popular movie called Career ladder Ville and what that's all inspiration for the day and what this topic is going to be,  is called the Cruella de Vil making the best presentation for your ESOP.  Now you may or may not know this but in an ESOP process one of the major steps that we're going to have is when we're going to create what we call a Sim,  any Sim is simply stands for a confidential information memorandum now this information that we're talking about is really information about the company.  And the symbol e is in deliverable terms it presentation Apollo typically a PowerPoint presentation or a slide deck.    [2:49] If you have gone through the process of doing any MMA work you'll know that this is very quite popular with any m a transaction that an investment banking firm might have,  you go through  and so again well I want to do is talk about how it relates to a knees up transaction and you might know as the American ESOP guys talked about this multiple times that.  A lot of the ESOP transactions that are done in America are done.    [3:18] Through Investment Banking firms now he has also said this and I'll say it too is that the actual cost of doing an ESOP through an investment banking firm is is is quite crazy it's a lot of money and,  the reason they can charge so much is because frankly they are including your ease up transaction as a traditional MMA deal,  which it's really not it's more or less like an MMA deal and I know I know he's talked about that multiple times,  but let's don't get stuck in there so today's topic is going to be how do you prepare your company for the presentation and I know that what's going to happen.  Because I've got a lot to talk about.    [4:00] Is going to probably split itself into two parts in the first part of this of this podcast is going to be going through the first two steps of creating the presentation itself and then those going to be  two final steps in what we are trying to do in terms of the goals and objectives so  if you like what you hear please subscribe to the podcast it's a little bit English Australian I kind of mix it up a little bit but ESOP guy.  Thumb is still is still part of this whole process of helping you determine whether or not an ESOP is going to be right for your company so subscribe to the podcast if you're think it's really helpful maybe share it with a friend.  You can find all our episodes on the ESOP God podcast journey to an isak.com.    [4:48] Right movie review time okay listen the inspiration for the presentation of the Sim now really what I like about this movie,  first of all that they use English accents and I love that because it was something about as Americans they like really like in English accents because it I don't know.  It's intriguing I guess maybe more interesting than the American exit I don't know,  but it's that's one thing I like about this movie right there English people,  or acting like English people secondly what is cool about this movie and I'm going to really connect the dots I promise you about this connection between this topic that we have with Sims is this,  person who calls herself karela DeVille is so genius,  now what happens is Disney tells the story and they take a villain and they make her sound like she's really a kind of a good person but she's really not.    [5:48] That's why it's so twisty in it.  It's really not it's she's kind of an evil villain herself but there's one there's one that's darker than she is and so it makes you like her better.  And so the baroness is them is the main villain and then Cruella's cannot like the secondary villain but the protagonist anyway so getting too caught up in that  the thing is Cruella there is brilliant at making presentations and what I want to do is connect the dots between your ESOP process and in Remembering something as you go forward that you're going to be presenting your company,  to a trustee and evaluation form,  probably also the attorneys and so you want to make the best possible presentation you can and so this is where Correll is fantastic because she's she is incredible at making  presentation now all of that whole show that whole movie is really about fashion and to be honest with you I know,  I don't care about fashion what I do care about those making the best presentation possible.    [6:49] So the first part of our podcast is really going to do an explorer proactively.  What presentation should look like and so the value of this to you would be really to make sure you understand these components of a presentation to start to stimulate in your mind.  Things that you might want to be working on now and really thinking about how you might position your company with,  respectfully how some of these things work and so the first thing we want to do is we want to put ourselves in the in the seat of the audience who is the trustee,  the valuation from who we actually talking to in the presentation or who you actually making the presentation to now to give you a little context what happens in the process of doing a nice job.  And we talked about the very beginning steps but I'm going to run through those really quick and then imma jump into this is that you really are going to start with when we think about the ESOP being right for your company you're going to start with doing some type of valuation model,  so that model can really help you predict what you believe the valuation will be when you do the transaction so that's important.    [7:59] Once you have that number you're going to want to do a feasibility model where you really look at the the ins and outs of the cash flow.  As it relates to paying off all this debt that's going to be suddenly burning the company so that's going to be important you're going to want to look at,  that the net proceeds for the selling shareholders what actually what happened in transpire through taxes and cash flow as well so that's going to need to be estimated the third thing you won't want to do is you want to really look at the.  Possibility of how your ESOP as an S corp or a C Corp is going to work,  from the 40 for the ton 25% limitations of and the 409 P if it's an S corporation so so that's really feasibility and you move all that together so now you really prepared to move into the  did to the interview process and you finally hired into an interview and you hire a trustee.  And we move quickly through this because I'm getting to the Sim so we're ready down to schedule our site visit now the typical type of process that happens.  Is we set Jewel a site visit at the company's location.    [9:07] With the key people in the company with the trustee in the valuation phone of course the sell-side advisor maybe even the attorneys if they want to come.  So we're at the now we're Vision Lee Visionary Visionary like we're at the site visit and we're ready to talk about the the company so all of this is kind of setting up the background and the context that we need,  to say okay the goals and objectives of the Sim of the confidential information memorandum,  I simply to make a very good presentation and cover all the major material issues in concerns and opportunities that this company presents to the potential buyer.  And in this case the buyer is the trustee so keeping that in mind one of the things I would say and I'm going to I'm going to Kip.  You know break this down into a couple sections because I think it's very important that we follow a structured presentation.    [10:05] Now what this does we could easily go in and talk about the company for hours of course we've we can do that all day long but what we want to do is we want to use our time and their time efficiently,  and we know that on the sell side advising we're going to have things that they're going to want to know about.  So the first thing an overarching thing when you when you start creating your presentation and it should be pretty it should really be prepared by the sell-side advisor so if he or she is not doing that then stop right there right,  but they should prepare it and really what they're doing is they're preparing that Sim in collaboration with you.  So that you can make sure that your input has directly involved in that format now their format is going to hopefully be the most efficient,  and I'm going to give you all format as we go through this.    [10:54] So the very first part of the presentation that we're going to get into is just making sure that all of the parties that we have including the company key people.  The valuation firm the trustee,  and of course the sell-side advisor and attorneys any other advisors that are possibly they're all detailed because we want to start off a meeting with very good introductions to make sure that everybody knows who is in the room,  and making sure that everybody,  understands what people's roles are and especially if you're brand-new to Annie so this is important because you've not been through this process before.    [11:34] So this is just building some foundation so the next thing we're going to do is we're going to split the presentation up into.  Four key elements for an hour would call this the agenda and in the agenda what we're going to have is you're going to have the very first.  Agenda item is really explaining explaining the industry itself so what does the company do what industry do they actually.  Operated and how does that all work we're going to get into that some detail on there the next thing we're going to do in the agenda is we're going to go through,  what is the company like now we know what business there and but how actually do they function so there's a lot of parts and pieces of that and that would say that in general that was going to be,  the bulk of your presentation because it's very important to understand the story behind the company and how it actually works and we'll talk about all the specifics as we go through that.    [12:26] We'll go into then go into the third agenda item which is,  the Fine Art Finance financial highlights and now what does that mean so all the history of the financials the balance sheets there's the components the the natural numbers and just top through the numbers so,  that's going to be a very specific part of our podcast it will get into.  And then eventually as we go through all of that we're going to pull it all together with the ownership structure and 2D selection sequel best score,  making sure that's all very clear the step-by-step process of actually creating the ESOP and then what the transaction really will look like,  so that that transaction itself can be discussed and making sure that everybody in that room understands what this is going to be now everybody should know that of course every ESOP is,  somewhat similar but they're also very unique and different depending on what types of.    [13:18] Types of warranty might use back War it's a sauce or what what sort of percentage of the ESOP you're selling of Bank finest it so there's a lot of parts and pieces to it so we want to discuss the,  the transaction so really as we get started in this episode what we want to do is we want to make sure that everybody understands that,  that presentation in and of itself is really just to guide the process of the actual meeting.  And so that the meeting itself is most efficient in bringing about anything that is majorly important in the in the buyers mind,  so that there are no possibilities of hey we miss you did not know that we had a for instance litigation or something like that in the.    [14:06] On To The Next Step so so let's dig into a little bit of the industry section and I want to talk a little bit about.  The the goals and objectives of this section of the presentation.  So what we want to accomplish is I will know I mean everyone knows that there are certain industries that are very generic like construction right and or manufacturing or Distributors however.  Each company has possibly and the more they specialize the better I each company has possibly a niche niche,  or maybe possibly a specialty or something they do in unique in the industry,  so they may have a small part of the industry so like in that case that they only servicing this type of customer maybe it's only a government type of customer maybe it's only a consumer type of customer so there's a very important part of the industry,  overview that we need to very much Define.  The specific the speciality of the company and the nature of their expertise in the industry.    [15:11] And so what we want to do is is build some some industry data.  Base to Brown that specialty so it may be that geographically that that they are doing business  in a specific County or state or partly like maybe in a region like the southeast or the Northwest and so we want to geographically Define the industry some companies do business all over.  Internationally so so what where do they do business and then.  Secondarily what products and services what Market do they serve in with in respect to that so is it,  specific to a certain type of buyer again consumers  and then specifically if it's a it's a very special tea we want to understand better what that industry looks like so the data and the research for the industry review is going to be very important because it's going to build the founding the foundation.  Got the the presentation in multiple Parts the first is.  We want to understand that how the trend of that industry is going to affect the company in the future,  I say that in a different way so the,  industry itself if we do data research and we find that the company is in fact working in an industry that's growing.    [16:34] We want to document that growth and like every good business person we want to use graphs so we'll want to use maybe a bar graph that shows the growth of the market over over a predicted period of time.  So what's the compound annual growth rate of the of that type of Industry the total market now if the market at the industry mock is not.  Growing is at fact it's Contracting,  that's going to present some serious issues right when I come back to the forecasting section which is going to be found in the fourth step of our presentation or the third step of our presentation when we're talking about the financials and so.  It's going to be important to connect the dots between when we're starting to think about the actual,  industry so and how it connects to the forecast and in providing credibility to the forecast before we even get to the forecast so we're laying the groundwork,  for that.    [17:32] Second floor of the industry data overview is not only to understand the Specialties and then ditches and how that relates back,  to the forecast and the financial cash flow of the company is going to come back to another part of what I would just call the concern over.  The the.  Valuation itself and so how does that connect so really what happens is we all as business people as business valuation people we all.    [18:03] Estimating the total value of the business based on the cash flow that we derive which is what I couldn't was talking about before.  In a forecast if that's growing cash flow then that's going to be evaluated and that's going to be calculated in off Financial evaluation as a average e beta as it grows.  The other part of that valuation that's a very significant is what are the risks of the business specific company risk.  Can be very neat to the business and so a lot of times in the industry overview what we're really trying to do is document if there are specific.    [18:42] Company risk that need to be really identified or the mitigation of those specific company risks so if I have a company.    [18:52] That is in a very competitive industry.    [18:56] I'm obviously going to have to think in underway around that competition like what has been their history their experience what is eventually as we build up to the next step in the Sim what is their competitive advantage in that Marketplace.  And so partly when we do the industry overview what we're really doing is laying the groundwork for word where the company.  Has first off where the risks are in the business if it's a risk of say a customer concentration or it's a risk of competition.  Or the in-depth technology that they might have all of these requirements in the industry are going to relate back to specific company risk.  And so what we're going to do is we're going to use the platform for the actual.  Industry overview to really document and make a case.    [19:49] Positive and maybe in a sense just transparently where we might have issues or risk in how we actually deal with those.  Now that's it that's fundamentally important because if we don't do that.  Then the valuation firm we're relying on the valuation firm and the trustee to come up with these ideas and so what we have to do in this process is really document well and so I know that we're kind of moving we're moving quickly but we want to move,  through the Sim slowly so I'm going to only have time today to talk about the industry overview so the next time we come back in the next podcast episode,  what we're really going to do is connect the dots between that now as we transition into the conversation but there's some planning that needs to be done prior to getting the company overview section laid out and we're going to go into some of the detailed planning,  and then we're going to go through some of the details related to.    [20:43] How we actually present those pieces of the company overview so extremely important I'm so glad you could join us today with the English ESOP gyno the American American guys enjoying his vacation,  hopefully you all to when we come back next time it'll be either me or him I don't know but with all of that.  I hope that you gain some knowledge from this today I hope as you go through your journey to an ESOP,  it's absolutely exhilarating and exciting and you all looking forward to it I'm excited about our next step on this journey to an ESOP.

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About Journey to an ESOP & Beyond

ESOPs are gaining traction. In the "Journey to an ESOP & Beyond” podcast, Phillip Hayes explains the process of the ESOP transaction and addresses ESOPs from a business owner’s perspective. The "ESOP Guy" illuminates the simplicity of ESOPs as he debunks common misconceptions that ESOPs are immensely costly and complicated.

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