1. Valuing Your Business Name, title(s), designation(s) The Principal Financial Group  Date

2. VALUING YOUR BUSINESS BB10842-02 I 09/2015 | t15030202rb Insurance issued by Principal National Life Insurance Co. (except in NY), Principal Life Insurance Co. and the companies available through the Preferred Product Network, Inc. Securities offered through Princor Financial Services Corp., 800/247-1737, Member SIPC. Principal National, Principal Life, the Preferred Product Network and Princor ® are members of the Principal Financial Group ®, Des Moines, IA 50392. While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. The Principal Financial Group ® and its members are providing links to other websites to give you the option to explore information on financial services. The Principal ® did not create and does not claim any responsibility for the content on those pages. No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage and retrieval system, without prior written permission from the Principal Financial Group ®. Copyright © 2015 Principal Financial Services, Inc.

3. VALUING YOUR BUSINESS Insurance issued by Principal National Life Insurance Co. (except in NY), Principal Life Insurance Co. and the companies available through the Preferred Product Network, Inc. Securities offered through Princor Financial Services Corp., 800/247-1737, Member SIPC. Principal National, Principal Life, the Preferred Product Network and Princor ® are members of the Principal Financial Group ®, Des Moines, IA 50392. is not an affiliate of any member company of the Principal Financial Group ®. is not an affiliate of any member company of the Principal Financial Group ®. While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. The Principal Financial Group ® and its members are providing links to other websites to give you the option to explore information on financial services. The Principal ® did not create and does not claim any responsibility for the content on those pages. No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage and retrieval system, without prior written permission from the Principal Financial Group ®. Copyright © 2015 Principal Financial Services, Inc. BB10842-02 I 09/2015 | t15030202rb

4. BUSINESS, OWNER AND EXECUTIVE SOLUTIONS VALUING YOUR BUSINESS

5. THE TAILORED EDGE YOU NEED Our Business, Owner and Executive Solutions offer you the complete package – the expertise to help you find the right solutions, a portfolio of products to choose from, and the plan administrative services you need to focus on your business, and leave the details to us. VALUING YOUR BUSINESS

6. AGENDA Business valuation methods and techniques The benefits of knowing the value of your business The impact of a current and accurate buy-sell agreement VALUING YOUR BUSINESS

7.  Fair Market Value - the price at which the property would change hands between a willing buyer and a willing seller.  Would you sell your business interest today for this price? WHAT’S THE BUSINESS WORTH? VALUING YOUR BUSINESS

8.  Adjusted Book Value  Formulas o Capitalization of earnings o Multiple of discretionary earnings o Excess of earnings o Discounted future cash flow  Comparables BUSINESS VALUATION METHODS VALUING YOUR BUSINESS

9.  Simple to calculate  Not a reflection of the true value  Formula: Assets MINUS Liabilities = Book Value Book Value PLUS Adjustments = Adjusted Book Value ADJUSTED BOOK VALUE VALUING YOUR BUSINESS

10.  Easy to use  Assumes earnings will remain stable  Formula: Net annual earnings÷ capitalization rate = Total value of business CAPITALIZATION OF EARNINGS VALUING YOUR BUSINESS

11.  Common method  Formula: Average operating income PLUS Excess owner compensation MINUS adjusted book value X Rate of return on assets x Earnings multiplier = Total good will Total good will + Adjusted book value = Total value of business MULTIPLE OF DISCRETIONARY EARNINGS VALUING YOUR BUSINESS

12.  Estimates future earnings of the company and discounts them back into today’s dollars  Often used with mergers and acquisitions  Formula: Average operating income PLUS excess owner compensation at a specified growth rate MINUS adjusted book value X number of years to forecast X discount rate = Total value of business DISCOUNTED FUTURE EARNINGS VALUING YOUR BUSINESS

13.  Combination of the Adjusted Book Value and Capitalization of Earnings methods  Formula: Average operating income PLUS excess owner compensation MINUS adjusted book value X rate of return on assets ÷ capitalization rate PLUS adjusted book value = Excess of earnings EXCESS OF EARNINGS METHOD VALUING YOUR BUSINESS

14. COMPARABLES Experts or appraisal firms use data regarding the history and trends of particular assets or comparable businesses to determine an appropriate value. VALUING YOUR BUSINESS

15. BUSINESS VALUE DRIVERS VALUING YOUR BUSINESS  Focus on increasing cash flow  Develop operating systems that improve sustainability of cash flows  Document sustainability of earnings  Improve facility’s appearance  Pay down debt  Solidify and diversify customer base  Implement a strategy to grow the company  Build a solid management team, and groom a successor

16. WHO PERFORMS VALUATIONS? Business appraisal firms Business brokers or investment bankers CPAs Financial professionals VALUING YOUR BUSINESS

17. LET US HELP The Principal Financial Group ® can help! … and it’s free to you VALUING YOUR BUSINESS

18. INFORMAL BUSINESS VALUATION SERVICES The Principal ® offers complimentary informal business valuations. VALUING YOUR BUSINESS

19. WHAT IS AN INFORMAL BUSINESS VALUATION? VALUING YOUR BUSINESS  The Principal creates customized reports based on a review of the documents you provide.  We provide a complimentary informal business valuation using five commonly used valuation methods.  Result is a starting point for discussions with tax and legal advisors.

20. Good candidates for an Informal Business Valuation from The Principal include:  Manufacturing  Construction  Professional service  Information technology  Healthcare providers  Profitable businesses GOOD CANDIDATES FOR INFORMAL BUSINESS VALUATION VALUING YOUR BUSINESS

21.  Buy-sell planning  Exit planning  Estate planning  Executive benefits  Other NEED FOR VALUATION SERVICES VALUING YOUR BUSINESS

22. COMPLIMENTARY INFORMAL BUSINESS VALUATION Will you or your heirs be taxed on this? Or this? Do you have a buyer? What does your Buy-Sell say the value is? Will this hold if your Key Person leaves? VALUING YOUR BUSINESS

23. NO. 1: BUY-SELL PLANNING Implementing a well-crafted and funded buy-sell agreement is the foundation of a healthy business. VALUING YOUR BUSINESS

24. Common triggering events:  Death  Disability  Bankruptcy/Insolvency  Divorce  Termination of Employment (voluntary and involuntary)  Retirement BUY-SELL AGREEMENTS VALUING YOUR BUSINESS

25. Common pitfalls  No formal agreement  Poorly structured agreement  No funding  Antiquated agreements CONSIDERATIONS: AGREEMENTS BETWEEN OWNERS VALUING YOUR BUSINESS

26. Questions to consider:  Are all possible “triggers” included?  Is business valuation clear, specific, appropriate, continuous?  Is a “mandatory buy-out” required upon death and/or disability?  Is “disability” defined and consistent? CONSIDERATIONS: AGREEMENTS BETWEEN OWNERS VALUING YOUR BUSINESS

27. CONSIDERATIONS: CONVERTING PROFITS TO WEALTH *Source: Review of 720 buy-sell reviews by The Principal, Jan. 1, 2011, to July 31, 2014 Percentages of business owner agreements that cover the top three transition events and those that include them as mandatory triggers* 100 80 60 40 20 0 91% 70% 62% 35% DEATH DISABILITY RETIREMENT 12% 23% Mandatory buy-out events Most business owners tell us, “My business IS my retirement.”

28. BUSINESS OWNER BUY-SELL AGREEMENT VALUING YOUR BUSINESS

29. NO. 2: EXIT PLANNING What is exit planning? A process resulting in your successful transition out of the business. VALUING YOUR BUSINESS

30.  When can I exit my business?  Will my kids be able to – or want to - take over?  Will it sell for what it’s worth?  How can I avoid huge taxes?  Can it survive without me?  How do I reward key employees/management team to stay? COMMON OWNER CONSIDERATIONS VALUING YOUR BUSINESS

31. SALE TO INSIDERS OR OUTSIDERS VALUING YOUR BUSINESS

32. THE BEST LAID PLANS … Only 8% of business owners are confident in their exit strategy. 59% do not have a written plan in place to help continue the business in the event of death, disability or retirement. *Source: Principal Financial Group, USIS Business Owner Research, January 2015

33. EVEN IF THE BUSINESS IS SOLD, REPLACING THE INCOME IS DIFFICULT VALUING YOUR BUSINESS BoomBust Sale Price of Business$15,000,000$10,000,000 Capital Gains Rate/Tax Amount15%/$2,250,00024%/$2,400,000 Net Proceeds$12,750,000$7,600,000 Yield %@5%@2% Pre-Tax Income from Proceeds$637,500$152,000 Higher taxes and lower yields reduce potential income from reinvested sale proceeds.

34. NO. 3: ESTATE PLANNING Now is the time to review your estate plans. VALUING YOUR BUSINESS

35. TRANSFER TAXES Gift and Estate Tax Exclusion amount Maximum tax rate 2014$5,340,00035% 2015$5,340,00040% VALUING YOUR BUSINESS

36. NO. 4: EMPLOYEE BENEFITS VALUING YOUR BUSINESS Who is the difference maker in your company?  Immediately change operations, customer relations, profitability  Significant recovery time Hiring the difference maker  Compete with compensation and benefits  Consider customized benefits  Align commitment with vesting

37. Retaining and incenting the difference maker  Love what they do  Tie performance to reward  Futures in-sync  Money is a tool  Significance and durability  Reward commitment by “growing” the bonus HIRING, RETAINING AND INCENTING KEY EMPLOYEES VALUING YOUR BUSINESS

38. Five simple steps: 1.Set priorities. 2.Determine value. 3.Identify inside or outside buyer. 4.Assess impact to your estate. 5.Retain your key employees. THE PROCESS VALUING YOUR BUSINESS

39. DO-IT-FOR-ME VS. DO-IT-YOURSELF vs. VALUING YOUR BUSINESS

40. Q&A Questions? VALUING YOUR BUSINESS

41. THANK YOU Presenter name Contact info - phone Contact info – email Contact info - website BB10842-02 I 09/2015 | t15030202rb