1. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com Basic Business Concepts Income – EBITDA, Pre-Tax, Net Cash Flow – Financial statement tie-ins Liquidity Ratios – Current ratio and quick ratio Costs – Fixed, variable, opportunity Economy of scale – scalability and capital needs Debt Leverage – ratios and limits Return on equity and assets Capitalization rates and income multipliers Goodwill and going concern value

2. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com

3. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com

4. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com ABC Inc. Current Ratio: $10,413,185 / $4,410,407 = 2.361 Quick Asset Ratio: ($10,413,185 - $3,128,897) / $4,410,407 = 1.652 Debt-to-Equity Ratio: $10,809,183 / $5,657,905 = 1.91 to 1 Return on Equity: $2,008,361 / $5,657,905 = 35.59% Return of Assets: $2,008,361 / $16,467,088 = 12.19%

5. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com ABC Inc. Equity Value Based on 12.5% capitalization rate on EBITDA: $4,122,554 /.125 = $32,980,432 Percent of Stock Issued to New Investors: $5,000,000 / ($32,980,432 + $5,000,000) = 13.16%

6. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com ABC Inc. - Debt vs. Equity Factors Cash flow impact of interest and principal payments on debt Debt-to-equity ratio impacts Opportunity costs of more debt now Enhanced return on existing equity with more debt Control impacts of more stock Future dividend and take-out pressures with more stock Reduced income impacts with more interest expense Tax impacts of debt vs. equity

7. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-1 Why Lawyers Scare Business Owners Fear disguised incompetence Fear of not understanding Fear bad value proposition - Uncertainty - Inherently inefficient - Cost/value assessment impossible - Fund piece meal education Bottom Line: Must eliminate these fears to succeed

8. Basic Practice Objectives Strong Clients - Critical Mass Quality Service - A solid game Enjoyable Co-workers Time to be good Balance Numbers that work 18-2 Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com

9. Spotting Winners and Losers: The Questions Does client have real industry expertise? Does client know target market and have competitive intelligence? Does client have written strategic plan? Does client have access to adequate capital? Does client have requisite people skills? Does client have track record for playing by rules? 18-3 Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com

10. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-4 Other Planning Professionals Financial Planners (CFPs) Insurance Professionals Investment Advisors CPAs

11. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-5 Getting Your Referral Sources Define who you are, what you do, why you should be used, why you are different. Believe it - Do whatever it takes, however long it takes Write it down - edit, edit, edit. Put it in short tasteful brochure and smart internet website Target referral sources - how you can make them better Allocate disciplined promotion time: - Group opportunities - One-on-ones - Make food an ally

12. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-6 The Unspoken Keys To Referral Sources You enable them to do better, look better You become one of their “Value Added Elements” You let them stay in front - even lead with your ideas You are cool with “Second Chair” without compromising quality or client confidentiality - they are safe with you With every business owner, there will be a loyalty shift if you do it “right”. Just let it happen - never acknowledge it. No matter how successful you become, continually cultivate and thank each referral source. Don’t promise return referrals - you will only disappoint. Remember, to them you are the back office.

13. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-7 Becoming an Educator Believe in the value of your message Develop your audience style - learn by experience Practice how to make it simple, logical, understandable Invest in educational materials Work the Internet Be available

14. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-8 Perennial “Hot” Business Owner Topics “Phasing Out” without having to “Sell Out” Retaining and motivating key employees without giving away a piece of the rock Defective Buy-Sell structures: Spotting and fixing Smart life-insurance strategies for the business owner Diversifying owner wealth: Why and How? Inside/Outside “Kid” planning Washington: What’s Happening

15. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-9 Talking Tips Bag all “lawyer-like” transitions - “therefore” “notwithstanding”, “whereas” … Focus on objections and solutions, not rules and exceptions Summarize first your conclusions, then provide analysis. Don’t hide ball, create suspense, or try to build to climax. Try to just tell a story Use diagrams, charts - anything visual to help When possible, tell war stories

16. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-10 Advisor Prerequisites Patience - Takes time to be invited in Genuine interest in business The Scorecard honor Brutal honesty Risk advisor - Tackle facts - Then honestly evaluate stakes - Then assess odds

17. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-11 Contact Programs Standard Client Communication Quarterly works Hard Copy: More expense, greater impact New stuff focus Clients and referral sources Personal Affirmative Contact (PAC) program Message no big deal Max personalization Twice a year works Don’t make it a holiday thing

18. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-12 “Engaging” Your Employees Money, Money, Money One win, all win A voice mechanism - a right to be heard Hire brains, passion, nice - not attitude Don’t live with a mistake Three times makes a client - all before just audition Remind: “Months to get, seconds to lose” No office job too small - “beneath” All deserve “Colleague Respect”

19. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-13 Four Billing Dimensions Standard Fixed Fees - All can sell Quoted Fixed Fees Retainers - The beauty of email Hourly rates - often backed by “advance” projection Remember: - No ugly surprises - You can bear some risk - Efficiency far more important than guarantees - Above all, a fair deal - Never count the other guys money

20. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-14 Efficient Delivery System Client advance educational tools Smart fact gathering tools - no lawyer time Quality forms Staff masters of forms Form explanation tools Time allocated disciplines: Appointments, Documents, Admin, Discretion/Surprise, Promotion, Study/create Turn around and follow-up standards

21. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 18-15 Your Value Added Education A fair deal Bring together - once a year, your way Professional - look, actions The power of “Name” Positive, upbeat - not just about money