Post on 16-Apr-2017
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Succession Planning: How to Engage Members
in Their Future
March 28, 2017
For Purchasing Coop Execu3ves Make the business case internally and
help members understand succession op3ons
© Project Equity and Castle Wealth Advisors 2017
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INTRODUCTIONS
Bryan Munson
NCBA-‐CLUSA
Gary Pi9sford, CFP®
Castle Wealth Advisors, LLC
Alison Lingane
Project Equity
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AGENDA
1. Making the business case
2. MarkeJng succession planning to members
3. Understanding the opJons
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Making the Business Case: Reduce A9riLon
1. Educate members – RealisJc business valuaJons – Different avenues for selling – What to do if approached by a non co-‐op member buyer – How to plan for succession – How to get started
2. Encourage the next generaLon – EBITDA to appraised value = 23.6% – EBITDA to stockholders equity = 36.89%
3. Protect cooperaLve – Income – Membership numbers – Financially stronger members
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MarkeLng Succession Planning to Members
• Provide educaJon on many levels – Classroom, videos, arJcles – One-‐on-‐one meeJngs – Surveys – Exclusive webinar for members – Data, how to’s and stories
• Field staff handouts • MulJ year process
– Succession/exit planning can not be learned in one class or one year
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Understanding the OpLons
SUCCESSION OPTION
KEY POINTS
GOOD FOR CO-‐OP?
Close down
• Last resort • Lose enterprise value ✗
AcquisiLon • Sale outside the co-‐op • All cash is good for seller • All stock is not good for seller
✗ Sell to family
• Good long term plan • Financially good for parents and children • Need to groom management
✔ Sell to another member
• All cash sale is good for seller • Seller is secure ✔
Employee ownership • ESOP • Worker coop
• Good for employees • Good for seller, potenJal tax breaks • ESOP is more expensive b/c highly regulated • Requires leadership succession
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Close Down
• This is what we’re aiming to avoid by being pro-‐acJve about succession planning – Lose enterprise value – Customer base – Last resort
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AcquisiLon
• Discuss roll-‐ups
• Discuss compeJJve companies
• Impact on employees
• Many of these don’t work
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Sell to Family
• Discuss a typical family plan – ValuaJon for family transfer – Gia some stock – Sell remainder with promissory note or bank loan – ConsulJng fees – Rent on building – Other benefits
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Sell to Another Purchasing Co-‐op Member
• Discuss a typical plan: member to member sale – ValuaJon for selling to non-‐family – All cash – Buy assets, not stock – Some consulJng for short Jme – Triple Net lease
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Employee Ownership CooperaLves
Worker-‐ Owned Coops
ESOPs
Stock grants
Housing Coops
Consumer Coops
Purchasing Coops
Employee Ownership
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Worker CooperaLve Conversion
• Business owned and governed by their workers – 100% employee ownership, high employee engagement – Board of Directors made up of majority worker-‐owners – Profit-‐sharing via patronage, based on hours worked
• Flexible business form (Co-‐op Corp, LLC most common)
• PotenJal significant federal tax benefits
• Lower cost
• Financed: employees don’t come up with 100% of the sale price on their own
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ESOP -‐ Employee Stock Ownership Plan Overview
• All or a porJon of the company’s shares are held in a trust on behalf of the employees
• ReJrement benefit, regulated by ERISA / DOL
– Qualified defined-‐contribuJon employee benefit plan designed to invest primarily in the stock of the sponsoring employer
• PotenJally significant federal tax benefits at >30% of stock held by the ESOP
• High set up and ongoing costs
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Employee ownership forms
Worker co-‐op
DemocraLc ESOP
ESOP
100% employee ownership ✔ Recommended SomeJmes
Built in profit-‐sharing ✔ Recommended
DemocraJc governance ✔ ✔
PotenJal seller tax breaks ✔ ✔ ✔
Annual valuaJon req’d (ERISA / DOL regulated) ✔ ✔
Suitable company size? All sizes Large Large
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What Purchasing Co-‐op Leadership Should Know
SUCCESSION OPTION
WHAT YOU NEED TO KNOW
GOOD FOR CO-‐OP?
Close down
• Support financial success of members; share financial benchmarking
• Last resort ✗
AcquisiLon • Educate members: what to do if approached by acquirer
• >50% stock sale may be a bad idea ✗
Sell to family
• Good long term plan • Help members assess / plan for this opJon ✔
Sell to another member
• Maintain confidenJal buy / sell lists • Help members understand this can be an opJon ✔
Employee ownership • ESOP • Worker coop
• Financial feasibility is first step • For a worker coop, also employee interest • ESOPs are more expensive; higher pot’l tax breaks • DemocraJc ESOPs build in employee engagement
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Stay tuned for Parts 2 & 3 of this webinar series, leading up to October Purchasing Co-‐op Conference
þ Part 1: Succession Planning: How to Engage Members in Their Future
q Part 2: AcquisiJon & Selling to Family, Late Spring
q Part 3: Selling to Another Member & Employee Ownership, Summer
q Purchasing Co-‐op Conference: Oct. 4-‐6 in D.C.
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© Project Equity and Castle Wealth Advisors 2017
QUESTIONS?
Gary Pi9sford, CFP® President and CEO Castle Wealth Advisors, LLC Gary@Castle3.com 317-‐849-‐9559
Bryan Munson Manager, Business Development NCBA-‐CLUSA bmunson@ncba.coop (202) 471 – 0900
Alison Lingane Co-‐founder Project Equity alison@project-‐equity.org 510-‐684-‐6665