Home >Documents >Cook, Inc SESSION THREE WORKBOOK Decisions and Notes for Modules 1 – 6 BSMARTer Business...

Cook, Inc SESSION THREE WORKBOOK Decisions and Notes for Modules 1 – 6 BSMARTer Business...

Date post:17-Dec-2015
Category:
View:214 times
Download:0 times
Share this document with a friend
Transcript:
  • Slide 1
  • Cook, Inc SESSION THREE WORKBOOK Decisions and Notes for Modules 1 6 BSMARTer Business Simulation Management and Relationship Training
  • Slide 2
  • Summary Introduction 2 Cook, Inc continues to have success in growing their overall business. We have grown at a rate of 12% in new assets in 2015, and revenue has increased 18% in 2015. And although the new compensation plan resulted in an increase in compensation payout, operating profit margin increased year over year from 36.7 to 38.2 percent. The team addressed the changes in equity that will take place amongst the team members in the coming years. We have one more year in our previously outlined plan of buying the firm back from the bank. The factors for determining the firm value were identified and who gets partnership opportunities and when. We also outlined the succession plan for the firm and the timeframe for transitioning Natalie out of the firm. As a result of realigning the reporting structure, service model, and role compensation, team morale is at the highest point its ever been. We leveraged Fidelity practice management resources in determining the best way to show our employees their value. We were recognized as Employer of the Year in 2015, and continue to strive to provide our employees with opportunities to show their leadership and excel with the firm.
  • Slide 3
  • Fundamentals of Equity MODULE ONE
  • Slide 4
  • Changes in Equity 2 By 2016, Cooks previous loan from the bank will be fully paid off. At this time, Natalie will be 7 years out from her planned retirement date. Given the firms Partnership Agreement which outlines ownership transfers to take place over 7 years, Natalie will begin in 2016 to transition her 30% ownership stake to facilitate her future retirement plans. The partners have established firm criteria for admitting new owners: Note: for more detail on criteria for becoming a partner please see Module 3
  • Slide 5
  • Changes in Equity 2 There are 3 individuals who may be eligible and interested in increasing their ownership percentage: 1)John John is a Lead Advisor and currently owns 10% (vs. Natalie and Dylan own 30%). 2)Kelly Kelly was hired as COO in 2014. The firm decided not to initially give her equity as they wanted to ensure that she was a good fit with the firm and that her contributions warranted ownership. Based on the changes she has implemented and her contributions to the firm to date, the partners agree that establishing criteria for Kelly to begin to acquire ownership next year (2016) is a good decision 3)Madison Madison was promoted to Associate Advisor in 2014 and has been performing very well in the role. While it is agreed that she is likely on track for future ownership, she will first need to be promoted to a Lead Advisor Existing owners with less than 20% ownership in the firm will receive Right of First Refusal on any equity being offered. If an existing owner chooses to participate, the available equity will be distributed equally among all parties eligible and interested in increasing their ownership. John, as an existing partner will receive Right of First Refusal
  • Slide 6
  • Valuation Principles and Experience MODULE TWO
  • Slide 7
  • Firm Value 4 There are 3 factors that impact value: 1)Growth: We feel that the overall Growth rating of the firm is Average for the following reasons: Last years growth was very good (26% NNA). However, the growth rate has not been consistent We implemented a formal marketing plan in 2014 We have been increasing SOW with existing clients (8% in 2014) which shows a solid belief in the firm from our clients and the firms ongoing profitability Strong revenue per advisor and client (70 bps avg) 2)Risk: We feel that the overall Risk level of the firm is relatively low for the following reasons: (+) Previously, the growth of the firm was all concentrated with one individual (Natalie). However, in the last year, we took steps to mitigate this and diversify growth amongst other individuals and compensate them in line with industry standards (+) Average age of clients is below industry average of 62.6 years (+)We have non-compete and non-solicit agreements in place for all Lead Advisors per the Partnership Agreement. (+) We also created a career path and solid organizational structure for the firm to retain key talent (+) There are no heavily concentrated assets (with just 1 or 2 large clients). (+) Award winning firm culture which will aid in retention of existing employees and clients and attraction of new employees (+) Hired a COO to put processes in place and improve firm efficiency (+) Participated in Fidelity benchmarking survey to continue to evaluate our business and and measure against our peers (-) Firms increasing valuation will make it more difficult for junior partners to buy in (-) A lot of the brand equity is still tied up in Natalie
  • Slide 8
  • Firm Value 4 3)Cash Flow (aka EBITDA): Overall the profitability of the firm is Very High for the following reasons: (+) Firm has maintained and increased our profit margin to 38.2% (up from 36.7% in 2014) (+) We increased revenues at a greater rate than expenses (leading to an increase in profit margin) (+) High quality of average client average client size is $5MM (+) Very high revenue per client avg. bps is 70 bps and revenue per client = $36.6K Cooks Partnership Agreement indicates that they will value the firm at 7x EBITDA. Per Devoe & Company, a $500MM firm is going for 5-7x EBITDA and a $1B is going for 6-8x EBITDA. Based on our assessment of how we rate on the three key criteria
  • Slide 9
  • New Partnership Admission MODULE THREE
  • Slide 10
  • Criteria for New Partners 6 Decisions for evaluating new partners will be made by the Board of Directors on an annual basis Additionally, on an annual basis, existing partners can elect to sell a portion or all of their ownership to existing owners and or newly admitted partners Criteria for new partners: Partnership is evaluated largely on subjective measures. Given the size of the firm (based on the number of employees) and the desire to maintain the firms award-winning culture, we do not want to restrict ownership solely to revenue producing employees. Rather, ownership qualification will be determined based on overall contribution to the firms success as measured by the firms mission, vision and value statements. In general, new partner criteria will include: New partners must demonstrate a commitment to achieve the firms stated goals New partner must demonstrate the highest level of ethics and integrity New partner must have directly contributed to growth, scalability of the firm or firm profitability (in the form of operational efficiency or expense reduction efforts) New partner demonstrates commitment to longevity of the firm and desire to remain with the firm Subjective feedback requires Board to feel that ownership will help retain a valuable employee New partner must be consistently exceeding core job responsibilities for their functional role as evaluated during their annual reviews Note: if at a point in the future, Cook Inc.enters into an agreement to bring on an individual or individuals with an existing book of business,
  • Slide 11
  • Partnership Agreements MODULE FOUR
  • Slide 12
  • Partnership Agreements 8 Given the size of the firm (10 employees, including 4 owners), we do not currently feel that the organizational and ownership structure warrants both a Board of Directors and a Managing Committee. Therefore, for the time being we are going to modify the Operating Agreement to change the governance of the firm from a Board of Directors to an Executive Committee. The Executive Committee will consist of Natalie, the CEO and all of her direct reports : Kelly, COO Dylan, CIO and owner John, Lead Advisor and owner Alex, Lead Advisor and owner Voting will be 1 vote per person. If there any ties (unlikely given 5 people on the Exec Committee), the ties will be broken by the vote of the CEO
  • Slide 13
  • Partnership Agreement 13 A. Entity and Business 1. Cook, Inc. is an LLC registered as Investment Advisor (RIA) B. Management Committee 1.The company will be managed by the management committee. 2.The CEO will select the members of the management committee. 3.The management committee will always have a minimum of three members, and will not exceed five members. We have elected to keep the group at this size as a reflection of the number employees current at Cook Inc. As the firm grows, and there is a need for additional members to join we anticipate amending this agreement to construct a Board of Directors, which at that time would be in-line with the companys larger size. 4.Management committee members will have equal votes, in order to align and protect Cook, Inc.s collaborative culture. 5.In the event of a tie, the CEOs vote will dictate the outcome. 6.The management committee will make decisions on most matters by simple majority, except for the situations outlined in sections (insert). 7.For decisions requiring a super majority, the vote will require at least 65% of votes. 8.The management committee will meet bi-annually or quarterly as needed to make decisions.
  • Slide 14
  • Partnership Agreement 14 C. Members and Ownership Interest 1.The current management committee as selected by the CEO consists of: Natalie CEO Dylan CIO Alex Lead Advisor John Lead Advisor Angie - COO 1.The management committee is responsible for approving new owners under consideration and can reject new owners for any and all reasons. 2.New owners can purchase shares, once pre-approved and shares are available for sale at a discount. 20% down is required immediately, with the remainder paid over five years. However, they receive the full value of their equity ownership at initial down payment, meaning ongoing distribution will help fund the remaining loan. 3.Criteria for new partners: Partnership is evaluated largely on subjective measures. Given the size of the firm (based on the number of employees) and the desire to maintain the firms award-winning culture, we do not want to restrict ownership solely to revenue producing employees. Rather, ownership qualification will be determined based on overall contribution to the firms success as measured by the firms mission, vision and value statements. In general, new partner criteria will include: New partners must demonstrate a commitment to achieve the firms stated goals New partner must demonstrate the highest level of ethics and integrity New partner must have directly contributed to growth, scalability of the firm or firm profitability (in the form of operational efficiency or expense reduction efforts) New partner demonstrates commitment to longevity of the firm and desire to remain with the firm Subjective feedback requires Board to feel that ownership will help retain a valuable employee New partner must be consistently exceeding core job responsibilities for their functional role as evaluated during their annual reviews Note: if at a point in the future, Cook Inc.enters into an agreement to bring on an individual or individuals with an existing book of business
  • Slide 15
  • Partnership Agreement 15 5.Each new partner should also agree that they will not compete with the firm for a period of 2 years after their resignation from the firm and that they will not solicit clients away from the firm for a period of 2 years following their departure. D. Compensation for Owners 1.Owners will receive compensation as dictated by their functional job titles and bonus ranges benchmarked against industry averages. 2.Ownership does not change compensation as it is dictated by the firms compensation structure (based on functional job titles), other than to participate in pro-rata distributions when they occur. E. Ownership Transfers 1.The management committee has to approve all new owners and can reject new owners for any and no reason 2.The management committee can terminate an owner at its discretion with a super-majority vote. 3.The firm will obtain an objective third party valuation utilizing DCF metrics every two years. This will be translated into a multiple of EBITDA that will be used for interim valuation purposes. 4.Owners can sell their equity back to the firm at the management committees discretion. Automatic sale approvals are: death or disability of owner, financial hardship, or the end of employment at firm. Valuation will be based on must recent EBITDA multiple. The buyer has up to 5 years to make payments on such buy-out, with 20% down immediately. 5.When equity is offered for sale, pre-approved internal buyers will have the first right of refusal. Internal transfers of equity will be discounted 15%. In the case multiple internal buyers are interested, it will first go to those who have 0-5% ownership, then 5.1% - 10.0% then over 10%. 6.In the case no internal buyer is present; the firm will purchase the shares and keep them in treasury. 7.In the unlikely event the firm is not able to purchase the shares; Cook, Inc. would entertain third party indications of interest.
  • Slide 16
  • Partnership Agreement 16 F. Management of the Firm 1.The firm is managed by the management committee. 1.Day to day management is the responsibility of Natalie as the CEO. 1.Only the CEO can sign documents on behalf of the firm. In the event the CEO is not available, the document would require two signatures from current management committee members. G. Special Decisions 1.Decisions that require super-majority: a.Selling more than 50% of the firm to a new owner b.Terminating a partner c.Borrowing more than $1 million d.Approving a new partner H. Distributions and Capital 1.If available after reinvestments into the firms growth, the firm will distribute at least as much of its profits as necessary to meet the resulting tax liability to partner. 2.Each partner is responsible for filing their own tax return and making estimated payments 3.The firm cannot force partners to contribute more cash or other assets to the firm I.Other 1.TBD
  • Slide 17
  • Founder Succession MODULE FIVE
  • Slide 18
  • Succession Plan 10 After reading through the BE GREATER book, specifically the section on Succession Planning, we feel good about our succession plan for Natalie. She plans to retire within the next 5-8 years. The firm desires to have a new CEO in place in 2 years prior to Natalies retirement. Natalie will step down as CEO, and become Chairperson of the Board at this time. A share buy-out will be initiated next year (2016) where Natalie will sell 5% each year to either existing owners or newly approved owners. (See Partnership Agreement Section E) Natalie has already begun to transition her 10 legacy clients. During this client transition Natalie will continue to support business development and promotion of the firm, as well as consulting with the other advisors on an ad hoc basis for her former clients. The firm has seen great success with their hire of Kelly, as the firms COO. She has taken on many of the day-to-day operational activities of the firm that used to be Natalie's responsibility. The search for a replacement CEO will be focused on executive leadership and strategic decision making skills In order to facilitate Natalies future succession, the following actions will be evaluated: Cook Inc. will communicate the firms succession plans and the transition of clients to John and Alex in advance of Natalies actual retirement. Based on Fidelitys succession planner we determined that an internal transition, or merger with another firm best suits the firms needs and meets our desire to maintain independence. After analyses by our management committee, we have determined that our current team, neither has the skill set or desire to take over the role of CEO. We are committed to conducting a thorough external CEO search to determine Natalies successor. Along with potentially hiring a professional CEO, we will entertain potential mergers and tuck-ins to both enhance the firms growth as well as provide the added benefit of obtaining executive leadership. Many factors will be considered in a merger or tuck in situation, some key metrics include target client profile, AUM per client, revenue per client, firm infrastructure, as well as cultural fit.
  • Slide 19
  • Succession Plan 10
  • Slide 20
  • Other Initiatives MODULE SIX
  • Slide 21
  • Other Initiatives 12 Describe any other initiatives your firm will undertake. Notes InitiativeExplanation 1. 2. 3. 4. 5. 6.
Popular Tags:

Click here to load reader

Reader Image
Embed Size (px)
Recommended