MGT 4550 - Family Business ManagementFINANCIAL ISSUES FOR BUSINESS AND FAMILY

ChapterChapter 9 9

Family Business Management, Concepts and Practice

By A. Bakr Ibrahim & Willard H. Ellis

Instructor: Dr. Irene Duhaime

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Class Schedule - Week 11 Class Schedule - Week 11 (04/05)(04/05)

FINANCIAL ISSUES FOR THE BUSINESS AND FAMILY

Reading: Chapter 9 Going Public, FBM

Questions: 6, 42-51, 79, 97-100 FBAB

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The Decision to Go Public

Going public is a financial strategy Reasons:

Need for capital to fund growth Prestige

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Question 98

At what point or under what circumstances should the company go

public?

If the company needs capital are there other ways to raise it other than by

selling or going public?

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Advantages of Going Public

Raise equity, avoiding debt financing and high interest cost.

Increase the net worth and potential borrowing power (improved debt-to-equity).

Successful initial public offering makes it easier to raise funds through different debt financing instruments (e.g. debentures).

….continued

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Advantages of Going Public

….continued

As the market value of the company’s shares appreciates, bankers and lenders are more likely to lend the business money.

Personal benefits for the owner and family members if the company becomes successful.

Enhances the firm’s image and prestige.

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Disadvantages of Going Public

High cost of going public Underwriter’s commission (8%) Prospectus cost Registration fees Accounting cost

Family could lose control Family members must retain at least 51%

….continued

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Disadvantages of Going Public

….continued

Loss of privacy. Public companies: Must disclose all business transactions Are scrutinized by

regulators and financial analysts shareholders and potential investors customers, suppliers and competitors

Change family business culture radically.

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Question 99

How much does going public cost?

Who should take the firm public?

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Criteria for Going Public

Management Capacity handle responsibility and pressures of going

public Proven Track Record

at least two years consistent high growth and outstanding performance

Potential for Growth existing products, services and/or opportunity

have potential growth, new market and/or innovation.

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Question 100

How will family members’ roles change after the business goes public or is

sold?

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The Business Plan

Allows the underwriter to evaluate: The business Potential growth The management team

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Business Plan - Critical Factors

Well documented sufficiently detailed and informative

Look and read professionally accurate calculations and latest analysis

techniques Avoid ambiguity (perception of deceiving

investors) CEO/Founder’s personal commitment

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The Effective Plan

Focuses on interests of all stakeholders Customers

why buy product and services

Investors viability and returns

Stockholders (owners) ownership and returns

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Outline of the Business Plan

1. Executive Summary 9. Human Resource Plan2. The Business Concept 10. Selection of Location3. The Management team:

(Family and Non-family)11. The Financial Plan

4. The Legal form of theOrganization

12. The OrganizationalStructure

5. Products or Service Market 13. The Deal Structure6. External Analysis 14. Risk Assessment7. Marketing Plan and Strategy 15. The Operational Plan8. The Production Plan 16. Appendix:

Copies of ContractsCopies of Trademarks andPatents

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Question 79

What red flags may arise as senior-generation family members begin to transfer their stock to their children ?

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Question 42

When should estate planning begin and how should you start a discussion, particularly if you’re the spouse or

heir?

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Question 44

What type of insurance should you consider to help pay estate taxes and provide funds for your

heirs?

How much insurance do you need?

Who should be the owner and beneficiary of the policy?

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Question 43

What are the basics of transfer tax planning?

What is the value of your business for transfer tax purposes?

Where should the funds come from to pay these taxes?

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Question 45

When does a family limited partnership (FLP) make sense and when is it not a

good idea?

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Question 49

What other estate planning techniques should you consider for shifting

ownership to the next generation(s)?

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Question 46

Is it fair to give equal ownership to both active and inactive children?

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Question 47

How can you both be fair and equal when it comes to estate planning if

you decide that some children should not receive stock?

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Question 48

Should a spouse or children not active in the business receive any stock or

other assets?

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Question 97

Business is booming.

Should the family sell the company?

What will life be like after the sale?

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Question 6

When is the best time to sell a family business?

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Class Schedule - Class Schedule - Remaining weeksRemaining weeks

Apr. 12 SECOND EXAM

Apr. 19 Presentations - ALL FINAL PROJECTS

DUE

Apr. 26 Presentations