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Building Blocks of a Succession Plan
Presented by: David Grau Sr., JD
President and Founder, FP Transitions
2©2013 Business Transitions, LLC
Succession Planning for Growth Series
1) Selecting the Right Succession Plan
In this presentation, we will describe 6 specific succession plans that you can use to develop your own business perpetuation and protection strategy. You'll learn how proper succession planning is vital to your growth strategy.
April 2nd 10:00 AM PT
May 7th 1:00 PM PT
2) Building Blocks of a Succession Plan
Your organizational structure, compensation structure and entity structure can support, or cripple, your business growth and exit plans. Find out what path your business is on and how to guide it in the right direction.
April 3rd 10:00 AM PT
3) Next Generation Perspective
How does a succession plan look from the perspective of junior partners, key employees or sons or daughters? How do they invest in the business? What does an internal ownership track look like? We encourage you to attend with your prospective second-generation owners.
April 4th 10:00 AM PT
May 9th 1:00 PM PT
3©2013 Business Transitions, LLC
Managing the Equity in Your Practice
©2013 Business Transitions, LLC
G-1: Founding Owner(s)
G-2: Planned Owners
G-3: Potential Owners
Tran
ch
e 1
Tran
ch
e 2
Tran
ch
e 3
Com
bin
ed
Ow
ners
hip
Sta
ke
100
0
Time / Yrs.
5 – 7 years 5 – 7 years 5 – 7 years
4Tr
an
ch
e 4
Transition Point: G-1 should reserve ability to sell externally up to this point. G-2 may elect to bank finance final tranches at the “All Cash” value in the valuation matrix.
5 – 7 years
Owner’s hours worked
Income Perpetuation Strategy
5©2013 Business Transitions, LLC
Foundational Elements
©2011 Business Transitions LLC
ORGANIZATIONAL STRUCTURE
ENTITY STRUCTURE
COMPENSATION STRUCTURE
1. 2. 3.
6©2013 Business Transitions, LLC
Organizational Structure (Building Enduring and Transferable Businesses)
ClientsClients
AdvisorAdvisor
ClientsClients
AdvisorAdvisor
Corp./LLCCorp./LLC
Sole Prop Sole Prop / Entity
7©2013 Business Transitions, LLC
Silo-Based Production Model(Building Enduring and Transferable Businesses)
Clients
Admin, Support Staff
Clients
Admin, Support Staff
Pooled Expenses
Corp./LLC EquityEquity
Individual“Books of Business”
AdvisorAdvisor
8©2013 Business Transitions, LLC
Equity-Centric Ensemble
Clients
Advisor Advisor
Pooled Revenue & Expenses
Corp./LLC
Pooled Admin. Support Staff
EquityAdvisor
(Building Enduring and Transferable Businesses)
©2013 Business Transitions, LLC
Organized as Entities
21%
40%
79%
100%
Under $150K $150k - $1M $1M - $10M Over $10M
9
©2013 Business Transitions, LLC
Sole ProprietorshipC-CorporationS-CorporationLLC
36%
17%
Entity Structures
45%
10
11©2013 Business Transitions, LLC
Entity Structure Choices
Sole Proprietorship Partnership C-Corporation S-Corporation
LLC(Taxed as a Sole Prop.)
LLC (Taxed as a Partnership)
LLC(Taxed as a C-Corp.)
LLC(Taxed as an S-Corp.)
©2013 Business Transitions, LLC
Compensation
Equity Value
Reward for Investment of Time, Money and Talent
12
The Basic Equation (for Building Enduring and Transferable Businesses)
©2013 Business Transitions, LLC
Aligning Cash Flow and Compensation to Roles
13
Owners’/ProducersAssign All Revenue into Corp. Bank Acct.
$50,000 (Expenses)
$70,000 (Wages, Benefits)
Entity Structure
$100,000
$60,000 Owners’Profit Distributions
$20,000
Equity Value
$100,000
14©2013 Business Transitions, LLC
Succession Planning for Growth Series
1) Selecting the Right Succession Plan
In this presentation, we will describe 6 specific succession plans that you can use to develop your own business perpetuation and protection strategy. You'll learn how proper succession planning is vital to your growth strategy.
April 2nd 10:00 AM PT
May 7th 1:00 PM PT
2) Building Blocks of a Succession Plan
Your organizational structure, compensation structure and entity structure can support, or cripple, your business growth and exit plans. Find out what path your business is on and how to guide it in the right direction.
April 3rd 10:00 AM PT
3) Next Generation Perspective
How does a succession plan look from the perspective of junior partners, key employees or sons or daughters? How do they invest in the business? What does an internal ownership track look like? We encourage you to attend with your prospective second-generation owners.
April 4th 10:00 AM PT
May 9th 1:00 PM PT