Succession Planning - What Business Owners are Saying

Succession Planning – What Business Owners are Telling Us

Michael S. Blake, CFA, ASA, ABARDirector of Valuation Services

Habif, Arogeti & [email protected]

@unblakeable770-353-8373

Disclaimer

• It is assumed that grownups are watching this presentation and are capable of making their own decisions

• If you’re not a grownup, go back to playing CandyCrush

• The views expressed in this presentation are mine

• Don’t ever do anything without advice of legal counsel

2HA&W Educational Material

Succession is Inevitable


Sometimes it Works Well


Sometimes it Doesn’t…


Sometimes It’s Ugly


Sometimes It’s Well-Practiced


Sometimes It Takes too Long


Sometimes We Hardly Know the Difference


And Sometimes Succession Isn’t Realistic


But It Always Has Far-Reaching Implications


Why Start Now?

• Average age of business owners = 55 years• Owners intending to retire in next ten years = 81%• Owners with no exit strategy = 75%

Source: Smyrnios, K.X., Dana, L., The MGI Family and Private Business Survey 2006; RMIT University(October 2006) Melbourne, Australia


Presenter

Presentation Notes

In recent years, there has been a lot of noise in the marketplace about succession planning and the need for business leaders to act now. The reason for this is obvious when you look at the following statistics: • Percentage of all businesses that are small businesses = 97% • Average age of owners = 55 years • Owners intending to retire in next 10 years = 81% • Owners with no exit strategy = 75%1. As the baby boomers move out of the active, full-time management and ownership of their businesses, the value of the companies that will change hands is in the many trillions of dollars. Given the process can take anywhere from six months to five or more years, with the average time being between three and five years, it’s vital to start as soon as possible. You should act now, if for no other reason than to delay or leave it too late means you will be trying to dispose of your business at the same time as everyone else and therefore its potential value will be lower.

Critical Date - 2020

• The tail end of the Baby Boom will be 56• Supply of businesses will compete for buyers• Seasoned management professionals (in

prime of their careers) will be in high demand


About the Survey

• 1,650 of respondents in 55 countries (38% in North America)

• 55% of respondents aged 49-67• 70% of businesses under $10 MM in revenue• Respondents have completed a succession, are in

the midst of succession or have not yet started succession

• 80% male• 59% are chief executive


What Causes Succession?

24%

16%

15%10%

9%

26%Voluntary RetirementNext Generation ReadyOwner HealthEstate PlanningDeath in FamilyOther


“Other”?

• Buy-sell agreements• Lawyer pestering them• Change in business conditions• Owners skeptical that succession is achievable

in practice• Almost never caused by a divorce


Most Important Considerations

• Family Harmony

• Continuity of the Business

• Ongoing Jobs for Employees


Priorities Evolve During the Process

Price decreases in importance over time, while importance of family harmony and employee job security increases…


Implications

• Valuation services are easiest to sell at the start of the succession process

• Compensation services are easiest to sell toward the end

• Family therapy is probably always in demand


What Happens After Succession?

57%27%

16%Business is Kept in theFamily

Business Will be Sold

Unsure


Implications

• Most owners prefer not to sell• Owners realize that in the modern “job

market”, greatest gift to posterity is a cash flowing business

• Value isn’t as important to business owners as operational continuity and viability (sorry, investment bankers and PE guys)


Who Will Be the Next CEO?

44%

36%

20%

Family Member

Non-family Member

Not Sure


Implications

• If you can show you run companies well, you’re going to make a lot of money

• If family is already working in the company, chances are the successor will be family


Most Trusted Advisors

1. Accountant2. Family Member (Spouse)3. Attorney


Most Important Preconditions for Succession

15%

15%

14%

14%

12%

30%

Succeeding Generation FeltTrusted and Empowered

Secure Suitable RetirementArrangement

Identify Best Person for theJob

Strategic Positioning ofBusiness for the Sale

Equitable Inheritance amongFamily Members

Other


Most Important Activities During Succession

15%

13%

12%

11%11%

38%

Give Family Members Understandingof Demands fo the Business

Identify Best Person for the Job

Formal Discussion of a SuccessionPlan

Strategic Positioning of the Businessfor Sale

Equitable Inheritance for all FamilyMembers

Other


Most Important Outcomes After Succession

15%

13%

13%

13%12%

34%

Formal Documentation of aSuccession Plan

Succeeding Generation FeltTrusted and Empowered

Equitable Inheritance for allFamily Members

Securied SuitableRetirement Arrangements

Identified Best Person forJob

Other


Most Critical Challenges Faced


The Answer is ????

• Even in a fairly large sample set, priorities are unclear

• Priorities are in motion• If you’re frustrated trying to talk to someone

about succession, you’re not alone• This research positions you to perhaps ask

better questions


Some Personal Observations

• Planning is not a big part of Southern culture, especially in the older generation

• Preserving “legacy” less a facet of Southern culture

• Less desire to “support” children• The Baby Boomer aging thing is overplayed • Over time we should see more intrafamily

succession


Thanks!Questions?

Michael S Blake, CFA, ASA, [email protected]@unblakeable

Date post:	24-Jan-2015
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