will you succeed at succession?
TRANSCRIPT
Will You Succeed at
Succession?
Dann Van Der Vliet
B.E.V. NY Conference, Rochester, NY
February 26, 2015
Succession Checklist
If you learn
only two things today…
1. START NOW!
Succession planning is important at every
stage of the business
2. INVOLVE OTHERS…
Family
Stakeholders
Professionals
Quiz
What is a family business?
Succession Checklist
Definition of a
family business?
• Business employs at least one family
member as owner or partner
• The family controls ownership and / or
decision-making power
• Future plans consider succession of the
business to the next generation
The Family Business 3-circle model
Family Business
Ownership
Source: Tagiuri & Davis (1982)
The Family Business 3-circle model
Source: Tagiuri & Davis (1982)
The “Blurry Circle” model
Business
OwnershipFamily
Succession Checklist
Family Business Facts
• More than 30% of all family owned
businesses survive into the second
generation
• 12% will still be viable into the third
generation
• Only 3% of all family businesses survive
into the fourth generation level and beyond
Source: Ward (1987)
GLOBAL Report on Family Businesses
• Large numbers & contributors to jobs / economy / society
– Latin America / India – 90-98%
– US / Germany / Spain – 80-90%
• Large, Medium, Small size
– Think Wal-Mart, Ford Motor Co. and S.G. Johnson
– Also think Collegtown Bagels, Saranac Brewing, Triphammer Wines
• Out-perform non-family enterprises
– Especially in the first generation
– Second generation some do, some do not.
70% would like to pass their business to next generation
BUT next gen is not always interested OR
capable OR
prepared to work in the founder’s business – WHY?
Source: Babson STEP Project
• Founder’s dream may not be shared by the next generation
• Founder’s shadow is deep
• Next generation not ready
• Entrepreneurial / leadership skills not honed
• Limited opportunities in ONE enterprise to practice
entrepreneurship / leadership skills of 2 or more generations
WHY might some family firms NOT
endure into the 2nd
generation?
Distinguishing family businesses
from non-family businesses
CONTROL & INFLUENCE
How?
Through
OMFG
combination of
Ownership, Management, Family & Governance
Generational survey
• 353 wineries in NY State
• 76 responses
– 2 with 6G
– 7 with 5G
– 3 with 4G
– 15 with 3G
– 76 with 2G
Source: 2014 New York Wine & Grape Foundation “Generational Survey” (http://www.newyorkwines.org/)
Succession Checklist
Iowa State survey of farmers
• 50% had no estate plan
• 71% had no named successor
• 20% HAD spoken to a banker
• 30% HAD spoken to an accountant
• 28% HAD spoken to an attorney
• 30% had not discussed their plan with their family
Family Farms:
Tips for Working Together
Source: Duffy, Baker, & Lamberti, (2000)
Most important
farm & ag transfer issues
• Clear goals and communication
• Transfer strategies
• Assessing financial strength
• Understanding tax issues
• Wills, trusts & estate planning issues
• Life insurance, power of attorney & health
care issues
Family Farms:
Tips for Working Together
Succession Checklist
Why do family businesses fail?
• Inadequate estate planning
• Failure to properly prepare and provide
for the transition to the next generation
• Lack of funds to pay estate taxes:
In 47.7% of family business failures,
the transition and ultimate collapse
of the firm was precipitated by the
founder’s death.
Succession Checklist
1. Goals - Owner
• Time line
– When would you like to leave?
• Financial
– How would you like to leave the business?
• Lifestyle
– What will you do?
Succession Checklist
2. Goals – Key Stakeholders
• Family members
– In business
– Out of business
• Partners/investors
• Employees
• Others.
– Customers
– Community
Succession Checklist
3. Clearly define stage of business as it
relates to owners exit goals
• Early stage – Survival:– Owner - entrepreneur
– Not yet profitable but perhaps saleable
• Growth:– Growing rapidly
– Succession plan as contingency, added value
• Mature:– Stable cash flow
– Positioned in market
Succession Checklist
4. Business Valuation
• The valuation is only as good as the information and cooperation that you provide to the analyst;
• Choose an accredited valuation analyst; don't have Uncle Bob do this; it's too important;
• Cost - $5,000 - $10,000 depending on the level of analysis and nature of report (oral, limited, comprehensive);
• Time to complete - from the time you make the first call to an analyst to the time you get a completed report - 4 - 8 weeks; most of this time is spent collecting information.
Succession Checklist
5. Communicate
• Professional advisors:
– Financial
– Legal
– Personal
• Family meetings – family council
– Frequent or at least regularly scheduled
– Off premises or non-working
• Non-family advice & peers
– BOA
– BOD
– Peer groups
• Education
– Non-technical
– Strategic
Succession Checklist
6. Explore succession options
• Keep in family?
– Buy-sell agreements
– Gifting
– Trusts
• Outright sale?
– Other family
– Strategic sale
• Internal sale?
– Management buy out
– Employees (ESOP or CO-OP)
– Partners
Succession Checklist
7. Identify successor (s) &
future management
• Next gen or not?
• Key positions
• Tools needed to succeed
• Develop skills
• Provide time and space.
Succession Checklist
8. Have a contingency plan!
• Death
• Disability
• Loss of business value
• Failure to secure sound management or
transition team
Succession Checklist
9. Develop & manage actual plan
– Written & documented
– Stick to goals and time line
– Share with others
• Family
• Employees
• Stakeholders
Succession Checklist
10. EXIT!!! LEAVE!!! RUN AWAY!!!
• Truly let go!
• Let others succeed
• Do you have a plan for all your free
time?
• Or perhaps….
Succession Checklist
…start a new
business!
FINAL
EXAM
Succession Checklist
If you learn
only two things today…
1. START NOW!
Succession planning is important at every
stage of the business.
2. INVOLVE OTHERS…
Family;
Stakeholders;
Professionals.
Succession Checklist
Connect