Succession planning webinar series (april 2013) (3)

Succession Planning:

Next Generation Perspective

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

©2013 Business Transitions, LLC 3

The Succession Planning Myth

ExternalInternal

©2013 Business Transitions, LLC

Common Questions & Concerns

1) Buy or build?

2) What if I’m not ready?

3) Where does the money come from?

4) Why this investment and not another?

5) How long does it take?

6) What if it does not work?


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

5Tr

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


Data Based Transactions from 2008 through 2012

Exit Strategies by Value Level

Source: FP Transitions

<$1M$1M-$3M

$5M+

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Attrition

External Sale

Internal sale


The Goals of a Succession Plan

©2011 Business Transitions LLC

1) Growth and Stability

2) Continuity Planning

3) Income Perpetuation


Aligning Cash Flow and Compensation to Roles

8

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


The Founder’s Perspective / Issues

1) Relinquishing Control

2) Transparency of Business’s Books & Records

3) Next Generation Isn’t Ready, Not “Ownership Material”

4) Next Generation Advisor(s) Don’t Have the Money

5) Buying Themselves Out With Their Own Money


Revenue

0 4 8 12 16 20 24 28 Years In Business

Value Growth Curve

Revenue vs. Practice Equity

10

Practice Equity


Revenue

0 4 8 12 16 20 24 28 Years In Business

Value Growth Curve

Revenue vs. Equity Growth

11

Single OwnerGrowth Rates

Practice Equity


Building an Enduring Business

12

Founder (G-1)• Majority Ownership

• Age Range 50+

Generation-Two (G-2)• Ownership < 50%• Age Range 36 - 50

Generation-Three (G-3)• Ownership 1% - 5%• Age Range 25 - 35


1.0 2.0 3.0 4.0 5.0 6.0

(Gross Recurring Revenue Multiple)

Revenue Strength Enterprise Strength

Multiple Ranges

13Source: FP Transitions

©2013 Business Transitions, LLC 14

Revenue Splits: Not a Succession Plan

• Tax Treatment Shifts to Ordinary Income Rates

• Reduces Business Value

• Eliminates Important Safeguards for Both Parties

• Does Not Pass Title to Business Assets

• Contributes to Formation of Smaller “Books of Business”


Thank You For Listening

[email protected]

800.934.3303

15

Succession planning webinar series (april 2013) (3)

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