Will you Succeed at Succession?

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?


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


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/)


http://www.newyorkwines.org/

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


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.


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?


2. Goals – Key Stakeholders

• Family members

– In business

– Out of business

• Partners/investors

• Employees

• Others.

– Customers

– Community


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


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.


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


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


7. Identify successor (s) &

future management

• Next gen or not?

• Key positions

• Tools needed to succeed

• Develop skills

• Provide time and space.


8. Have a contingency plan!

• Death

• Disability

• Loss of business value

• Failure to secure sound management or

transition team


9. Develop & manage actual plan

– Written & documented

– Stick to goals and time line

– Share with others

• Family

• Employees

• Stakeholders


10. EXIT!!! LEAVE!!! RUN AWAY!!!

• Truly let go!

• Let others succeed

• Do you have a plan for all your free

time?

• Or perhaps….


…start a new

business!

FINAL

EXAM


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.


Connect

Will you Succeed at Succession?

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family business failures

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