ip showcase for enterprise ireland...too early to plan for succession this is how many business...

This Way OutA Roadmap to Business Transition

IP Showcase forEnterprise Ireland

Roadmap Graphics are Copyright property of ROCG Brendan Binchy | ROCG E: [email protected]

What does ‘succession’ or ‘transition’mean to a business owner?

• Work less or not work at all• Gradually ease away from the business• Sell to investors or maintain ownership• Pass on to family members• Groom others within the business to take over• Get the business ready for sale / investment• Increase the value of the business• Transfer business wealth while working

rather than counting on maximising exit value

‘Transition’ means something different to each business owner


Transition

Succession –replacing the owner as an

Operating Officer

Exit –transferring ownership of

the business

ROCG’s definition of‘Business Transition’

It’s actually about business wealth transfer:Business transition consists of planning and implementing the actionsrequired to successfully transfer business wealth both while operatingthe business and upon exit.

Transition deals withboth the owner’s rolein the business and theirinvestment in it.


3

8

11

12

17

28

60

0 10 20 30 40 50 60 70

Conflict with family/employees

Don't want to think about leaving

Other

Too complex

Can't find adequate advice/tools to start

No time to deal with the issue

Too early to plan for succession

This is how many business ownersthink about succession – is this you?

You will inevitable leave your business one day – so you have 2 choices now1. A Planned Exit on term of your choosing – optimal date, optimal value2. Do Nothing and Crises Exit as best you can – join the disappointed 90%

Business owners – The Self Evident Truth:


6

Other barriers? ……The Owner’s View

46%

12%

13%

32%

39%

42%

8%

Financing for the successor

Too dependent on me

Access to cost-effective advice

Conflicting vision with family

Valuing the business

Conflicting vision of employees

Finding a successor

Source: CFIB Succession Can Breed Success: SME Succession &Canada's Economic Prosperity Report, June 2005


Between 50-70% of family ownedbusinesses will experienceownership change in the next tenyears.

0

5

10

15

20

25

30

35

40

% of FOBs w/ Change inOwnership over next 5 yrs

% w/ a Succession Plan inPlace

?

60% of all entrepreneurs aged 55 - 64 have yet to startdiscussing their exit plans with their family or business partners.

Why Transition planning is so important

What our basic research has indicated

ØOnly 5% of those 40% have a formal succession plan in place.

q 40-45% would like to exit within 5 years.q 60% of owners in the 60-64 bracket have nodefinite plansq Many businesses will simply close with littletransactional value being transferred upon theowner’s exit.q Less than 10% of business owners will geta value even close to what they expect upontransitioning their business.

ØPrecedence indicates that 70% of these will fail to survive thesecond generation after the death or retirement of the founder


In truth many owners simply feeltrapped, even institutionalised withintheir own business… & without a plan!

“I’m telling you, these walls are funny. First you hate them. Then you get used to them. Enough time passes, itgets so you depend on them. That’s institutionalised.” - Red


X For Most initial thoughts of exit

For most transaction day onlyoccurs once in a lifetime…

Start-up Growth Maturity Decline

Y I think I need a plan

€

time

Smart folk - Beginthinking about exitstrategy issues

Create and begin implementingbusiness transition plan

Planned Exit Day

x

x x

x

Crises Exit Day

Typical Business Life Cycle


Realization dawns that …….Transition planning requires morethan a single expertise……where do I start?

Tax Audit Accounting

Personal financial planning

ValuationBusinessbrokering Financing

Expert reports

Private equity

Investment broker / fund manager

Project management

Due diligence

Business coaching

Financial modeling

Professional business writing

StrategyConsulting

Accounting

Legal Sale contracts

CorporateFinance

Personal FinanceAdvice

TransactionServices

Personal insurance planning

Wills, living wills, PoA

Personnel Personal counseling Training & development

Brokerage


The Advisory Team – differentperspectives and expertise

Legal andfinancial

professionals

Insurance andbenefits

professionals

Businessoperationsconsultants

Owner

Privatebanking

Estateplanning

Real estate

Business broker

Valuation

Strategic andoperations consultants

Financial andaccounting advisors

Taxation

Attorneyand legal

Financialplanning

Investment counsel

Family andmanagement coaches


...what may be the most important businessdecision owners will ever be called upon to make

Owner

Legal, financial &banking

professionals

Insurance &investment

professionals

Businessoperationsconsultants

Synergistic approach is more thanimportant for…This image cannot currently be displayed.


…integrating personal and business needs tocreate a unique and easy-to-implement transitionstrategy

Owner Family

Business

Businessstrategy

Businessreview

Personalreview

Personalinitiatives

Transitional objectives

Business TransitionStrategy

A synergistic approach is alsoimportant when…


• One key to transition planning is to make sure that whenthe transition occurs, it is sensitive and structured, andresults in the preservation of as much wealth as possible

• Business Continuity

• Implemented on a timely basis – tax savings

• Often overlooked is financing – How will the transfer ofownership be financed ? Especially if the business remainswithin the family

• Business value can be tied up in intangible assets

• Fair treatment of next generation – equal shares, activeinvolvement of members and passive members, clarity onthe distinction and ramifications

Keys issues and risks


The ROCG Roadmap to Business TransitionA 3 Phase Process – not an event!

Process and expertise are required to lead an Advisory Team in both theplanning and the implementation of the owner’s business transition

TransitionPlanning

Phase 1

TransitionManagement

Phase 2

TransactionManagement

Phase 3

30 - 90 days todevelop the plan

1 - 3 years toimplement the plan

3 - 6 monthsto execute


Preparefor

Transition

What needs to happen tooptimise business value andtransition readiness?

Implementing theTransition Plan

Phase 2 & 3: The ROCG Transition Planning Process

TransitionManagement

TransactionManagement

Managing the saleor transfer ofownership of thebusiness

The ROCG BusinessTransition Plan

Moving OnAction Steps

=

2 3


Preparefor

Transition

What does theowner want toachieve from

theirsuccessionand exit?

What is thepersonal

situation andwhat are thenecessaryplanning

initiatives?

What is thecurrent

businesssituation andhow does it

reach itspotential?

What is thebest methodto transitionthe businessand meet the

ownerobjectives?

TransitionalObjectives

PersonalInitiatives

PersonalReview

BusinessReview

BusinessStrategy

ConsiderBest Way

to Exit

The ROCG Transition Planning Process – Phase 1

business transition specialists

Business Transition Plan


What’s the Status Quo?

How ready are you…Really?


What are the Deliverables?


What are the Options ?


ValueEquity risk factors

• Smaller = riskier• Lack of management depth• Over-reliance on key personnel• Instability of the industry• Lack of product diversification• Over-reliance on too few customers• Over-reliance on suppliers• Fluctuating earnings• Pressure on earnings margins• Over leveraged financially


The Reality of the “X” Factor

10m 100m+5m1m€€

10

5

0

XFactor

2-3X

4-6X

6-8X

8-10X10+


Transition Timing Triangle

Personal Timing


What’s the Plan?


The final product from Phase 1:a formal Transition plan

• The final decision to implement will then be ahighly satisfactory step forward for everyone

• The final product is a written succession planthat clearly communicates everyone’s rolegoing forward

• It acts as a contract between shareholders ..….a promise to support the plan

• Once the plan is implemented, it must beperiodically re-examined to ensure it is ontrack and remains in the best interests ofeveryone involved


CoreImpactAreas

Objectives

Measures

Targets

Initiatives


CurrentPosition

Assets &Liabilities

Yields &outgoings

Analysis

NoPlanning

Portfolio AnalysisA Private Equity Perspective


Valuation

FundingCapacity

Income&

Pension

5 YearPlan

CapitalYield

The BusinessThe “laying hen” or “hungry mouth”

Up to 10 separateentity consolidations


Current &Projected

Domestic& Tax

Capital &Revenue

PostTransition

Receipts & PaymentsFurther Analysis & Post Planning Position


Domestic PaymentsPersonal & Lifestyle expenditure

CurrentClassified

PersonalInsurances

Projected Inflation

LifestyleChange

PostTransition


TaxationCurrent & Post Planning Position

Optimisation

Protection


Consolidation

Plan

Core PortfolioElements

Post Planning Projected Balance SheetReflecting the Capital Impact of Planning Initiatives


Property PortfolioDetailed Analysis & Planning

5 YearManagement Plan

Disposal&

Gearing

IncomeYield

AssetClass

Outlook


Pension PortfolioDetailed Analysis & Planning


Investment& Yield

Capacity

Tax &Structure



Redemption

Refinance

BankSentiment

Debt ManagementDetailed Analysis & Planning


TransitionFinancial

Consolidation

Strategic

Integrated

AnalysisIterative

Planning

•Retirement•Sale of Business•Attracting externalinvestors

•Succession•Divorce•Estate & Trust Planning•Financial Independence

TransitionStrategy


How do we maximiseBusiness Value ?


No.

ofIm

prov

emen

ts

RequiredValue

It’s too early….isn’t it?

Early & Often

BuildingValueFaster

Time

Procrastination

Target Date


Managing the disconnect between…Actual and Perceived Strategic Position

Numerous Opportunities

Significant Threats

Major StrengthsCritical WeaknessesIdentify and

DevelopCore

Competence

SelectivelyExpand

ShoreUp

Exit Diversify

Acquire

AggressivelyDevelop


The Key Outcome -A Robust Business Model

• The preferred options = new vision• Document the new way forward in

terms of products/servicesprovided, customers sought afterand how the business will make aprofit

• Benchmark and validate it against‘the Why’

• The business Valuable Formulacan then be extrapolated into a fullstrategic plan


Developing the Business Model into strategicbusiness plan that will deliver the vision…

• We need to expand thatBusiness Model into a fullstrategic business plan

• The strategic business planwill be the roadmap that takesthe business to its desiredvision

• It will outline goals for eachfunctional area of the business,which, if achieved, will ensurethe vision becomes a reality


The Strategic Business Plan Outline…

Vision

Products/Services

Goals

FinanceGoals

MarketingGoals

SalesGoals

PeopleGoals

CultureGoals

Systems &Processes

Goals

BusinessModelDrivers

BusinessModelEnablers


A four phase approach to DynamicStrategic & Business Planning

Phase Three:Establish keyperformanceindicators for eachCSF

Phase Two:Identify the criticalsuccess factors (CSF)

Phase One:Document yourstrategic businessplan

Phase Four:Develop amanagementreporting system

PhaseTwo

PhaseThree

PhaseFour

PhaseOne


How do we make itinvestor ready?


How do we change core dependencies?… Business on the Owner


How do we change core dependencies?… Owner on the Business


Who are the optimuminvestors?


How do we negotiatethe best deal?


57

Types of buyers

• Strategic – usually interested in acquiring a “niche” for own business& generally pays more; needs less admin; generally has €€ to payseller – find this type buyer first

• Financial – usually buying just for an ROI; opportunistic, e.g. PrivateEquity Firms

• Individual – usually buying a job, poorly financed (but see millennialsbelow), they may get poor advice, can be buyer of last resort / leastdesirable buyer

BUT (in the US)….Don’t ignore well educated millennialsworking through ‘search funds’ (first popularized by Ivy Leaguecommunity)


How do we close the dealand optimise continuity?


How does the owner moveon with confidence?


– Dramatically increase the chances of achieving transition goals– Ensure business continuity, succession, asset protection & management– Look after the people they wish to care and provide for - preserve culture and values– Maintain control of their future with clear financing and funding plans– Structure the timing of the wealth transfer on a tax and risk effective basis

Benefits of a well thought out plan

Entrepreneurs with clearly communicatedexit plans reduce anxiety for spouses,children, co-owners and employees


Get busy Living…orget busy Dying

1. One Certainty1. Tempus Fugit

2. Two Choices1. Prepare and plan2. Join the 90%

3. Three Challenges1. Creating a climate for Change – this starts with urgency2. Engaging and Enabling Change3. Implementing and Sustaining Change


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