business succession planning · • succession planning • business valuation • strategic...
TRANSCRIPT
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BusinessSuccessionPlanning:
Maximizing exitvalue by building and
retaining your team
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2Presenters
AREAS OF SERVICE
• Closely-Held, Family Owned Business
• Succession Planning
• Business Valuation
• Strategic Planning
• Mergers and Acquisitions
• Client Ambassador
AREAS OF SERVICE
• Transition Planning
• Leadership Development
• Organizational Development
• Executive Coaching and Recruiting
• Strategic and Succession Planning
• Human Resources Outsourcing
Heidi A. Bolger CPA/ABV, CMAA, CGMA
Principal
Mary L. VanSkiver CPA, MBA, PHR, CEPA
Senior Manager
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People & Leaders are Your Most Valuable Asset
Agenda
Identifying & Developing Successor Leaders
Extracting Yourself as a Mission Critical Leader
Retention Tools to Keep Your Leaders & Team Intact
Sharing Your Succession Plan (How, When and with Who)
Your Final Act of Greatness
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ESOPsManagement
Buyouts/InsPhantom Stock
Stock Appreciation
Rights
Transfer Motives
Employees Charitable Trusts Family Co-OwnersOutside (retire)
Outside (continue) Public
Initial Public Offerings
Direct Public Offerings Reverse Mergers
Going Private
Consolidate Roll-ups
Buy and Build Recapitalizations
Negotiated One-Step
Private Auctions Two-Step Private
Auctions
Buy/SellRussian Roulette
Dutch AuctionRight of First
Refusal
OutrightGiftsSCINs
AnnuitiesGRATsFLPs
IDGTs
Charitable Remainder
TrustsCharitable Lead Trusts
Transfer Channels
Internal External
Transfer Methods
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21.3%
2%
10.3%
2%29.4%1%
1%
30.9%
2% Internally (family succession)
Internally (ESOP)
Internally (Management)
Internally (Partners)
Externally (3rd Party/Strategic/PE)
Externally (Recap)
Externally (Orderly Liquidation)
Not sure
Other
Internal:Family SuccessionInternal (ESOP)ManagementPartners
External:3rd Party/StrategicRecapOrderly Liquidation
Not sure *EPI “State of Owner Readiness” Survey
Methods of Transitioning
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B CA D
25%50%
60%
80%
Polling question #1
What percent of business value may be related to the intellectual/knowledge capital of your business?
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Building Value • Alignment of
Vision/Strategy
• Leaders/Accountability
• Functional and Cohesive Teams
A Strong & Healthy Business
Vision/ Strategy
People/ Traction
Structure/ Healthy
Your Business
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8The Four Capital C’s
Human CapitalMeasure of talent on your team
Customer CapitalIntegral, Unique, Contractual, Recurring, Transferable, Concentration
Structural CapitalInfrastructure: Processes, People, Technology, Facilities
Social CapitalCulture, Brand, Team, Rhythm
“...the sum of everything everybody in a company knows that gives it a competitive edge.” And“Because knowledge has become the single most important factor of production, managing intellectual assets has become the single most important task of business.” — Thomas A. Stewart
80% of value of the business is tied up in these four factors.
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9Maximize Value
• Strategy, Structure and People • Marketing and Sales• Systems and Procedure
• Governance and Compliance
• Transition Options Analysis
Optimize Business Value
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10Business Issues & Value Indicators
• Strength of market position
• Size
• Revenue Growth
• Margins (Gross and EBITDA)
• Revenue Concentration (customer, product, channel)
• Quality of Management Team
• Independence from Owner
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Qualitative Value Factors
INTERNAL• Strategic Plan• Management Team• Employees• Corporate Culture• Owner Independence• Systems and Processes• Product/Service Quality• Financial Reporting quality• Financial Management/stability• Age of facilities/equipment• Ability to scale• Policies/procedures• R&D• Continuous Improvement• Environmental/Safety programs• Advisory Board• Transition planning• Succession planning• Legal structure and protections
EXTERNAL• Customer Concentration• Market demand• Market position• Supply chain• Competition• Barriers to entry• Geographical considerations• Labor Supply• Marketing/Branding• Distribution Methods• Market growth opportunities• Market strategy• Community relations• Corporate reputation• Access to capital• Many others
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High
Low
High Value, Low Importance
High Value, High Importance
Low Value, Low Importance
Low Value, High Importance
Low High
Business Value Enhancement is the incremental value that a company can create at its existing and future level of sales & profitability by reducing risk and improving the quality of the company.
Value Enhancement Opportunities
IMPORTANCE
VALUE
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Engagement & Retention Strategies
Affect Value
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14High Impact Team Members
Sales and profits
Potential exposure of
trade secrets and loss of
employees to competitors
Plans for expansion
Operations Morale/loyalty of other
employees
Mentoring of successor managers
Customer relations
Determine who is key or essential to the business and look at their impact on:
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• Great Culture & Clear Direction, Cash Compensation, Non-Cash Benefits, Stay Bonuses, Stock Incentives, Restricted Stock, Phantom Stock, Stay Interviews
Keeping Key Employees
• Let’s talk about generational differences…•Pride in Work
•Longevity/Career Advancement
•Visible Differentiation
•Understanding the Big Picture
•Fair Compensation
•Focus on What Matters
•Work Life Fit
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People are motivatedfor different reasons
Multi generation; find common ground in priorities and address through strategy and
design. Meaningful work, collaboration and learning
Generational differences:
• One consistent reason employees leave is due to their immediate manager.
• Lead by example, “Walk the Talk”.
It requires involvement at all levels
Communication – Clarity of Roles and Opportunity – where they fit.
Maximize Human Capital Value
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17Total Compensation Pay Philosophy
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18Golden Handcuffs/Golden Parachutes**
Reward key employees/ Executives for leading/remaining
with the business
Structure Benefits that keep employees
connected to business
May be a bonus plan that pays a current portion annually and contributes the remainder for
future access, assuming continued employment
Include non-compete Financial and Non-financial aspects
Golden Parachutes Carryover to new organization
**Key to have strategy and goals in place to have a plan to motivate, reward and retain those that influence goal attainment.
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19Short vs. Long Term
• Initial incentive- often short term in nature, based on short term goals (annual profit, revenue, cash flow)
• Next step to base on long-term goals, i.e. increase in value over three to five years or based on a finite event.
• May have 1/3 short term and 2/3 long term criteria; percent to total compensation; weighed based on role, etc.o Individual Performanceo Company Performanceo Team Performanceo Discretionary
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205 Criteria Present in a Well Designed Incentive Plan
The plan provides substantial financial rewards to key employees One
Performance standards are specificTwo
Performance standards are tied directly to increases in the company’s value, to a specific event, to a specific timeline
Three
Part of the bonus is deferred and subject to vestingFour
The plan is communicated in writing and directly to employeesFive
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B CA D
We have not identified high
potentials
Skill gaps
No development plan in place/no resources to develop
leadersAttraction/Retention in
general
Polling question #2
What is your most pressing concern related to your next generation/succession of leaders?
E
Communication – when and
how?
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Retention & Succession
BEFORE, DURING & AFTER TRANSITION
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23“It’s not just succession to the top – it’s getting the right person in place for every job. Some of tomorrow's key jobs may not even exist now.” -Robert M. Fulmer, Growing Your Company’s Leaders
“The final test of greatness of a CEO is how well he chooses his successor and whether he can step aside and let his successor run the company” -Peter Drucker
“The old adage ‘People are your most important asset’ is wrong. People are not your most important assets. The right people are. Good to great depends on having the right people on the right bus at the right time.”-Jim Collins, Good to Great
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24Succession Planning is Not…
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25Succession Planning is…
• A process for finding and developing internal people with the potential to fill key leadership roles in the company
• It is focused on the business first and the owner second
• A good succession plan will:o Involve all of the major
shareholderso Retain the talent necessary for the
business to succeed
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26Extracting Yourself, Filling in With Others
• Defining your role
• Defining your transition timeframe
• Identify internal or external candidates
• Map out a development plan
• Assign readiness measurements
• Begin extraction
• Monitor results
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B CA D
5%15%
30%
45%
Polling question #3
What percentage of business owners planning to transition the business in the next 10 years have identified, hired and
trained employees to take over key operating responsibilities?
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28Vision Elements & Process
Steps:• Long term what needs to be different –
what three areas of focus do you see?
• Define the three biggest challenges to that happening
• Define a plan
• Document it
• Communicate it
• Measure it (key indicators)
• Look at key positions, employees and development
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29Vested in the Vision – Future Leader Identification
Key role 2015 2016 2017 Comment
Executive Director Jane Michaels Jane Michaels Jane Michaels No change
Senior Program Director n/a n/a George MendozaGeorge should take on additional operational roles across 2014-15; if he delivers, he will move into this senior program director role in 2016
Program Director George Mendoza George Mendoza n/a If George is promoted, this role will be replaced by the new senior program director role in 2017
Program Director Sarah Miller Sarah Miller Sarah Miller No change
Chief Development Officer Tom Smith Cynthia Reed Cynthia Reed
Cynthia should use 2016 to build her skills with corporate and foundation donors, and implement a development metrics dashboard; if she delivers, she will be ready to move into the CDO role
HR Director Ellen David Ellen David Ellen David No change
Chief Financial Officer TBH in 2014 TBH in 2015 TBH in 2017 TBD – This will likely be an external hire, due to the junior finance bench
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309 Box Assessment – Performance & Potential
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31Vested in the Vision – 12 Months & Longer Term – Individual Development
Leader's name: Supervisor's name: Date:
Goals-12 mos
My personal goals for career and Leadership development
Activities
I will achieve these goals by performing the following activities
BarriersThese conditions could negatively impact my progress
Resources
I will need these resources (people, technology, etc.) to achieve the goal
Review
This is how I will measure my progress and success at achieving the goal
DeadlineThis is the target date of goal completion.
Individual Career and Leadership Development Plan
Sheet1
Individual Career and Leadership Development Plan
Leader's name:Supervisor's name:Date:
Goals-12 mosMy personal goals for career and Leadership development
ActivitiesI will achieve these goals by performing the following activities
BarriersThese conditions could negatively impact my progress
ResourcesI will need these resources (people, technology, etc.) to achieve the goal
ReviewThis is how I will measure my progress and success at achieving the goal
DeadlineThis is the target date of goal completion.
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32Examples of Employee Trainings & Development Opportunities
On The JobJob EnrichmentSpecial ProjectsCommittee AssignmentsTask Force Participation Lead Person ResponsibilitiesGiving PresentationsPrepare ProposalsInstall A New SystemLead A New Program Temporary Job AssignmentsFull Job Change
Learning From OthersWorking With a MentorTeaming with an Expert360 FeedbackFocused Interviews
Training & EducationSeminars & ConferencesContinuing EducationE-LearningCross Training
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33Monitor & Review
• Review talent pool and development plans
• Report progress and make plan adjustments
• Orchestrate moves for the next six months
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Articulate to your key employees
why you are transitioning/selling
your business.
Assure them that the successor leadership will
understand and be told how
important they are to the business.
Properly incentivize them
to stay.
Stress the importance of confidentiality
EPI “State of Owner Readiness” Survey
When, Who & How – Communication Strategy
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35Communication – People, Planning & Succession
EPI “State of Owner Readiness” Survey
• Do your key employees or management know what your plans for transition include?
May include:• Non – Competes• Earn outs• Contingent • Stay Bonuses
41%
33%
9%
17%
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B CA D
Compensation
Benefits
Development and training
Communication
Polling question #4
What is most important to you to focus on as you strive to engage and retain your key employees?
E
All of the above
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37“Are the leaders ready to lead or are they in the right seats”?
The use of assessment tools and outside guidance can help remove the emotion and help make good successor choices.
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Please join us for our next webinar:
Saving taxes in ownership transfers and investing proceeds wiselyTuesday, June 18, 2019 | 11:00 am
Register at rehmann.com/events
Succession Planning Webinar Series
http://www.rehmann.com/events
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Thank you!
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