generations - winter q1 2008 - electronic

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1 The Go od, the Bad and t he Ugly

2 Si x Steps to Inc r easing the Value o f

Your Business

3 2 0 07 Inter national Farm Succ e ssion

Confe r e nc e

1

Generations Generations WINTER 20

Founders. Successors. They all have worries,

concerns and fears. Just as founders may look

forward – many with more than a little

apprehension – to their life after a transition

takes place, successors are mixed with

optimism, energy and their own set of anxieties.

Without open communication and a planned,

measured approach to the ultimate transition,

expectations by both are less likely to be

aligned.

What is succession? How do we know when it

has happened? What are the signs it has

occurred successfully? It is much more than a

transfer of ownership or promotion of someone

to senior management. Time and proactive

effort should be dedicated to the transition of

things like knowledge, wisdom, capability,

confidence, relationships, family values and

business values, passion, purpose, and

professionalism.

Succession is a process rather than an event.

How does a family ensure a gradual, well-

structured succession plan? It happens as

control and decision making authority are

transferred to a successor. The entire process is

predicated on one significant factor; the

founder or current leader has the desire and

recognizes the need to move on. It also

assumes he or she has confidence in an

identified successor.

This can be done in many ways, and the

methodology chosen and followed will have a

profound influence on the ultimate sustainability

of the enterprise. Here are the brief stories of 3families:

The Good

The Joyeux family has invested a lot of time,

effort and attention in the orderly transition of

the family business from one generation to the

other. The founders are enjoying a very happy

sojourn away from the business, living off their

dividends. The successors have stimulated

growth while continuing the founders'

momentum. Everything is booming – the

business, the family, and the individuals within

the family.

The B ad

Pierre Malcontent founded his family bus

over 50 years ago, driving it from a s

home-based business to a nationally resp

manufacturer. Pierre had his finger

everything. His creative touch drove sales

his manufacturing intuition provided val

solutions to clients' needs. He always inte

to pass on the business to his childre

never quite got around to the de

Unfortunately, Pierre passed away and his

children are caught in a dilemma, not

ready to take over. Times are very uncerta

the business and for the family. Tension

high; conflict is sure to follow.

The Ugl y

John Strong was a great buddy of Pierre's

a lot healthier. He and his wife Mary jus

their business. Years ago, they asked children to take over so they could enjoy

retirement. After all, they didn't want to en

like Pierre. They still hold the bulk o

common shares and return every two w

from their vacation hideaway. They lov

attend the board meetings, providing inp

how the business ought to be run, and then

off to their next vacation destination.

Can things really go as well as for the Jo

family? Are there actually founders like

Malcontent who would put a lifetime's wo

such risk? Don't Mr. & Mrs. Strong have it

It's time to ask yourself: "which story

reflects my business and my family?" Whyou are transitioning into the big cha

transitioning out, it's gut check time .

The g oo d

A measured, gradual and defined transit

the best way to transfer control and dec

making. It is an effective way to ha

successful and seamless transition. One o

illustrated below, allows for the inclusion

non-family CEO. There are often cases w

the founder is ready to exit, or needs to ex

the next generation successor is no

prepared or qualified to take over.

The Good, the Bad and the Ug

Continued on P

Welcome to the Winter Generations Newsletter relating

o Succession, Exit Planning and Maximization of your

Business Value. We are fortunate to have 3 excellent

guest authors with significant expertise in the

Succession and Exit planning area and we think that you

will enjoy their insights.

We, at Collins Barrow, feel that succession planning and

he related topics are important to our clients and have

developed our Generations Succession Planning

Process to assist in these ownership transitions and

business continuity plans. If you have any questions or

comments, please feel free to contact your local Collins

Barrow office.

Michael A. Bondy CA, CFP , TEP , CAFA

National Director of Succession Planning

[email protected]



Consulting to more than 150 business owners over

he past fifteen years has provided a few insights

nto the need for business owners to focus onncreasing their business value , not just increasing

ales, revenues and profits. There are six key

teps to this process.

. Estab lish y our need and l ev el of urgency

Whether you are selling, growing, or passing your

business on to your children, staff or a third party,

building value is essential to achieve greater

uccess for everyone involved – especially for you

he owner. So why do you need your business to

be more valuable? Do you need more money when

ou retire? Do you need more growth options or

elling options? Are you building your business so

hat it can be sold for the highest price possible?f any of these reasons apply to your needs, it

becomes that much more critical for you to build

measurable value in your business.

2. Inve st su f fi cient t ime, mone y and e ff or t f or

p r oper r etur ns

What time can you invest in planning out your

rowth and exit strategy? What other resources –

money, people, effort – will you commit to this

process? Will those commitments be sufficient to

chieve the results you need? If you always get

what you pay for, then it makes a lot of sense to

nvest what you can now for a valuable payoff later.

There are two groups of assets that build value:

ntangible assets (patents, trademarks, goodwill,

brand assets, etc.) and tangible assets (real

state, inventory, equipment, etc.). Smart and

uccessful owners that have built and sold their

businesses understand how to invest time, money

nd effort in a way that makes their businesses

valuable enough to a buyer – rather than to the

wners themselves – that they get a lucrative

payout. Since tangible assets grow value linearly

nd intangible assets grow value exponentially ,

ignificant value enhancement occurs with the

atter group.

3. Int angib l es incr e ase valu e e xp onenti al l y

You can realize all the value for which you have

worked so hard by paying close attention to how

ou will be paid for your goodwill upon the sale of

our business. Many owners do not receive the full

alue of their businesses due to mismanagement

f their intangible assets. However, one practical

trategy that business owners have been

ncorporating into their strategy, operations,

management and brand is a company's Unifying

Philosophy (UPh®) statement. This is just like your

wn proprietary business DNA that is formally built

nd trademarked. Imagine an all-in-one strategic,

perational and marketing statement that

synchronizes all the functions, staff and marketing

of your business, and that also enhances your

business value over time the more you implementit. The UPh is a formal and systematic version of

the "Hedgehog concept" that Jim Collins

discusses in his book Good to Great .

4. Gr ow your busi ne ss and i ts value wi th t he

help of e xp er ts

As owners, we understand how to build a business

but we may not necessarily understand fully what

it means to make a business valuable . Even

though your business is worth whatever someone

is willing to pay you, you still need the help of

experts to show you how to build premiums in your

business value and to identify who will pay you the

most for your business. You must retain a team ofexperts who have proven skills and insights on

increasing the value in your business.

Here are 3 steps in establishing your Ideal Value

Team and getting the most out of them:

i) Retain a Value Quarterback. Choose a non-

biased advisor, a seasoned specialist, to

'quarterback' the entire process and keep

your interests as top priority. This person

must be willing to build a team – many

advisors who lock out other experts are not

good Value Quarterbacks and therefore do

not ensure all the interests of the business

owner are protected.

ii) With your Value Quarterback, build your

team. A good Value Quarterback will have

close alliances with value specialists who

have time-tested experience working with the

owner's current advisors. Your Value

Quarterback should have your trust and your

big picture clearly presented to your advisors

as conflicts often surface and need to be

facilitated by the Quarterback.

iii) Disengage poor advisors. Your team is only

as strong as the weakest advisor. Many

owners hold on to advisors due to their

extensive history, friendship or cheap rates.

Beware that these advisors, although

beneficial until now, may not be the best ones

to help you get to the next level. Smart

owners upgrade their accounting, legal, and

financial advisors as their business needs

and demands grow. Remember, your future

rests in the quality of your counsel – powerful

business people have powerful advisors. As

Bruce Wright wisely states in his book, The

Wright Exit Strategy , "your current advisors

have brought you to where you are and may

not have what it takes to take you where you

want to be."

5. S t ar t bu ildi ng business val u e now

Building value and getting your business reasale requires a minimum of three to five years

thus wise to get started as soon as possib

that you can get time on your side.

6. Know what makes yo ur b usiness valu a

yo u wer e t o se ll i t)

Determining this, first, will help you identify a

factors and assets that can increase value.

also reveal those things your business lacks

not doing to produce or enhance value. How

is your business worth and what will make it

more? Start with a preliminary business valu

with the help of a Certified Business Valua

identify the value drivers, or lack thereof. Worthe rest of your newly formed expert team

start increasing your business value .

Tak e acti on now.

The wisest business people always know the

strategy before they sign the deal. As Ste

Covey suggests, "begin with the end in mind

tragic when you realize it's too late to chang

course of your future. Save yourself the miser

do what it takes to build value in your bus

now. After all, isn't prosperity – whether w

lifestyle or fulfillment – the very reason you a

business in the first place?

The consequence of failing to act now is t

potentially large part of your hard-earned m

will be taken out of your pocket and giv

someone else .

To review your business value potential wit

Brand Assets Checklist or to receive a discu

paper on how to increase business

successfully with your Unifying Philosophy (

statement, email info@businessbyphilosophy

and visit Success Stories

www.businessbyphilosophy.com.

Ab ou t the au thor

Harish Chauhan is an international bus

strategist, educator, and author of Unconven

Business. Since 1991, Chauhan has helped

150 private and family-owned businesses ac

extraordinary performance and well-being

internationally renowned Unifying Philos

(UPh® ) strategy system improves leadership

staff alignment, goodwill value, shareh

wealth, and business succession. As Busine

Philosophy founder and owner, his clients in

firms from the "PROFIT 100" and "Canada

Best Managed."

2Winter 2008

Six Steps to Increasing the Value of Your Busines



The International Farm Succession Conference

was held in Ottawa in August, 2007. This

onference was a follow-up to the earlier NationalConference on Family Farm Succession held in

Winnipeg in 2002 and provided some interesting

nsights to the state of farm succession worldwide.

This article summarizes some of those insights.

n 2002, approximately 2% of farm producers had

Succession Plan. That percentage has now

ncreased to between 7% and 10%. The 2002

Conference provided an opportunity for

producers, advisors and academics to discuss the

ssues and share expertise. The Canadian

Association of Farm Advisors (CAFA) was founded

ubsequent to the 2002 Conference and its growth

cross this country has helped brand CAFA

members as trusted and capable advisors.

The various speakers at the 2007 Conference from

Canada, the United States and England presented

arious approaches to several difficult issues,

which are outlined below:

. What ar e the compo ne nt s o f a Succession

P l an?

n effect, a Succession Plan consists of a strategic

business plan, an estate plan, a retirement plan

nd the preparation of successor. This can also be

eferred to as a Business Continuity Plan.

2. How c an w e, as ad viso r s, be t t er underst and the int e r r el ati onships bet w ee n f amily and the

b usi ne ss?

The conference speakers emphasized that we

must be aware of the Three Circle Model,

onsisting of the Ownership Circle, the

Management Circle, and the Family Circle.

But it is the Family Circle that is unique to family

arm business. "The most critical issues facing

business-owning families are family-based issues

more than they are business-based issues." We

must appreciate that succession planning is a

eries of "baby steps," and we must acknowledge

hat the family circle casts a broad shadow. Clients

an be educated to manage the family component

by creating a family council, holding family

business meetings and adopting codes of

onduct.

The conference speakers agreed that

ommunication remains a major stumbling block

or many family farm businesses.

3. F amil y issue i ndic at ors

We must understand the following unique aspects

f family business:

a) Control – the ability of the founder to

relinquish it

b) Trust – must be unconditionalc) Emotional Security – must feel comfortable

with the plan

d) Respect – acknowledgement of contributions

e) Protection – avoidance of inappropriate

family member influence and the threat of a

breakdown

4. S ucce ssi on Pl anning List of P r i o ri t ie s

Once we understand these points, we can create

a Succession Planning List of Priorities:

1) Preservation of the family farm – Is the

business viable?

2) The older generation – how to generatesufficient retirement income for them.

3) All children – how to develop equitable

treatment for all children as the in business

heir preserves and grows the business.

4) Transfer taxes – Is the plan workable from a

tax perspective?

If you can't get past Item 1), you may be talking

about an exit strategy.

The conference speakers also discussed what the

"Big Three" issues have been since they last met in

2002. First, there is now a new demographic of

farm successors who have a new vision of their

purpose and a greater concern about work/lifebalance. Second, there is the presence of Farm

Consolidators with increasingly large operations.

This tends either to cause the older generations to

gift 40 - 50 % of farm value (thereby raising the

issue of equity for non-farm children) or it leads to

a lot of farms being sold [to third parties] rather

than transferred [to family members].

The Conference included a producer panel

consisting of several families who had

experienced a transfer. This panel provided

insight into the quality of the advisors that these

various producers had used, and emphasized the

benefits of an interdisciplinary approach rather

than simply several professionals working in a

vacuum.

The final plenary session dealt with gaps in the

process. These gaps can be summarized as

follows:

1) Fair vs. Equal – how should sweat equity

contribution be valued? Equal as of what

date? When the successor began in the

operation or at the parents' deaths?

2) Retirement Bottlenecks, such as:

• the importance of choosing a successor

• the effect of government policy on

retirement

• availability of programs

• availability of credit

• funding of retirement3) Failure to Apply Business Tools to

Transfers

• lease purchase agreements

• joint ventures

• buy/sell agreements

4) Increasing Asset Values

consolidation/appreciation of assets

values, quota, etc.)

The 2007 Conference made it clear tha

Canada, we are at the cutting edge of the

being done in the area of farm succession.

more remains to be done however. With 32

producers in Canada and perhaps 30,000

have completed Succession Plans, this remachallenging yet fertile area for advisors to a

their skill, knowledge and expertise to assis

farm clients as they move through the

century.

Ab ou t the au thor

George Sinker, LLP, has practiced law in Stra

in Southwestern Ontario since 1975. He con

a solicitor's practice with emphasis on

business, estate planning, succession plan

real estate and estate administration. Georg

be contacted at [email protected].

3 Winter

2007 International Farm Succession Conference



Collins Barrow regularly publishes Generations for its clients and associates. It is designed to highlight a

summarize the continually changing succession and business planning scene across Canada. We

recommend that professional advice always be sought before taking specific planning steps.

The B ad

Lengthy delays will both frustrate and

undermine succession, with the important risk

of damaging long-term business success. The

senior generation, unwilling to let go and unable

to train and prepare the successor, hangs on

until a time when it may be too late. The so

called cold turkey transition is most often the

result of poor or no planning and the

unexpected exit of the founder. Clearly, no time

is spent preparing the founder, the successor,

the family or the business for post-transition life.

The Ugl y

On again, off again is hard on the business and

very damaging to family relationships. What's

worse, when dad finally exits - whether by his

own choice or not – the business,

successor(s) and the family have not

given the opportunity to learn or to thrive wthe senior generation.

Proper succession and a good transition aabout the orderly transfer of control

authority to a trusted successor. It is a ch

to trusted and competent new leaders, tr

to make decisions about such thing

strategy, capital expenditures, opera

marketing and other factors critical to

business operations. It is a process

requires planning!

Founders and senior family leaders shou

involved in directing and helping the

generation to learn through personal

professional training and developm

delegation with accountability, and the sh

of experiences. Successors in turn will com

understand that privilege and opportunity c

with responsibility and obligation

themselves, to the business, and to their fa

Open, honest communication with an ey

the bigger future ahead will help create e

and alignment.

It's not too late. You can start this process t

Ab ou t t he au t ho r

Jeff Noble, BA, CMC , is creator of NOBLE Ad

a specialist practice consulting

entrepreneurs and advising business fam

A fourth-generation business family mem

Jeff is a highly skilled facilitator and tradvisor to leading business families. Jeff c

reached by telephone at 519.761.246

[email protected] / www.nobleadvice.c

Graphics: The Family Business Advisor,

2003

anff

obcaygeon

rockville

Calgary

Cambridge

Canmore

Carleton Place

Chatham

Chelmsford

dmonton

lora

xeter

Halifax

Hearst

Kapuskasing

Kingston

Leamington

Lindsay

London

Manotick

Montreal

North Bay

Orangeville

Ottawa

Peterborough

Red Deer

Sarnia

Stratford

Strathroy

Sturgeon Falls

Sudbury

Vancouver

Vaughan

Waterloo

Winchester

Windsor

Winnipeg

Collins Barrow Office Locations:

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