Presentation of preliminary HA&W/Baker Tilly succession planning study

1. Succession Planning – What
Business Owners are Telling Us
Michael S. Blake, CFA, ASA, ABAR
Director of Valuation Services
Habif, Arogeti & Wynne
michael.blake@hawcpa.com
@unblakeable
770-353-8373

2. Disclaimer
• It is assumed that grownups are watching this
presentation and are capable of making their
own decisions
• If you’re not a grownup, go back to playing
CandyCrush
• The views expressed in this presentation are
mine
• Don’t ever do anything without advice of legal
counsel
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3. Succession is Inevitable
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4. Sometimes it Works Well
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5. Sometimes it Doesn’t…
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6. Sometimes It’s Ugly
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7. Sometimes It’s Well-Practiced
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8. Sometimes It Takes too Long
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9. Sometimes We Hardly Know the
Difference
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10. And Sometimes Succession Isn’t
Realistic
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11. But It Always Has Far-Reaching
Implications
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12. Why Start Now?
• Average age of business owners = 55 years
• Owners intending to retire in next ten years = 81%
• Owners with no exit strategy = 75%
Source: Smyrnios, K.X., Dana, L., The MGI Family and Private Business Survey 2006; RMIT University(October
2006) Melbourne, Australia
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13. Critical Date - 2020
• The tail end of the Baby Boom will be 56
• Supply of businesses will compete for buyers
• Seasoned management professionals (in
prime of their careers) will be in high demand
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14. About the Survey
• 1,650 of respondents in 55 countries (38% in
North America)
• 55% of respondents aged 49-67
• 70% of businesses under $10 MM in revenue
• Respondents have completed a succession, are in
the midst of succession or have not yet started
succession
• 80% male
• 59% are chief executive
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15. What Causes Succession?
24%
16%
15%
10%
9%
26%
Voluntary Retirement
Next Generation Ready
Owner Health
Estate Planning
Death in Family
Other
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16. “Other”?
• Buy-sell agreements
• Lawyer pestering them
• Change in business conditions
• Owners skeptical that succession is achievable
in practice
• Almost never caused by a divorce
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17. Most Important Considerations
• Family Harmony
• Continuity of the Business
• Ongoing Jobs for Employees
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18. Priorities Evolve During the Process
Price decreases in importance over time, while importance of family
harmony and employee job security increases…
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19. Implications
• Valuation services are easiest to sell at the
start of the succession process
• Compensation services are easiest to sell
toward the end
• Family therapy is probably always in demand
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20. What Happens After Succession?
57%27%
16%
Business is Kept in the
Family
Business Will be Sold
Unsure
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21. Implications
• Most owners prefer not to sell
• Owners realize that in the modern “job
market”, greatest gift to posterity is a cash
flowing business
• Value isn’t as important to business owners as
operational continuity and viability (sorry,
investment bankers and PE guys)
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22. Who Will Be the Next CEO?
44%
36%
20%
Family Member
Non-family Member
Not Sure
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23. Implications
• If you can show you run companies well,
you’re going to make a lot of money
• If family is already working in the company,
chances are the successor will be family
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24. Most Trusted Advisors
1. Accountant
2. Family Member (Spouse)
3. Attorney
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25. Most Important Preconditions for
Succession
15%
15%
14%
14%
12%
30%
Succeeding Generation Felt
Trusted and Empowered
Secure Suitable Retirement
Arrangement
Identify Best Person for the
Job
Strategic Positioning of
Business for the Sale
Equitable Inheritance among
Family Members
Other
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26. Most Important Activities During
Succession
15%
13%
12%
11%11%
38%
Give Family Members Understanding
of Demands fo the Business
Identify Best Person for the Job
Formal Discussion of a Succession
Plan
Strategic Positioning of the Business
for Sale
Equitable Inheritance for all Family
Members
Other
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27. Most Important Outcomes After
Succession
15%
13%
13%
13%
12%
34%
Formal Documentation of a
Succession Plan
Succeeding Generation Felt
Trusted and Empowered
Equitable Inheritance for all
Family Members
Securied Suitable
Retirement Arrangements
Identified Best Person for
Job
Other
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28. Most Critical Challenges Faced
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29. The Answer is ????
• Even in a fairly large sample set, priorities are
unclear
• Priorities are in motion
• If you’re frustrated trying to talk to someone
about succession, you’re not alone
• This research positions you to perhaps ask
better questions
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30. Some Personal Observations
• Planning is not a big part of Southern culture,
especially in the older generation
• Preserving “legacy” less a facet of Southern
culture
• Less desire to “support” children
• The Baby Boomer aging thing is overplayed
• Over time we should see more intrafamily
succession
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31. Thanks!
Questions?
Michael S Blake, CFA, ASA, ABAR
770-353-8373
michael.blake@hawcpa.com
@unblakeable