Succession Planning - What Business Owners are Saying


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

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Succession Planning - What Business Owners are Saying

  1. 1. Succession Planning – What Business Owners are Telling Us Michael S. Blake, CFA, ASA, ABAR Director of Valuation Services Habif, Arogeti & Wynne @unblakeable 770-353-8373
  2. 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 2HA&W Educational Material
  3. 3. Succession is Inevitable 3HA&W Educational Material
  4. 4. Sometimes it Works Well 4HA&W Educational Material
  5. 5. Sometimes it Doesn’t… 5HA&W Educational Material
  6. 6. Sometimes It’s Ugly 6HA&W Educational Material
  7. 7. Sometimes It’s Well-Practiced 7HA&W Educational Material
  8. 8. Sometimes It Takes too Long 8HA&W Educational Material
  9. 9. Sometimes We Hardly Know the Difference 9HA&W Educational Material
  10. 10. And Sometimes Succession Isn’t Realistic 10HA&W Educational Material
  11. 11. But It Always Has Far-Reaching Implications 11HA&W Educational Material
  12. 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 12HA&W Educational Material
  13. 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 13HA&W Educational Material
  14. 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 14HA&W Educational Material
  15. 15. What Causes Succession? 24% 16% 15% 10% 9% 26% Voluntary Retirement Next Generation Ready Owner Health Estate Planning Death in Family Other 15HA&W Educational Material
  16. 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 16HA&W Educational Material
  17. 17. Most Important Considerations • Family Harmony • Continuity of the Business • Ongoing Jobs for Employees 17HA&W Educational Material
  18. 18. Priorities Evolve During the Process Price decreases in importance over time, while importance of family harmony and employee job security increases… 18HA&W Educational Material
  19. 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 19HA&W Educational Material
  20. 20. What Happens After Succession? 57%27% 16% Business is Kept in the Family Business Will be Sold Unsure 20HA&W Educational Material
  21. 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) 21HA&W Educational Material
  22. 22. Who Will Be the Next CEO? 44% 36% 20% Family Member Non-family Member Not Sure 22HA&W Educational Material
  23. 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 23HA&W Educational Material
  24. 24. Most Trusted Advisors 1. Accountant 2. Family Member (Spouse) 3. Attorney 24HA&W Educational Material
  25. 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 25HA&W Educational Material
  26. 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 26HA&W Educational Material
  27. 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 27HA&W Educational Material
  28. 28. Most Critical Challenges Faced 28HA&W Educational Material
  29. 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 29HA&W Educational Material
  30. 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 30HA&W Educational Material
  31. 31. Thanks! Questions? Michael S Blake, CFA, ASA, ABAR 770-353-8373 @unblakeable