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Succession Planning for Purchasing Coops: How to Engage Members in Their Future
- 1. 1 1 Succession Planning: How to Engage Members in Their Future March 28, 2017 For Purchasing Coop Execu3ves Make the business case internally and help members understand succession op3ons © Project Equity and Castle Wealth Advisors 2017
- 2. 2 2 © Project Equity and Castle Wealth Advisors 2017 INTRODUCTIONS Bryan Munson NCBA-‐CLUSA Gary Pi9sford, CFP® Castle Wealth Advisors, LLC Alison Lingane Project Equity
- 3. 3 3 © Project Equity and Castle Wealth Advisors 2017 AGENDA 1. Making the business case 2. MarkeJng succession planning to members 3. Understanding the opJons
- 4. 4 4 © Project Equity and Castle Wealth Advisors 2017 Making the Business Case: Reduce A9riLon 1. Educate members – RealisJc business valuaJons – Different avenues for selling – What to do if approached by a non co-‐op member buyer – How to plan for succession – How to get started 2. Encourage the next generaLon – EBITDA to appraised value = 23.6% – EBITDA to stockholders equity = 36.89% 3. Protect cooperaLve – Income – Membership numbers – Financially stronger members
- 5. 5 5 © Project Equity and Castle Wealth Advisors 2017 MarkeLng Succession Planning to Members • Provide educaJon on many levels – Classroom, videos, arJcles – One-‐on-‐one meeJngs – Surveys – Exclusive webinar for members – Data, how to’s and stories • Field staff handouts • MulJ year process – Succession/exit planning can not be learned in one class or one year
- 6. 6 6 © Project Equity and Castle Wealth Advisors 2017 Understanding the OpLons SUCCESSION OPTION KEY POINTS GOOD FOR CO-‐OP? Close down • Last resort • Lose enterprise value ✗ AcquisiLon • Sale outside the co-‐op • All cash is good for seller • All stock is not good for seller ✗ Sell to family • Good long term plan • Financially good for parents and children • Need to groom management ✔ Sell to another member • All cash sale is good for seller • Seller is secure ✔ Employee ownership • ESOP • Worker coop • Good for employees • Good for seller, potenJal tax breaks • ESOP is more expensive b/c highly regulated • Requires leadership succession ✔
- 7. 7 7 © Project Equity and Castle Wealth Advisors 2017 Close Down • This is what we’re aiming to avoid by being pro-‐acJve about succession planning – Lose enterprise value – Customer base – Last resort
- 8. 8 8 © Project Equity and Castle Wealth Advisors 2017 AcquisiLon • Discuss roll-‐ups • Discuss compeJJve companies • Impact on employees • Many of these don’t work
- 9. 9 9 © Project Equity and Castle Wealth Advisors 2017 Sell to Family • Discuss a typical family plan – ValuaJon for family transfer – Gia some stock – Sell remainder with promissory note or bank loan – ConsulJng fees – Rent on building – Other benefits
- 10. 10 10 © Project Equity and Castle Wealth Advisors 2017 Sell to Another Purchasing Co-‐op Member • Discuss a typical plan: member to member sale – ValuaJon for selling to non-‐family – All cash – Buy assets, not stock – Some consulJng for short Jme – Triple Net lease
- 11. 11 11 © Project Equity and Castle Wealth Advisors 2017 Employee Ownership CooperaLves Worker-‐ Owned Coops ESOPs Stock grants Housing Coops Consumer Coops Purchasing Coops Employee Ownership
- 12. 12 12 © Project Equity and Castle Wealth Advisors 2017 Worker CooperaLve Conversion • Business owned and governed by their workers – 100% employee ownership, high employee engagement – Board of Directors made up of majority worker-‐owners – Profit-‐sharing via patronage, based on hours worked • Flexible business form (Co-‐op Corp, LLC most common) • PotenJal significant federal tax benefits • Lower cost • Financed: employees don’t come up with 100% of the sale price on their own
- 13. 13 13 © Project Equity and Castle Wealth Advisors 2017 ESOP -‐ Employee Stock Ownership Plan Overview • All or a porJon of the company’s shares are held in a trust on behalf of the employees • ReJrement benefit, regulated by ERISA / DOL – Qualified defined-‐contribuJon employee benefit plan designed to invest primarily in the stock of the sponsoring employer • PotenJally significant federal tax benefits at >30% of stock held by the ESOP • High set up and ongoing costs
- 14. 14 14 © Project Equity and Castle Wealth Advisors 2017 Employee ownership forms Worker co-‐op DemocraLc ESOP ESOP 100% employee ownership ✔ Recommended SomeJmes Built in profit-‐sharing ✔ Recommended DemocraJc governance ✔ ✔ PotenJal seller tax breaks ✔ ✔ ✔ Annual valuaJon req’d (ERISA / DOL regulated) ✔ ✔ Suitable company size? All sizes Large Large
- 15. 15 15 © Project Equity and Castle Wealth Advisors 2017 What Purchasing Co-‐op Leadership Should Know SUCCESSION OPTION WHAT YOU NEED TO KNOW GOOD FOR CO-‐OP? Close down • Support financial success of members; share financial benchmarking • Last resort ✗ AcquisiLon • Educate members: what to do if approached by acquirer • >50% stock sale may be a bad idea ✗ Sell to family • Good long term plan • Help members assess / plan for this opJon ✔ Sell to another member • Maintain confidenJal buy / sell lists • Help members understand this can be an opJon ✔ Employee ownership • ESOP • Worker coop • Financial feasibility is first step • For a worker coop, also employee interest • ESOPs are more expensive; higher pot’l tax breaks • DemocraJc ESOPs build in employee engagement ✔
- 16. 16 16 © Project Equity and Castle Wealth Advisors 2017 Stay tuned for Parts 2 & 3 of this webinar series, leading up to October Purchasing Co-‐op Conference þ Part 1: Succession Planning: How to Engage Members in Their Future q Part 2: AcquisiJon & Selling to Family, Late Spring q Part 3: Selling to Another Member & Employee Ownership, Summer q Purchasing Co-‐op Conference: Oct. 4-‐6 in D.C.
- 17. 17 17 © Project Equity and Castle Wealth Advisors 2017 QUESTIONS? Gary Pi9sford, CFP® President and CEO Castle Wealth Advisors, LLC Gary@Castle3.com 317-‐849-‐9559 Bryan Munson Manager, Business Development NCBA-‐CLUSA bmunson@ncba.coop (202) 471 – 0900 Alison Lingane Co-‐founder Project Equity alison@project-‐equity.org 510-‐684-‐6665