Transcript Document

Strategies and Techniques in
Succession Planning
Dennis Blender, Ph.D.
Succession Planning
“Succession planning is a lifelong
process encompassing everything
aimed at ensuring the continuity of
the business through the next
generations”.
Key Facts
• Family businesses permeate our
economy
– 90% of the 15 million businesses in U.S.
– 33% of Fortune 500 are family-owned or
controlled
– 40% of GNP is generated from family
business activity
– 78% of all new jobs
• By 2005, virtually all closely-held
businesses will lose their primary owner
to death or retirement
Key Facts
• 70% of family businesses do not
survive to the 2nd generation. Only 12%
survive to the 3rd generation.
• 81% of family owned businesses want
the business to stay in the family.
• 70% of family business owners cite life
insurance as their top source of funds
to pay for death taxes.
Key Facts
• 3 primary causes of failure of familyowned businesses:
– Inadequate estate planning
– Failure to prepare and provide for transition
to the next generation
– Lack of funds to pay estate taxes
– Lack of clear goals and objectives
– Conflict between family business system
– Financial dependence on the business
– Overlooking the impact of key (non-family)
employees
The 6 Ingredients of Succession
Planning
 2 parts courage
 2 parts psychology
 1 part finance
 1 part tax
(Note: failure to combine in the proper
order could result in explosion)
Component Parts of Succession
Planning
1. Philosophy
2. Mechanics
3. Economics
4. Luck
Family Business Model
Family
Business
Ownership
Rationale: Why do it?
•
•
•
•
•
•
•
Continuity of business
Continuity of family
Achieve founder’s dream
Life cycle of a business
Retain key executives
Tax implications
Retirement: getting the value out of the
business
• Planning for capital and liquidity needs
Obstacles: What prevents clients
from doing it?
•
•
•
•
•
•
•
•
•
Overwhelmed
Uncertainty
Denial
Avoidance
Lack of control
Conflict adverse
No perfect answer
Fee adverse
Lack of understanding financial
resources
Planning Process
• Understand client’s objectives
• Understand key players
– Family
– Non-family
• Understand the facts
– Legal, financial tax
– Personal and business
– Identify potential conflicts
Formulate and Execute a Plan
(Blueprint)
• Attempt to resolve conflict(s)
• Strategic/business planning
–
–
–
–
Identify options
Set timetable
Establish strategies for”what if”
Proper documentation
• Buy-sell agreement
– Types
– Funding
Formulate and Execute a Plan
(Blueprint)
•
“Key executive” retention plan
–
–
Address “non-family” member concerns
Stock vs. Non-qualified plans
 Problems
 Advantages
–
Types/Non-qualified plans
 SERP
 DBO
 Phantom stock
 Stock options
Blueprint
(continued)
Blueprint
• Succession selection process
– Family
– Non-Family
– No successor exists
 Sell company
 Voting Trust (No Sell-Buy Sell)
 Completion Clauses
Blueprint
• Coordination with personal estate
planning
– Income for surviving spouse
 Assets outside the business
 Insurance
 Securing business assets
– Leaving everything “equally” or “equability”
Multidisciplinary Approach
• Variety of issues
• Complexity of issues
• Best interest of the client