Transcript Asset Lite Strategies in Distribution

Welcome to the World of
Family Business
Succession Planning
Roadmaps for Multi-Generational Success
Welcome
• Please introduce yourselves,
• Your business,
• Your location,
• Your generation,
• Your expectations.
Any questions before we start?
Welcome to the World of
Family Business
Succession Planning
Bill Wade’s Experience:
– Started in family business
– Moved to 100 year old family business
– Worked with a 3 Jewish-family business
– Acquired 5 family suppliers
– Acquired 14 family distributors to start FleetPride
Still work with distributor and supplier families !
Roadmaps for
Multi-Generational Success
History is not on your side:
• While 88% of current family business owners
think the family will control their business in 5
years:
– 30% of family businesses survive into the 2nd generation;
– 12% are still viable into the third generation;
– 3% operate into the fourth generation or beyond.
… Then there are the Grotes, Betts’ and Palmers!
A Multi Headed Dragon
• Business Assessments
• Leadership Development
• Succession Planning
• Estate Planning
• Conflict Resolution
• Human Resource
• Recession Planning
• Business Valuations
• Strategic Planning
• Family Meetings, Retreats
• Expense Reduction
• Family Governance
Family-first Business or
Business-first Family?
• To be determined prior to beginning the family
succession plan.
• The answer will significantly impact the
succession planning process.
• Major Tip: Solutions to problems are rarely
pure business or pure family in nature… so
attempts at complete separation are
counterproductive
• The Sunday dinner test…
Family-first Business or
Business-first Family?
• Family businesses mix business and
family. … social occasions can involve
more business talk than family talk.
• Tranquility in a family that is in business
together requires acceptance of the
double lives everybody is living.
Three Trials at Once
Management Succession Planning
– Administration and finance
– Operations and customer fulfillment
– Sales and marketing
Not who will own shares… who's going
to do the thankless and countless tasks
which make the family business an
asset worth preserving in the first place.
Three Trials at Once
Ownership Succession Planning
• 60% of family business owners report a
good understanding of the estate taxes
due upon their deaths…but 20% have
no estate planning at all!
• 30% of junior family business members
have no knowledge of their senior
generation's transfer plans.
Three Trials at Once
Ownership Succession Planning
Most common areas of contention:
• Technical mistakes
• Planning in a vacuum
• Leaving business to the surviving spouse
• The challenge of treating children equitably
Three Trials at Once
Leadership Succession Planning
• Leadership is often a murky and
nebulous concept, but it is important…
• How many times have you seen a new
leader come in… and with the same
cast of characters produces results?
"He can take his'n' and beat you'rn',
and he can take you'rn' and beat his'n'."
Old vs. New Expectations
New: Families may decide, for good and justifiable
reasons, to liquidate their successful businesses
rather than pass them to the next generation.
Old: Managers of successful family businesses oppose
liquidation in their life times and believe they owe the
next generation the opportunity to continue.
New: In management succession, family and business
concerns are overlapping and inseparable.
Old: In management succession, the business
concerns dominate and family matters are secondary
and separate.
Old vs. New Expectations
New: Successful management succession does not
guarantee the long-run viability of a founder's thriving
family business.
Old: A family business thriving in this generation depends
primarily on management succession to be successful in
the next generation.
New: Employment outside the family business may provide
essential perspective and experience necessary for success
in the family business.
Old: Haste in joining the family business is essential
because the opportunity may be lost.
Old vs. New Expectations
New: Mission and goals for the family business
continuously address management succession.
Old: Management succession, retirement planning and
estate planning are relevant issues only at the end of
the founder's career.
New: Planning of management succession
encompasses the extended family.
Old: Planning of management succession concerns
only the people directly involved in ownership and
operation of the business.
Old vs. New Expectations
New: Joining the family business as an employee in a
non-management capacity with a formal job
description and regular performance evaluations
provides a beneficial testing period both for the family
and the family member.
Old: Family members come into the business as
managers and co-owners so that they have an
immediate sense of responsibility, importance and
commitment
Send me in coach…
It's not the will to win…
but the will to prepare to win…
that makes the difference.
STEP 1: Discover Expectations
• Find out if any children are interested.
• Decide whether the family wants to
operate together and when the parents no
longer wish to run the place.
• Calculate whether the shop is financially
capable of supporting multiple families.
STEP 1: Discover Expectations
• Find out what non-operating children
expect from the business.
• Assess the management ability and level
of training successor(s) require to manage
the shop in the future.
• Decide what is fair to successors and
non-operating children.
STEP 2: Explore the Options
• Research the options available for the following:
– ownership/control of land and buildings
– ownership of machinery and equipment
– ownership of inventory
• Match business arrangements to your family business:
– sole proprietorship
– joint venture
– partnership
– corporation
• Examine management roles for all individuals.
• Discuss labor allocation and skill development.
• Research the option for financing the transfer of assets.
STEP 3: Build a Succession Plan
• Do you have a business plan?
• Prepare a management plan:
– management skills
– management functions
– management roles
• Develop a transfer of labor plan.
• Design an asset transfer plan:
– ownership of land and buildings
– ownership of machinery and equipment
– ownership of inventory
STEP 4: Check With the Experts
Contact your professionals to get their advice
– Get a legal opinion on the plan.
– Discover the tax implications from your accountant.
Seek financial advice … you only get 1 shot!
– Check with insurance specialists
– Check with your trusted suppliers for their advice.
– Lenders need to be involved (security is being transferred)
STEP 5: Review / Finalize the Plan
• Bring all of the family members back together for a
final look at the plan.
• Review and discuss the opinions and feedback from
all of the specialists.
• Make any necessary modifications to your plan.
• Have everyone review your revised plan.
The Pritzker Debacle
• Pritzker patriarch, Jay
Pritzker, and the resulting
dispute among family
members, triggered a fire
sale that has gutted the
family's business holdings.
• The disintegration of the
family's business
conglomerate, worth billions
of dollars, occurred despite
the patriarch's clear intention
that the structure remain
intact after his death.
•
What went wrong?
Did the Pritzkers hate paying
taxes more than they seem to
despise one another?
Can they bust up the family
fortune without the IRS breaking
down their doors?
Hyatt: What went wrong?
• Failure to build consensus among the interested parties as
to the final result
• Reactive planning in the face of an impending health
crisis (or any financial, age, or market-related trigger)
• Trusts, while excellent tools for transfer tax planning and
liability protection, are not necessarily the best mechanisms
to manage family businesses in the long term.
• The fiduciaries, as the controlling executives of the family
business, awarded themselves excessive compensation
Avoid the Hyatt Syndrome
• Traditional estate and corporate plans with autocratic
and restrictive management structures are no longer
sufficient to address the needs of business owners in
the current environment.
• Any business succession plan must retain the
flexibility to be updated frequently to address
changing circumstances and family dynamics.
• An ongoing review of the plan, once implemented, is
an absolute necessity
Other Upsets…
• Failure of ‘the board’ to align on strategy
• Before deciding on a future leader, board members
need to agree on strategic direction.
– One director may favor emphasizing the high-volume part of the business
that earns the lowest multiple, while another sees more potential in focusing
on the riskiest part of the business that earns the highest multiple but could
sink the ship.
• Wise families reach universal agreement on these
strategic issues up front.
• Avoid choosing an executive who mimics the
incumbent’s strengths, instead of selecting the
candidate with the qualifications best suited to the
company’s strategy.
Other Upsets…
• Trying to plan succession
with the entire ‘board’
• Succession planning is arguably one
of the more interesting responsibilities
of the board — and a task that many
board members are eager to be a part of.
• While the entire family should be
involved at critical touch points,
a smaller planning committee —
that includes only directors who are
qualified and who have the necessary
time — can steer the process and handle the granular work
associated with assessment and benchmarking.
Other Upsets…
• Conducting internal successor assessments
too late
• Once the list of key qualifications are agreed upon, it is
generally best if the assessment of internal candidates
takes place as quickly as possible.
• The more time internal candidates have to focus on their
developmental areas, the better the chance that one or
two of them can become a serious candidate.
• If an executive is told three months before the transition
that he or she really needs an international assignment to
get ready for the role, obtaining that experience is not a
realistic option.
Other Upsets…
• Creating a “horse race” too early
• Avoid organizing a process that fosters excessive
early competition between candidates or that
intimates in any way that the process is an interview.
• Clearly communicate that the company has decided
to make a significant investment in candidates’ career
by putting them through a rigorous process and
giving them feedback.
Other Upsets…
• Neglecting external benchmarking
• The benchmarking of internal candidates (especially
family members) versus external ones is sensitive.
• Just as companies benchmark their shop operations
and repair processes against the best in class, they
can also benefit from seeing executive leadership
stack up against other companies in their industry.
• Ideally, benchmarking should happen in tandem with
internal assessment. It is generally best to be
transparent with internal candidates about the
purpose of and approach to the benchmarking.
How to “Let Go" Effectively
• Will you be financially secure after
retirement?
Is there a strategic
plan for the business?
Have you chosen a
successor?
(Told anyone?)
• Have you set a firm
date to retire?
How to “Let Go" Effectively
• Have you completed your estate planning?
• Do you believe there is life after retirement?
• Are you willing to let others take risks?
Are you comfortable with the
successor’s style of
leadership and the fact they
may be introducing new
systems into the business?
A Set of Succession Goals
• Check your goals (personal and business) to be sure they
reflect the values and attitudes of all family members.
– Goals should reflect the needs of both the retiring and
younger generations, whether or not they are
participating.
• Check each goal to make sure it is well written… CLEAR!
– A clear goal will pass the SMAC test: specific,
measurable, achievable and consistent with your
values.
Fair and Equal are not the Same
• Many families find that the issue of
fairness to all children is the most
difficult part of succession planning.
– You may find that
a consultant is helpful
during this task if family
members have trouble
discussing fairness issues.
Fair and Equal are not the Same
• Family businesses may not provide
opportunities that fit all family members'
strengths. The current generation (or the
next generation) may have strengths not
applicable to the business.
• Family businesses typically provide limited
career growth opportunities for family
members and employees given the small
number of top managers and only one to
three levels of management.
Fair and Equal are not the Same
• Business continuity requires generation to generation
transition. Timeliness in the transition is essential.
• Parents may be unwilling to give up control and
authority at the time the next generation wants it or
should have it.
• The next generation may not be ready for their
responsibilities when they have to assume them.
• Continuous change complicates the external
environments… technology, public policies and
regulations.
The Checklist
1) Start business succession planning early.
Five years in advance is good.. build an exit strategy
right into their business plan… the longer you spend on
succession planning, the smoother the transition process
2) Involve your family in business succession
planning discussions.
Making your own succession plan and then announcing
it is the surest way to sow family discord.
The Checklist
3) Look at your family realistically and plan
accordingly.
Examine the strengths of all possible successors as
objectively as possible and think about what's best
for the business.
4) Get over the idea that everyone has to have an
equal share.
Management and ownership are separate business
succession planning issues. It may be fairer for the
successor(s) who run the business to have a larger
share of ownership.
The Checklist
5) Train your successor(s) and
work with them.
This is not Kudzu! Your family business succession plan
will have a much better chance of success if you work
with your successor(s) for a year or two before you
hand over the reins..
6) Get outside help with your business
succession planning.
There are companies that specialize in family business
succession planning to facilitate the process.
Some Structures that Can
Promote Success
• Family Council - regular meeting for family members to learn
about the business, make plans, develop leadership in the next
generation, share understandings and define the limits of family
involvement in the business
• Family Charter - written document that spells out the goals,
purpose, values of the family and that establishes policies about
the family assets.
• Family Retreats - meetings of the whole family that combines
both business and pleasure, usually over a 2-3 day period of
time and often employing the services of a facilitator and/ expert
in the field to organize.
• Ownership Forum - is often created by an older and more
complex family business. This group can act as a resource to
the board and represents the owners' values.
Roadmaps for Multi-Generational Success
Bill Wade
[email protected]
630-768-1227
A NEW DIRECTION FOR
INDEPENDENT DISTRIBUTORS OF
AGRICULTURAL PARTS AND EQUIPMENT
Designed for Continued Growth,
Higher Profitability and
a Stronger & More Secure Business
CSA FINAL THOUGHTS
THREAT OR OPPORTUNITY ?
Working With CSA; Threat ?
• Be Prepared !
• This information is public. Anyone with a computer has access. Plaintiff
attorney’s, potential customers, the general public, etc. will all be able to see
the results of your maintenance program.
• Media has already began to exploit CSA Scores after large truck crashes.
• Expect attorneys to dig deep when possible.
• Documentation is critical. If it’s not documented, it doesn’t exist.
• Training is critical. Look to HDA, ASE and ACOFAS for training sessions.
THREAT OR OPPORTUNITY ?
Working With CSA; Opportunity ?
• There are approx 800,000 Motor Carriers registered in the United States. 97%
have fewer than 20 power units.
• Motor Carriers must ensure that their maintenance program is complete.
• Motor Carriers cannot risk operating units if repairs are not done.
• Motor Carriers will find Maintenance Partners that understand the new
regulations and have systems and processes in place to ensure their vehicles do
not operate with Vehicle Maintenance violations and are maintained in the
absolute best shape possible.
• Most Motor Carriers will not be able to do this on their own. Today’s
equipment is too complex and requires frequent training and updates to stay
current.
THREAT OR OPPORTUNITY ?
Working With CSA; Opportunity ?
• Drivers will have their own individual scores. Owner/Operators will
absolutely have to have a Maintenance Partner that they can depend on and
that can shore up their operation.
• Know, understand and stay current with all the Vehicle Maintenance BASIC
regulations. Motor Carriers and O/Os will need a partner that completely
understands the rules.
• Offer Driver training.
• Complete the Annual Federal Inspection every time you touch the vehicle.
• Cargo Securement leading violations for all “open trailer” operations (Flatbed,
Auto Transport).
• Opportunity to inspect, repair or replace tiedowns, ratchets, etc.
THREAT OR OPPORTUNITY ?
• Most speeding violations carry a weighted severity between a “1”
and “4”.
• Lamp and light violations carry a weighted severity
score of “6”.
• Tire related violations carry a weighted severity score
of “8”.
• Most “cargo securement” violations carry a weighted
severity score of “10”.
THREAT OR OPPORTUNITY ?
Road-side Inspections
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All of the data that will generate action by the FMCSA comes from on-road
safety performance. (Crashes or Road-Side Inspections)
70%-80% of all points accrued in CSA are tied to non out-of-service
violations, which were never included in SafeStat.
66% of all road-side inspections arise from an observed behavior or
defect. MUST keep trucks clean with all lights, conspicuity taping and tires
working and securement systems in good order.
The four most common items cited for Vehicle Maintenance violations are; 1.
Brakes Out of Adjustment, 2. Other Brake Issues, 3. Lights & Conspicuity
Taping and 4. Tires & Wheels. These violations make up about 75% of all
Vehicle Maintenance violations
Zero defect road-side inspections will be crucial in the CSA program.