Business Succession Planning Philadelphia Bar Association, Small Business Committee July 12, 2012 Harold Floyd

Page 2 Who We Are DVIRC is an economic development organization established in 1988 focusing primarily on the Small - Mid-size Enterprise (SME) community to grow business value in two key areas: Consulting Services Talent Development

Page 3 Business Succession Planning The objective is to ensure sustainable, transferable business value while meeting the owner’s personal objectives.

Page 4 The Problems of Succession Planning Succession planning process Q & A Today’s Topics

Page 5 The Central Issue THE MORE THE BUSINESS RELIES ON THE SKILLS OF THE OWNER, THE LESS VALUABLE IT IS.

Page 6 Many owners Find that When the Time Comes to Sell or Transfer the Company They Cannot Get the Value They Expect and Perhaps Deserve. Everyday 8,000 Americans turn 60 In 2009 alone, approximately 750,000 baby boomer owned companies will be for sale Sustainable, transferable value frequently depends upon the owner successors How Does The Problem Show Up?

Page 7 Where family is involved, the owners have difficulty making the choice of successor and preparing the Company for success under the next generation. Most family-owned businesses fail as they transition to the second generation, very few survive to a third generation* The common reason for this failure is a lack of business succession planning * U.S. Small Business Administration How Does The Problem Show Up?

Page 8 For most business owners Succession Planning is once in a lifetime event Full of emotional issues Full of practical issues Full of denial and unknowns So entrepreneurs never get started on the succession process Common Issues

Page 9 The result: Succession gets put off, then it becomes a forced issue. People aren’t ready Turmoil in organization Performance begins to drop Customers get nervous Banks get nervous Competitors get a free ride Common Issues

Page 10 Owners find that they wish to grow their business but they are tired and overworked already and have no more desire for more work. How Does The Problem Show Up?

Page 11 Others want to take a step back from day to day running the business and find they cannot. How Does the Problem Show Up?

Page 12 Owners “design the business” around their personality…they wear many hats Successful entrepreneurs have an “It” – intuition, risk taking, financial skills, etc. –But: Children & employees may not have “It” to be owners, even though they are good managers. Successful entrepreneurs often “disable” skills in their children and employees by being….. Entrepreneurs! Family/Employee Succession - Difficult Issues

Page 13 Negative outcomes are avoidable! Give 5 years – You can get 5 ways. Give 1 year, you get one way! Getting Entrepreneurs Started

Page 14 Phase I – Develop Succession Options Analyze the business What is the “secret sauce?” Strengths, weaknesses, opportunities? Review financial performance. Learn the owners needs and expectations Financial expectations, transition time frame, other expectations Understand the owners role Rate himself and his key team on all key functions. What does the owner have that successors may not have? Consider behavioral traits as well! Assess potential successors Background, competencies, behaviors, desire, risk tolerance, business knowledge and plans. Define the succession options Identify the primary succession option Succession Action Steps

Page 15 Phase II – Succession Plan Definition and Coordination Establish plan definition and timelines Develop organizational and management development plan Perform a business valuation Coordinate work with trusted advisors on legal and accounting issues Put in place a sudden successor plan Work with the client on each step of implementing the plan. Succession Action Steps

Page 16 Succession is a once in a lifetime event with major risk. Working at it early and often makes a huge difference. Bottom Line