Taking the Next
Step:
Some Thoughts
about
SUCCESSION
PLANNING
prepared for the
Principals,
Directors and Managers of
NAI Global
Las Vegas
January 2008
After a long flight, it is reasonable to expect a safe landing.
We want to prepare
you for the transition
of your business
through successful
exit or succession.
Some sobering statistics:
• Over the next decade hundreds of firms will transfer ownership through
sales, merger or acquisition or close their doors altogether.
• Less than 20 % of independently affiliated firms set annual goals.
• Less than 5 % of independently affiliated firms have strategic plans.
Reminiscent of the old law school warning: look to
the left and to the right; in 5 years 1 of you will be gone.
Many of you are approaching a fork in the road with two strategic options:
SUCCESSION or EXIT
You do, of course, have the option of playing it out to the very end.
Nowhere is the old saying truer than here: failing to plan is planning to fail.
Two possible strategies:
SUCCESSION: the ownership and management of your company is
transferred to new owners and managers and you maintain some
relationship with the firm. You are, however, slowly phased out by a
successor or successors.
This is achieved through the implementation of a 3 to 5 year plan.
EXIT: the ownership of your firm is sold outright. In most cases you
disassociate from your business totally.
Note: do not proceed without a personal
financial plan!
And start a conversation NOW with your
spouse and children about the future.
This is the first decision of many you need to make about the future:
DO YOU HAVE A NEED TO STAY INVOLVED?
The choice between succession and exit depends on a series of factors:
FINANCIAL
OPERATIONAL
PERSONAL
MARKET
These factors are systemically inter-related.
The Financial Checklist:
• determine your assets.
• determine your value
• assess the market (who would/could buy us?)
• assess different sell/buy-out strategies.
$$$$$$
FINANCES
$$$$$$
Determine your assets.
Property and equipment
Contracts
Receivables
People
Relationships
Good name, good will
Brand
Market position
$$$$$$
FINANCES
$$$$$$
The question of valuation:
Rule of Thumb = 4 to 5
times multiple of net
revenues
Future cash flow
Are there buyers?
Existing partners
Brokers and employees
Competitors
mergers
acquisitions
Networks or national firms
The Operational Checklist:
• take a hard look at sustainability
• develop a phased-in plan of delegation
• find balance between being a lame duck and
a fifth wheel.
Operations… Operations… Operations
Issues of sustainability
Leadership
Potential partners
Kids and other family members
Administration
Sales Staff
the case of the 20:80
the case of the missing middle
the case of the empty cooler
Clients
Need to delegate.
Need to find balance.
The Market Checklist:
• how will your clients react?
• are you connected to the next wave market?
• how will your competitors react?
The Personal Checklist:
ƒare you ready for this?
mentally ready?
financially prepared?
can you let go?
ƒwhat does your spouse think?
ƒwhat do your heirs think?
Legacy planning.
ƒSTART NOW!
VERY NEXT STEPS
1. Get your personal financial plan in order.
1. Determine what you CAN do with the firm.
2. Make a decision about what you WANT to do.
3. Set goals for where you MUST be in 3 years.
4. Take action.