Transitioning Your Business from One
Generation of Leadership to the Next
A presentation to the Principal's Caucus
2013 CORFAC International Convention
September 11, 2013
Washington, DC
by
Dr. Lowell “Duke” Kuehn
Pacific Northwest Consulting Services
Michael Boyd, SIOR
Boyd Commercial
Part 1:
Getting read for the next big step
After a long flight, it is reasonable to expect a safe landing.
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
Of course, you
always have the
option of playing it
out to the very end.
But the end is often
not very pretty,
forgiving,
understanding or
just.
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
The answer: Are there buyers?
Existing partner
Brokers and employees
Competitors
mergers
Acquisition
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.
You
d
u
t
i
e
s
Your
Successor(s)
time
Operations… Operations
Issues of Question 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
Clients
Need to start delegating. Conduct a systematic transfer of power.
Don’t forget the market…
 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.
The single most important strategic factor to consider towards the end of your career?
Knowing and controlling your weight, blood pressure, cholesterol and blood sugar
levels is far more critical than any financial measurement we could consider.
Part 2: If you do choose to transition, here’s how.
A step by step, guide to transitioning.
What is the Background of the Firm ; What is its DNA?
1. Are you the Founder or Co-Founder?
2.Sole or multiple owners?
3.How did the various owners obtain their interests?
4.Has a partner left in the past and been bought out?
What are your alternatives?
1. Sale to another firm
a. Does your company have a structure and team which are desirable to other
firms? Will the “team” stay? What is in it for them to stay?
b. Does your company make a real profit, after paying your overhead and
commission splits?
c. What assets do you have to sell that won’t walk out of the door?
d. Buyers typically don’t want to fund your exit strategy.
2.Merge with another Firm
a. Another niche player in your market?
b. Merger of “Equals”.
c. Lee & Associates model or other.
3.Sell / transfer to your “partners” or “potential” partners
a. Is it priced fairly, both for you and them?
b. Cash vs terms vs sweat equity
4. Hang on until you raise another generation of owners who hopefully want to be in the
business.
5.Die at your desk (or hit by a bus) with no plan. (buy key man insurance, dealing with
spouse, how is ownership split up, etc.) Does firm have the wherewithal to fund any
kind of transition?
How do you Value your firm and your interest in it?
1. Do you have a record of profits which can be used as a basis?
2.Do you have a record of non commission income from either management
or other services, which is sustainable?
3.Does the firm own real estate or other hard assets?
4.Do you have a written formula or method of valuation on which owners
have agreed?
5.Is the value fair?
Bringing In Partners
1.Buy – Sell agreements
2.Limitation on transfer of shares (spouse must sell back in event of divorce or
death of partner, no sale to outsider unless both firm and/or partners don’t act,
Rof FR). Need some type of formula.
3.Is the formula that they buy on the same one that will be in effect if the stock is
sold back to the company? (What if they retire, leave and go into competition,
die)
Part 3: Sharing our experiences of what’s work and what hasn’t.