On September 14, 2016 Newport Partner and Managing Director Michael Evans co-led a webinar sponsored by Moss Adams, the CPA firm, about Succession Planning. The webinar ranged widely over family business and exit and succession issues, providing significant background on these topics and actionable ideas for participants to consider.
Mike’s co-presenter was Dan Gaffney, the National Practice Leader of Moss Adams’ Closely Held Business Services practice. Mike drew on his experience as a consultant and advisor to family owned business, as a practice leader with Ernst and Young and as an advisor with Newport.
The webinar began with some context about what companies must do to become “exit ready.” In the case of a family business, basic initial questions to be resolved include whether the plan is to transition it to a family member, seek an equity investor, or sell to a strategic buyer or employee. The owners of any company looking to an exit must first of all determine whether there is transferrable value in the business, whether the company is ready to face the demands of a prospective buyer’s due diligence and how the transaction will address their tax and estate planning situation.
In the next section, the presenters explained that family companies that want to make a generational transition have an opportunity to sustain a legacy and get the benefits of customer and community goodwill—but they face steep odds in doing so. Ninety-five percent of family businesses do not survive third generation ownership. A particular challenge is that misalignment of interests between current owners and other family members tends to become more pronounced as members retire and turn over the reins to the new generation. Companies that want to ensure that shares are kept in the family must establish rules for share ownership and transfer, using mechanisms like a Share Redemption Fund, Single Manager LLC, Common/Preferred stock.
The heart of the presentation was the steps of formal succession planning:
- Start early.
- Consider what executive skills the company will need going forward and how the company should develop or obtain them.
- Seek advice from outsiders such as independent board members or advisors.
- Build consensus among key shareholders.
- Develop a transition plan including involvement of the current CEO after his/her departure.
The webinar included a good deal of practical information on a wide range of other topics including how to fund an exit; structuring buy sell agreements, and Forms of Sale including Family ESOPs and Installment Sales and tax strategy and entity structure.
Those seeking more information about the webinar can:
- Watch the presentation on demand:http://event.on24.com/wcc/r/1247306/F9B388E0F4A4395654FB2E0392D93409.
