Transitioning Your Business from One Generation of Leadership to the Next

1. 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

2. Part 1: Getting read for the next big step

3. After a long flight, it is reasonable to expect a safe landing.

4. 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.

5. Many of you are approaching a fork in the road with two strategic options: SUCCESSION or EXIT

6. 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.

7. 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.

8. Note: do not proceed without a personal financial plan! And start a conversation NOW with your spouse and children about the future.

9. This is the first decision of many you need to make about the future: DO YOU HAVE A NEED TO STAY INVOLVED?

10. The choice between succession and exit depends on a series of factors: FINANCIAL OPERATIONAL PERSONAL MARKET These factors are systemically inter-related.

11. The Financial Checklist: • determine your assets. • determine your value • assess the market (who would/could buy us?) • assess different sell/buy-out strategies.

12. $$$$$$ FINANCES $$$$$$ • Determine your assets. • Property and equipment • Contracts • Receivables • People • Relationships • Good name, good will • Brand • Market position

13. $$$$$$ FINANCES $$$$$$ • 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

14. 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.

15. You duties Your Successor(s) time

16. 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.

17. Don’t forget the market… • how will your clients react? • are you connected to the next wave market? • how will your competitors react?

18. The Personal Checklist: • are you ready for this? • mentally ready? • financially prepared? • can you let go? • what does your spouse think? • what do your heirs think? • Legacy planning. • START NOW!

19. VERY NEXT STEPS • Get your personal financial plan in order. • Determine what you CAN do with the firm. • Make a decision about what you WANT to do. • Set goals for where you MUST be in 3 years. • Take action.

20. 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.

21. Part 2: If you do choose to transition, here’s how. A step by step, guide to transitioning.

22. What is the Background of the Firm ; What is its DNA? • Are you the Founder or Co-Founder? • Sole or multiple owners? • How did the various owners obtain their interests? • Has a partner left in the past and been bought out?

23. What are your alternatives? • Sale to another firm • 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? • Does your company make a real profit, after paying your overhead and commission splits? • What assets do you have to sell that won’t walk out of the door? • Buyers typically don’t want to fund your exit strategy. • Merge with another Firm • Another niche player in your market? • Merger of “Equals”. • Lee & Associates model or other. • Sell / transfer to your “partners” or “potential” partners • Is it priced fairly, both for you and them? • Cash vs terms vs sweat equity • Hang on until you raise another generation of owners who hopefully want to be in the business. • 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?

24. How do you Value your firm and your interest in it? • Do you have a record of profits which can be used as a basis? • Do you have a record of non commission income from either management or other services, which is sustainable? • Does the firm own real estate or other hard assets? • Do you have a written formula or method of valuation on which owners have agreed? • Is the value fair?

25. Bringing In Partners • Buy – Sell agreements • 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. • 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)

26. Part 3: Sharing our experiences of what’s work and what hasn’t.