Dennis Blender, Ph.D.

1. Strategies and Techniques in Succession Planning Dennis Blender, Ph.D.

2. Succession Planning “Succession planning is a lifelong process encompassing everything aimed at ensuring the continuity of the business through the next generations”.

3. Key Facts • Family businesses permeate our economy • 90% of the 15 million businesses in U.S. • 33% of Fortune 500 are family-owned or controlled • 40% of GNP is generated from family business activity • 78% of all new jobs • By 2005, virtually all closely-held businesses will lose their primary owner to death or retirement

4. Key Facts • 70% of family businesses do not survive to the 2nd generation. Only 12% survive to the 3rd generation. • 81% of family owned businesses want the business to stay in the family. • 70% of family business owners cite life insurance as their top source of funds to pay for death taxes.

5. Key Facts • 3 primary causes of failure of family-owned businesses: • Inadequate estate planning • Failure to prepare and provide for transition to the next generation • Lack of funds to pay estate taxes • Lack of clear goals and objectives • Conflict between family business system • Financial dependence on the business • Overlooking the impact of key (non-family) employees

6. The 6 Ingredients of Succession Planning • 2 parts courage • 2 parts psychology • 1 part finance • 1 part tax (Note: failure to combine in the proper order could result in explosion)

7. Component Parts of Succession Planning • Philosophy • Mechanics • Economics • Luck

8. Family Business Model Family Business Ownership

9. Rationale: Why do it? • Continuity of business • Continuity of family • Achieve founder’s dream • Life cycle of a business • Retain key executives • Tax implications • Retirement: getting the value out of the business • Planning for capital and liquidity needs

10. Obstacles: What prevents clients from doing it? • Overwhelmed • Uncertainty • Denial • Avoidance • Lack of control • Conflict adverse • No perfect answer • Fee adverse • Lack of understanding financial resources

11. Planning Process • Understand client’s objectives • Understand key players • Family • Non-family • Understand the facts • Legal, financial tax • Personal and business • Identify potential conflicts

12. Formulate and Execute a Plan(Blueprint) • Attempt to resolve conflict(s) • Strategic/business planning • Identify options • Set timetable • Establish strategies for”what if” • Proper documentation • Buy-sell agreement • Types • Funding

13. Formulate and Execute a Plan(Blueprint) • “Key executive” retention plan • Address “non-family” member concerns • Stock vs. Non-qualified plans • Problems • Advantages • Types/Non-qualified plans • SERP • DBO • Phantom stock • Stock options

14. Blueprint Blueprint (continued) • Succession selection process • Family • Non-Family • No successor exists • Sell company • Voting Trust (No Sell-Buy Sell) • Completion Clauses

15. Blueprint • Coordination with personal estate planning • Income for surviving spouse • Assets outside the business • Insurance • Securing business assets • Leaving everything “equally” or “equability”

16. Multidisciplinary Approach • Variety of issues • Complexity of issues • Best interest of the client