1. The Truth About Business Transition Are You Ready?

2. What is Business Transition ? It consists of planning & implementing the actionsrequired to successfully transfer business wealth both while operating the business & upon exit Succession Replacing the owner asan Operating OfficerTransition deals with Transition both the owners roleExit in the business & their Transferring ownershipinvestment in it. of the business 2 3. Surviving Transitions isnt Easy The The oddssurviving a transition fromTheodds of surviving to the the odds of of surviving to third the founding generation3% the next arefourth generation is togeneration is 12% 30%.Given these odds, why dont owners begin treatingsuccession planning the same as they would treatretirement & estate planning?3 4. The Approaching Wave Most private businesses will be closed, sold or turned over to others by 2015 Trillions of dollars will be transferred as a result The largest transfer of wealth in our history There will be fewer buyers than sellers Less than 40% successfully transition their businesses, yet 75% say they need to sell or transfer their business to finance their retirement4 5. How Important Will Transaction Proceeds Be To Financing Your Retirement?Do You Have to Sell to Retire?Not Important Critical 16% 15%Somew hat Important21%Very Important 28%Important20% Copyright ROCG Americas, LLC 2007 Survey 5 6. Is there a Wealth Gap?Whats neededExit Valuefrom the$$$business to liveyour future lifestyle?Current Value$ 6 7. Owners Need to Address the BasicsWhen? It occurs at the time of the ownerschoosingIt occurs in accordance with the owners To whom?wishes for the future ownership of the businessFor how It occurs with a satisfactory value thatmuch?meets the owners wealth objectives7 8. When are You Going to Transfer? When Do You Plan To Exit Your Business? Over 15 years 21.31% Over 15 Years 10 to 15 years21.51% 10 to 15 Years 5 to 10to 10 Years 5 years 29.68%2 to 52years to 5 Years 20.72% Under 2 years6.77% Under 2 Years 0.00% 5.00%10.00% 15.00%20.00% 25.00%30.00% Under 2 Years 2 to 5 Years5 to 10 Years 10 to 15 YearsOver 15 YearsSeries1 6.77%20.72%29.68% 21.51%21.31% Copyright ROCG Americas, LLC 2007 Survey 8 9. What is Your Plan for the Business?How Do You Think You Will Exit From Your Business?Sell to Competitors / Suppliers Sell to Management / Key Employees Sell to Another PartnerWind It Dow n, Liquidate AssetsSell to Family in the Business Gift to Family MembersSell to Family Not Working in the Business 0.00% 10.00% 20.00%30.00%Respondents 40.00% 50.00%60.00%Percentage of Copyright ROCG Americas, LLC 2007 Survey 9 10. How Much will You Get for the Business?10 11. Is this You? Working less in the next few years Considering how to ultimately leave your business Not sure how you will actually get out Success at transitioning your Wanting to maximize the value & wealth generated from business uses different skillsyour businessthan building itUnsure of the value of the business to others11 12. Have You Prepared A Transition / Succession Plan?Do You Have a Plan?Yes, Formal Written9% Yes, Informal Not Written 33% No Plan58% Copyright ROCG Americas, LLC 2007 Survey12 13. Why is Transition Planning so Difficult? Fear of Loss of Wealth: It took me 30 years to build this business to what it is today I could lose everything. I need to protect my retirement/wealth Fear of Loss of Control: This is my business. I built it & no one else can run it as well as I have. I am just not comfortable that good decisions will be made, or that proper attention will be given to important details, if I am not here watching over things Fear of Conflict: My two kids both think they should be CEO. They manage differently & have different goals than I. My partner doesnt want to retire, & his kids are not involved in the business 13 14. What are the Benefits of Planning?Improved financial stability Increased business value Maintained employee harmony Prepared my successorMaintained family harmony Financial stability to Business Minimize tax liability Providing for familys future0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 14 15. Familiar???? What comes first? The Transaction The Management of the Transition The Strategy for the Transition "Hang on...We must be doing something wrong...How does that saying go again?" 15 16. 16 17. Key Issue 1 - Understanding Value Worlds17 18. Looking with Buyers Eyes Earnings quality & transparency Equity risk factors Growth strategies External factors Do the words & the music match18 19. Non-financial Factors Investors ValueOnly 1 in 10 can consistentlyachieve their Strategys full Non-Financial FactorspotentialValued Most By Investors90% Management Credibility Quality of StrategyCompanies Not Delivering Consistently on StrategyInnovativenessAttract Talented 95% of employees dont understand company strategy People50% of average employees time spent on non- productive work 50% more likely to have turnover Sources: The Balanced Scorecard David P. Norton; Arthur Andersen estimate: Corporate Strategy Board research; Measures That Matter, Ernst & Young, LLP, Gates, Stephen, Aligning Strategic Performance Measures & Results 19 20. Key Issue 2 Contingency Plan What written If your exit strategy getsagreements doderailedwhats the plan?you have that If your health failswhats provide for thePlan B? orderly What will you say to your transfer ofspouse?ownership ifyou die or are Who can take over at adisabled?moments notice? 20 21. Key Issue 3 - The Different Stakeholders Owner Non-family Owners/Investors Owner InactiveManagers FamilyFamily OwnersOwners/ ManagersBusinessFamilyFamilyFamily Non-familyEmployees Managers &Employees21 22. Key Issue 4 The FamilyI wish DAD hadnt left the business toboth of us. It means were forced to be inpartnership together. 22 23. Key Issue 5 The Advisors Legal,Insurance & Financial &BankingInvestmentProfessionals Professionals OwnerBusiness OperationsConsultantsA coordinatedA set of appropriateresponserecommendations AND a team that can implement the plan23 24. Analyzing Your Current Situation 24 25. Changing the wayinvestor mindedAre you owner or you view the business Thinking likeOwner an owner?InvestorMindedMindedThinking like an investor?Time 25 26. Building the plan based on your objectivesPre-Transition Transition stage Post Transition 26 27. Business Transfer Spectrum Transfer MotivesTransfer ChannelsTransfer Methods InternalExternal Employees Outside (Retire) Charitable Trusts Outside (Continue) Family Public Co-Owners 27 28. How Do I Decide Whats Right for Me?To Family To EmployeesTo 3rd parties IPO, VCsor Co-owners Transition Objectives 28 29. Transitioning while Still in the Business You have choices You have many options holdingcompanies, income splitting,estate freezesESOPsCharitable TrustsGifts.Dutch Auctions. 29 30. Creating Your Plan 30 31. Get Ready Spouse Letter Set up a team of advisors Contingency plan talk to family and key employees Transition plan - as important as a business plan Business valuation Measure the gap Optimize your business Eliminate as much as possible the businessdependency on you!31 32. Start NowHow Ready are You?Take Our Transition Readiness SurveyFor more information: Lewis Hunter and Jim Molis(904) 731-9222 and (904) 338-3277Lewis .Hunter@rocg.com Jim.Molis@rocg.com32