Planning for Closely Held Business Owners - 2 Business Succession and Exit Strategies

Question 1

List potential business succession/exit strategies.

Answer 1

1) Bankruptcy
2) Transfer to a family member
3) Go public
4) Preparing for Exit
5) Winding down
6) Sale

Question 2

List the range of potential buyers.

Answer 2

Family members to employees or competitor

Question 3

What is the difference between a strategic and non-strategic buyer

Answer 3

Strategic buyers generally have the expertise necessary to operate the business, and can eliminate the money that is being paid to top level management. While a financial buyer may have the means to purchase a company, they do not necessarily have the expertise to run the business.

Question 4

What are the implications on the type of a buyer on a sale of your business?

Question 5

What can cause the end of a business life?

Question 6

What should business owners consider when thinking about succession?

Answer 6

• Will the company be transferred to family members?
• Are there employees who are qualified and financially able to purchase the
  business?
• Will it make sense for the company to be sold to a competitor, a supplier or a
  customer?
• Is the company a candidate for “going public”?

Question 7

What should business owners consider when thinking about succession?

Answer 7

• Will the company be transferred to family members?
• Are there employees who are qualified and financially able to purchase the business?
• Will it make sense for the company to be sold to a competitor, a supplier or a customer?
• Is the company a candidate for “going public”?

Question 8

Where can you find a strategic buyer?

Answer 8

typically larger private and public corporations and private
equity groups both in the United States and abroad.

Question 9

What is a non-strategic/Financial Buyer:

Answer 9

seek to acquire LBO targets as more of an investment, with an exit strategy and date in mind on the date of initial buyout.

Question 10

What is a strategic buyer?

Answer 10

Srategic buyers willing to pay a
premium to acquire the future potential and intangibles of the company—not just its
assets. These buyers are typically larger private and public corporations and private
equity groups both in the United States and abroad.

Question 11

What are the implications of a family member buying a business?

Question 11

What are the implications of an employee buying a business?

Question 12

Advantages of Business Succession within a family?

Answer 12

Can provide stability to the family business management without any tensions or conflict when passing to the next generation

Flexibility and decreased cost in labor

Long-term outlook for the family company to plan many years ahead

Question 13

Disadvantages of Business Succession within a family?

Answer 13

Lack of structure

Nepotism: lack of competence at a senior level can have a huge impact on a company’s success

It can be difficult to determine objectively who will be the next heir

Negligence of formal training

Clashes for control

Question 14

Potential Family Conflicts of Business Succession within a famiily?

Answer 14

Feud between family members to take on the highest role

Conflicts that are non-business related can be brought up and disrupt business operations

Potential confused expectations of an assigned role

Misunderstandings of agreed rules (e.g., who works, how much paid, behavioral expectations)

Question 14

Issues resulting from succession planning within a family?

Answer 14

As higher positions are automatically granted to family members, the pool of job seekers become more limited, causing limited outside talent

Question 15

Advantages of a Business Succession Plan from an outside buyer?

Answer 15

Allows for business continuity where there is little to no worry that the business will survive

Can help avoid potential family succession conflicts

Question 16

Disadvantages of a Business Succession Plan from an outside buyer?

Answer 16

Lack of funding: there is a potential that a potential outside buyer may not have enough to purchase the business

Question 17

Potential Family Conflicts of succession planning from an outside buyer?

Answer 17

• Family members unhappy that they were overlooked
• Tensions may arise if a family member is an employee of the company

Question 18

Issues resulting from succession planning from an outside buyer?

Answer 18

Low chance of finding a buyer, which leaves you selling the business lower than the market valued price