Chap015.ppt

Chapter 15 Succession Planning and Strategies for Harvesting and Ending the Venture

Hisrich Peters

Exit Strategy 

Exit strategies include: 









Initial public offering (IPO). Private sale of stoc. Succession by a fa!ily !e!ber or a nonfa!ily !e!ber. "erger #ith another co!pany. $i%uidation.

&able '.'  Succession Planning &ips

Succession of *usiness 

&ransfer to +a!ily "e!bers 











,ole of o#ner  fullti!e-partti!e-retire. +a!ily dyna!ics. Inco!e for #oring fa!ily !e!bers and shareholders. &ransition business environ!ent. &reat!ent of loyal e!ployees. &ax conse%uences.

Succession of *usiness 

(cont.)

&ransfer to onfa!ily "e!bers 





&rain a ey e!ployee and retain so!e e%uity. ,etain control and hire a !anager. Sell the business outright.

Options for Selling the *usiness 

/irect Sale 

Strategies to be considered: 

















+ocus on a narro#0 #elldefined seg!ent. 1ontrol costs and focus on higher !argins and profits. 2et all financial state!ents in order. Prepare a !anage!ent docu!entation. 3ssess the condition of capital e%uip!ent. 2et tax advice. 2et nondisclosures fro! ey e!ployees. &ry to !aintain a good !anage!ent tea!. Prepare and plan in advance.

Options for Selling the *usiness (cont.) 







3n i!portant consideration is the type of pay!ent the buyer #ill use. *usiness broers !ay be helpful. &he best #ay to co!!unicate the business to potential buyers is through the business plan. &he role of an entrepreneur !ay vary depending on the sale agree!ent or contract #ith the ne# o#ner(s).

Options for Selling the *usiness (cont.) 

E!ployee Stoc Option Plan 





Establishes a ne# legal entity4an e!ployee stoc o#nership trust that borro#s the !oney against future profits. Obligates the fir! to repay the loan plus interest out of business cash flo#s. ,esults in significant stoc values for e!ployees.

Options for Selling the *usiness (cont.) 3dvantages:



"otivates e!ployees to put in extra ti!e or effort. Provides a !echanis! to pay bac loyal e!ployees. 3llo#s transfer of business under a planned #ritten agree!ent. Per!its the co!pany to reap the advantage of deducting contributions on ESOP or any dividends paid. 







Options for Selling the *usiness (cont.) 

"anage!ent *uyout 



5sually involves a direct sale of the venture for so!e predeter!ined price. &o establish a price0 the entrepreneur should: 





Sale of a venture to ey e!ployees can be: 







Have an appraisal of all the assets. /eter!ine the good#ill value established fro! past revenue. +or cash. +inanced through bans &hrough sale of voting or nonvoting stoc.

&he entrepreneur !ay agree to carry a note.

*anruptcy43n Overvie# 

"ost co!!on types of banruptcies: 





1hapter 6 or li%uidation (789 in ;; or install!ent pay!ents ('9 in ;;