PERPETUATION CONSIDERATIONS

Transcription

1 PERPETUATION CONSIDERATIONS Jon Persky, CPA, CIC, PHR Optimum Performance Solutions, LLC PO Box Tampa, FL (813)

2 I. PERPETUATION CONSIDERATIONS Succession / perpetuation planning for a business is critical in any type of industry. As insurance agents, you need to be knowledgeable in this area to assist your clients in protecting their most valuable asset. Agents have an opportunity to assist their clients in perpetuation planning through various insurance policies and financial products. It s important that you know what questions to ask. Do you have a written perpetuation plan? Size of Business (Income) Yes (%) All Businesses 33% Less than $500,000 33% $500,001 - $1,000,000 20% $1,000,001 - $2,000,000 34% $2,000,000 - $5,000,000 53% Greater than $5 million 56% At what age do you plan to retire? Age % 55 or less 2.7% % % % Over % At death - Never retire 7.6% PERPETUATION CONSIDERATIONS PAGE 1

3 A. What are your "personal" objectives? 1. Current & future financial needs. 2. Ability to assume risk. 3. Long & short range goals & desires. 4. Physical health & family health. 5. Spouse's goals & desires. B. What impacts the ability of the business to survive its perpetuation plan? 1. What is the current cash position of the business? 2. How stable & predictable is the income stream? 3. How strong and predictable are your vendors? 4. How stable and proficient is your operational staff? 5. Do you truly have a future "owner" on staff? 6. What is the probable retention rate of your client base? C. The objectives of others 1. Understand and respect the personal objectives of all other partners / shareholders in the firm. 2. Be aware of the personal goals of potential future owners that are currently within the business. PERPETUATION CONSIDERATIONS PAGE 2

4 II. PERPETUATION OBJECTIVES CHECKLIST INSTRUCTIONS: a) Each owner should respond to the questions below in as much detail as possible. b) Answer as you feel and not as you expect others would expect you to respond. c) There is not a right or wrong answer. Important 1. How important is it for your business to remain as an independent operation after your departure? 2. How important is it for the business "name" to survive? 3. How important is it for you to see the staff remain after your departure? 4. How important is it that you provide for any staff members after your departure? (Cash or annuities?) 5. Is it important for you to have the opportunity to transfer some of, or all of, your ownership to a member of your family? (Life Insurance on owners?) 6. At what age would you like to retire your equity ownership? Not Important 7. Do you wish to remain with the business in some capacity after retiring equity? If yes, how long and in what capacity? If no, would you stay to help with transition? How long? 8. Are you willing to "sell down" your interest while still active with the business? 9. If you are currently a majority owner are you willing to drop to a minority position? 10. Do you feel all owners should be active in the business? 11. Should majority (controlling) owners be from production / sales ranks? 12. Are you willing to hold a note from a new owner? a. What percent down payment do you want? b. How long would you hold the note for? c. What security would you require? YES NO PERPETUATION CONSIDERATIONS PAGE 3

5 III. PERPETUATION POINTS TO REMEMBER A. If all of the parties to the perpetuation objective are not in agreement with the objective, it will be difficult to make it work. B. Do not assume that all partners within the operation are of the same mind. C. At times it will be necessary to have a facilitator work with partners. D. It's your business: Take control, make decisions and be a proactive manager. E. Write out your objectives. IV. FIVE METHODS OF PERPETUATION How do you plan to perpetuate? Internally to a family member 39.0% Internally to an existing employee 34.1% Externally 17.1% Merger / Cluster with a subsequent buyout 9.8% A. External Sale B. Internal Sale C. Merger D. Cluster (Usually only for service oriented businesses) 1) Law Firms 2) CPAs 3) Insurance agencies E. Run it into the ground PERPETUATION CONSIDERATIONS PAGE 4

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