BUSINESS DECISIONS Dave Goeller [email protected]

BUSINESS DECISIONS

Dave [email protected]

KEY QUESTION• Is it time to start planning

for the future of your business?

Business Life-CycleIntroduction Growth Maturity Decline

Business

Phase

Strategic

Effort

Penetrate & Grow

Protect & Defend

New Opportunities

Divest

Time

Source: Wadsworth

Business Decisions•Business Operations Continue

•Business Operations End

Business Owner

Estate Plan

Business Succession Plan

Income Management Retirement

BUSINESSSUCCESSOR HEIRS

Owner’s priorityContinuation of family ownership assets

Owner’s priorityContinuation of the business

Estate Plan

Retirement Plan

KEY QUESTION• Do you want your business

to continue beyond your life and be operated by the next generation?

Business Life-CycleIntroduction Growth Maturity Decline

Business

Phase

Strategic

Effort

Penetrate & Grow

Protect & Defend

New Opportunities

Divest

Time

Source: Wadsworth

Business Life-Cycle

Introduction

Growth

Maturity

Decline

Time

Source: Wadsworth

Introduction

Growth

Maturity

Decline

Time

1st Generation 2nd Generation

Business Life-Cycle

Introduction

Growth

MaturityDecline

Time

Source: Wadsworth

Introduction

Growth

Maturity

Decline

The Importance of Planning

• We are living and working longer• Technology• Increased Volatility & Uncertainty• Expectations• Coordinate Income Transfer, Management

Transfer, Retirement and Estate Plan

KEY QUESTIONS• Do you want only Business

Asset Ownership to continue? OR

• Do you want a Viable Ongoing Business to continue?

KEY QUESTIONS

•Do you want to have a Successor?

The Need for Planning

Business Owner

Estate Plan

Business Succession Plan

Income Management Retirement

BUSINESSSUCCESSOR HEIRS

Owner’s priorityContinuation of family ownership assets

Owner’s priorityContinuation of the business

Estate Plan

Retirement Plan

Business Succession PlanProcess

• Income/profit Transfer Plan• Management Transfer Plan• Retirement Plan• Estate Plan (Asset Transfer Plan)

Income and Profit

– Financials– How much?– Sources?– Wage– Incentive– Enterprises– Retirement Income?– Start own business

Income Transfer Models

• Spin-Off Arrangement

• Multi-Person Arrangement

SPIN-OFF APPROACH

Business Business

C

C

C

P

P

Business

P

Business

MULTI-PERSON APPROACHP C

Business

P & C

Business

P

Business

C

Management TransferPlan

• Three most important factors to a successful business:–Management

•Management

–Management

Management Transfer Plan

• Decision making Authority (Very Difficult)

• Accountability• Risk—Reward• Coach/mentor/teacher • Retirement???

Business Succession Plan Management Transfer Period


ownersuccessor

time

Short Transfer PeriodShort Transfer Period


Long Transfer PeriodLong Transfer Period

owner

successor

time


• Phased plan approach–#1 Owner make decisions (Mentor)–#2 Owner and successor make

decisions together–#3 Successor make decisions


• Involves the Timing of Decision Making Authority for the Business

• Involves the Timing and Acquisition of important Intangible Relationships

Retirement Planning For Succession

– Day to day labor & management –Fully retire–Semi-retire–Gradually retire–Abruptly retire

Retirement Plan• IF?

• When?

• Where will you live

Retirement Plan• What will you do?

• Financial Needs?

• Source of Funding?

Retirement Plan• Financial Needs?

–$10,000/year–$50,000/year–$200,000/year

• Source of Funding?

Retirement Plan• Source of Funding?

–Social Security?–Pension or 401k?–Rental Income?–Sale of Assets?

Key Concepts

Family BusinessesVS

Nonfamily Businesses

Key Concepts

− A Critical Difference: − Family Business vs Non-family Business

− The priorities, expectations, relationships, and measures of success in a family are, and should, be different than the priorities, expectations, relationships and measures of success in a business.

Key Concepts

Family Businesses−Parent Child Role

−Business Partner Role

Key Concepts

Family Businesses−Family time

−Work time

Key Concepts

−Family Businesses−Communication

−Extremely Important−Differentiate roles−Business Meetings

Successful Business TransitionsCommunication

• Expectations, Expectations, Expectations• Regular business meeting throughout

transition period• Talk about it, then write it down• Share with non-farm family members?• Surprises cause problems

Job Description

• If you where to write a job description for the successor of your business what would it say regarding:– Starting and ending time each day?– Breaks and lunch?– Job responsibilities?– Pay?– Benefits?– Vacation?– Advancement opportunities? When?– Evaluation Criteria?

Business Succession Plan The Transfer Stages

Testing

Commitment

Established

Withdrawal

Timeline

–How long in each for Stage?• Testing? • Commitment?• Established?• Withdrawal?

Business Succession Plan The Transfer Process

LABORLABOR

INCOMEINCOME

MANAGEMENTMANAGEMENT

ASSETSASSETS

Business Components–LABOR..the physical work involved

–INCOME..minus expenses equals profit

–MANAGEMENT..decision making authority

–ASSETS..what you own, rent or control and the liabilities associated with them

Business Succession PlanTestin

gCommitment Established Withdrawal

Timeline When & How Long

LaborDuties-job description

Income/profitAmount-source-method

ManagementAuthority-accountability-decision making

AssetsWho owns/controls

Labor

–Job description • Owner• Successor

–Expectations

Income and Profit

– How much?– Sources?– Financials

• Balance Sheet• Income Statement• Trend and ratio analysis• Cash Flow projections

– Retirement Income?

Successful Farm TransitionsManagement Transition Plan

• How will management be split?– Enterprise– Whole farm– Farm activity (marketing)

• Timeline for management transition– Learning or testing phase– Completion date

• Parent/child relationship vs. business partner

Assets

–Which assets• When

– Basis consideration

• How– Sale– Gift– Inherit

Barriers to Business Succession

• Communication• Retirement Plan• Capital (Fair vs Equal)• Communication

Resources• John Baker, Attorney at Law

– Iowa State University– Director of the Iowa Beginning Farmer Center– 800 447 1985

• Joe M. Hawbaker, Hawbaker Law Office– Phone: 402-558-3540– Email: [email protected]

• Roger A. McEowen, Attorney at Law– Iowa State University– Associate Professor of Agricultural Law– Phone: 515 294 4076

• Dave Goeller– University of Nebraska– Deputy Director NCRMEC– 402 472 0661

Estate Planning Questions

• What?• Who?• How?• When?


• What?–What do you own?–What is the value?

• Who?–Who do you want to give it to?


• How?–Will, Trust, Title, POD,

Beneficiaries • When?

–Time of death transfer?–While you’re alive (Gift)?


• When?–Time of death transfer?–While you’re alive (Gift)

• How?–Will, Trust, Title, POD,

Beneficiaries

Estate Plan• Concepts

–Fair vs Equal

–Contribution = Compensation

Contribution = Compensation?

• 1990 Networth = $90,000/3 kids = $30,000• 2012 Networth= $390,000/3kids=$130,000• Contribution/Compensation • 50%/50% Partner and Founder• $300,000 Partner & Founder $150,000 ea• Partner’s share

– $ 30,000 from 1990– $150,000 from growth and appreciation– $ 50,000 from Founder growth and appreciation– $230,000 total for Partner $80,000 each for siblings

Time Management Matrix

I. Activities

Crisis Management

Deadline Projects

II. Activities

Planning

Relationship Building

III. Activities

Some Calls, Mail,

Popular Activities

IV. Activities

Time Wasters

Busy Work

Urgent Not Urgent

No

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Documents

BUSINESS DECISIONS Dave Goeller [email protected]