Exit, Succession And Estate Planning · 2019. 12. 16. · Exit, Succession And Estate Planning For...
Transcript of Exit, Succession And Estate Planning · 2019. 12. 16. · Exit, Succession And Estate Planning For...
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Exit, Succession And Estate Planning For Baby Boomer Franchise Owners
Presented By
Bruce S. Schaeffer President Franchise Valuations Ltd. (212) 689.0400 [email protected]
Michael H. Seid Managing Director MSA Worldwide (860) 523.4257 [email protected]
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
The Demographic Imperative
• 40 Million Baby Boomers Aged 65+ In The US And 5 Million In Canada
• Projected To Grow To 55 Million By 2020 • 10,000 Boomers Turning 65 Each Day
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Franchise Owners Are Getting Older
• Median Age = 45 to 54 • 28% Of Franchisees Are Over 55 Sources: Elizabeth Garone, “The New Face of Franchisees,” The Wall Street Journal, 8/19/13, citing FranDATA, Franchise Business Review
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
To Sell or Not To Sell: Nine Options
1. Sell Or Give Your Company To A Family Member 2. Sell Your Business To One Or More Key Employees 3. Sell To Your Employees (ESOP) 4. Sell Your Business To Other Shareholders 5. Sell To An Outside Third Party 6. Bring In An Outside Investor And Keep A Minority Interest 7. Go Public 8. Hire A Management Team To Take Over And Become A
Passive Owner 9. Liquidate
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Planning
• Control The Process • Business And Legal Advisors • Understand The Franchisors Requirements • Existing Franchisees • New Franchisee • Family And Key Employees • Franchisor’s Right Of First Refusal
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Four Key Elements of Planning
• Succession Plan • Estate Plan • Valuation • Estate Tax Plan
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Transfer Planning
• Restrictions In The Franchise Agreement • Next Generation Planning
• Discuss With Franchisor • Qualifications – Personal And Financial • Experience And Training • Post Term Requirements
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
McDonald’s Next Generation • Qualifications Basically The Same
• Ineligible For Growth – Ineligible For Next Gen • Application, Interviews, Approval
• Approval Is Not Automatic • 20% Equity In One Restaurant Prior To Training • Up To 25% Gift Of Equity For Employees – Buy
Back Agreement • Training – Completed To McD Satisfaction • Operating Experience As Manager
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
The Unexpected Transfer
• 3 D’s: Death, Disability, Disaffection • Decisions:
• Who Will Run The Franchise If The Principal Is Incapacitated Or Dies?
• Sell, Continue Or Liquidate?
• Have An Emergency Plan 10
February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Estate Plan
• Pre-death Planning Expands Options For Disposing Of Assets
• Avoid After-death Disputes • Legal Documents = Blueprint For Desired
Structure
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Estate Plan Legal Documents
1. Pour-Over Will 2. Revocable Trust with Credit Shelter Trust
• Must be updated periodically • Watch out for overfunding
3. Durable Power of Attorney (Financial) 4. Durable Power of Attorney (Health Care) - a/k/a
"living will" or "health care proxy" 12
February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
More Legal Documents
5. HIPAA Form 6. Irrevocable Life Insurance Trust 7. Grandchildren's Trust 8. GRIT, GRAT or GRUT 9. Charitable Lead Trust or Charitable Remainder Trust
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Transfer to Non-Family • Existing Franchisees and New Operators
• Qualifications • Enhancing Marketability
• Condition of physical plant • Key employees in place • Trained employees • Financial records • Historic business performance and trends
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Transfer to Employees
• Employee Stock Ownership Plans (ESOPs) • Options to Buy • Key man Insurance
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Valuation of the Business
• Valuation by qualified expert is a key factor in all exit strategy planning to ensure you: • Get a fair price (if selling) • Apply appropriate discounts (if assets subject to
estate tax)
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
What’s It Worth?
• There are only three general methods that are acceptable for determining business value:
• Book Value (“Cost”) = Assets minus Liabilities • The Capitalization of Earnings Method (“Income”) = the
present discounted value of all of the business's earnings into the future
• The Comparable Sales Method (“Market”) = recent sales
of similarly situated businesses 17
February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
What About Rules of Thumb?
• Multiple-of EBITDA Is Popular • Quick And Dirty But Ignores Variations In Growth
Rates, Discount Rates, Terms
• Resale Value Of Other Franchises • Existing Franchisee Vs. New Franchisee • Existing Or Then Current Agreement
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Estate Tax Plan • Where the estate is worth more than $5 million
• Many franchise owners will qualify • 50% or more of net worth can be tied up in the business
• Estate tax rates are 40%+ • Can take advantage of valuation discounts for lack of
marketability and minority interests • Objectives: minimize taxes and avoid a forced
liquidation 19
February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
IFA’s Statement of Guiding Principles
“While not transferring any equity in the franchisor’s intellectual property to the franchisee, franchisees should have the opportunity to monetize any equity they may have developed in their business prior to the expiration or termination of the franchise agreement.”
Source: IFA Statement of Guiding Principles - Statement #5 of 12
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Contractual Limitations on Transfers
• Understand Your Existing Agreement • Franchisor Right Of First Refusal • Transfer Existing Agreement • New Agreement – Full Term
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
The Transfer Process
• Understand Your Franchise Agreement • Notification to Franchisor • Approval of Transferee
• New or Existing Franchisee • Family Members
• Franchisor’s Right of First Refusal • Possibility of Waiver
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
The Transfer Process
• Requirements for Capital Improvements • Transfer Fee • Training • Effective Date of Transfer • Waivers and other Transfer Obligations • Post Term Obligations
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
The Transfer Documents
• New or Existing Franchise Agreement • Disclosure • Franchisor’s Transfer Procedures • Buy- Sell Agreement • Consent to Transfer from Franchisor
• State Relationship Laws 24
February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Common Mistakes of Novice Sellers
• Lack of preparation. Sellers should have a plan/strategy to sell well in advance of making the sale. For most this should be at least three years out.
• Failure to have an accurate valuation done by a qualified third party expert. This in turn, gives sellers an inflated view of the value of their business.
• Failure to organize the books and records so buyers can do their due diligence.
• Customer/vendor/employee issues are not dealt with properly prior to sale. 25
February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
More Common Mistakes
• Loss of motivation, passion, commitment and momentum resulting in loss of business value.
• Failure to de-emphasize the owners' personal role in the business.
• Failure to seek professional assistance and consultation with structuring the deal, securing qualified buyers and negotiating.
• Failure to maintain confidentiality. • Failure to properly adjust for economic conditions and owner's
ability. 26
February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Marketing Your Business
• Marketing Your Business • Existing franchisees in system • Franchisor resale program • Franchisee in other systems • Business Brokers • Advertising
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
Closing Thoughts And Questions
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February 22-25, 2014 | New Orleans Convention Center/Hilton Riverside & Towers | New Orleans, LA
DRIVING GROWTH in CHALLENGING TIMES
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