The document summarizes a presentation on succession planning for businesses. It discusses selecting a succession plan, the building blocks of a plan including organizational structure and compensation, and getting the next generation perspective. It also addresses common questions around succession, using tranches or phases to transition ownership over 5-7 years, and how most business sales are internal or to employees. The goals of a succession plan are growth and stability, continuity planning, and income perpetuation for owners.

1. Succession Planning:
Next Generation Perspective
Presented by: David Grau Sr., JD
President and Founder, FP Transitions

2. ©2013 Business Transitions, LLC
Succession Planning for Growth Series
1) Selecting the Right Succession Plan
In this presentation, we will describe 6 specific succession plans that you can use to develop your own business
perpetuation and protection strategy. You'll learn how proper succession planning is vital to your growth strategy.
April 2nd 10:00 AM PT
May 7th 1:00 PM PT
2) Building Blocks of a Succession Plan
Your organizational structure, compensation structure and entity structure can support, or cripple, your business
growth and exit plans. Find out what path your business is on and how to guide it in the right direction.
April 3rd 10:00 AM PT
3) Next Generation Perspective
How does a succession plan look from the perspective of junior partners, key employees or sons or daughters?
How do they invest in the business? What does an internal ownership track look like? We encourage you to
attend with your prospective second-generation owners.
April 4th 10:00 AM PT
May 9th 1:00 PM PT
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3. ©2013 Business Transitions, LLC 3
The Succession Planning Myth
External
Internal

4. ©2013 Business Transitions, LLC
Common Questions & Concerns
1) Buy or build?
2) What if I’m not ready?
3) Where does the money come from?
4) Why this investment and not another?
5) How long does it take?
6) What if it does not work?

5. ©2013 Business Transitions, LLC
Tranche1
Tranche2
Tranche3
CombinedOwnershipStake
100
0
Time / Yrs.
5 – 7 years 5 – 7 years 5 – 7 years
5
Tranche4
Transition Point: G-1 should reserve ability to sell
externally up to this point. G-2 may elect to bank
finance final tranches at the “All Cash” value in the
valuation matrix.
5 – 7 years
Income Perpetuation Strategy

6. ©2013 Business Transitions, LLC 6
Data Based Transactions from 2008 through 2012
Exit Strategies by Value Level
Source: FP Transitions
Attrition
External Sale
Internal sale
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
<$1M
$1M-$3M
$5M+

7. ©2013 Business Transitions, LLC
The Goals of a Succession Plan
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©2011 Business Transitions LLC
1) Growth and Stability
2) Continuity Planning
3) Income Perpetuation

8. ©2013 Business Transitions, LLC
Aligning Cash Flow and Compensation to Roles
8
Owners’/Producers
Assign All Revenue into Corp. Bank Acct.
$50,000 (Expenses)
$70,000 (Wages, Benefits)
Entity Structure
$100,000
$60,000
Owners’
Profit Distributions
$20,000
Equity Value
$100,000

9. ©2013 Business Transitions, LLC
The Founder’s Perspective / Issues
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1) Relinquishing Control
2) Transparency of Business’s Books & Records
3) Next Generation Isn’t Ready, Not “Ownership Material”
4) Next Generation Advisor(s) Don’t Have the Money
5) Buying Themselves Out With Their Own Money

10. ©2013 Business Transitions, LLC
Revenue
0 4 8 12 16 20 24 28
Years In Business
Value Growth Curve
Revenue vs. Practice Equity
10
Practice Equity

11. ©2013 Business Transitions, LLC
Revenue
0 4 8 12 16 20 24 28
Years In Business
Value Growth Curve
Revenue vs. Equity Growth
11
Single Owner
Growth Rates
Practice Equity

12. ©2013 Business Transitions, LLC
Building an Enduring Business
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Founder (G-1)
• Majority Ownership
• Age Range 50+
Generation-Two (G-2)
• Ownership < 50%
• Age Range 36 - 50
Generation-Three (G-3)
• Ownership 1% - 5%
• Age Range 25 - 35

13. ©2013 Business Transitions, LLC
1.0 2.0 3.0 4.0 5.0 6.0
(Gross Recurring Revenue Multiple)
Revenue Strength Enterprise Strength
Multiple Ranges
13Source: FP Transitions

14. ©2013 Business Transitions, LLC 14
Revenue Splits: Not a Succession Plan
• Tax Treatment Shifts to Ordinary Income Rates
• Reduces Business Value
• Eliminates Important Safeguards for Both Parties
• Does Not Pass Title to Business Assets
• Contributes to Formation of Smaller “Books of Business”

15. ©2013 Business Transitions, LLC
Thank You For Listening
www.FPtransitions.com
questions@businesstrans.com
800.934.3303
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