BUSINESS DECISIONS Dave Goeller [e-mail]

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BUSINESS DECISIONSDave Goellerdgoeller_at_unl.edu

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KEY QUESTION

• Is it time to start planning for the future of
  your business?

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Business Life-Cycle
Source Wadsworth
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Business Decisions

• Business Operations Continue
• Business Operations End

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Business Owner
Owners priority Continuation of family ownership
assets
Owners priority Continuation of the business
Business Succession Plan Income
Management Retirement
Retirement Plan
Estate Plan
Estate Plan
BUSINESS SUCCESSOR
HEIRS
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KEY QUESTION

• Do you want your business to continue beyond your
  life and be operated by the next generation?

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Business Life-Cycle
Source Wadsworth
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Business Life-Cycle
1st Generation
2nd Generation
Source Wadsworth
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Business Life-Cycle
Maturity
Growth
Decline
Introduction
Source Wadsworth
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The Importance of Planning

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

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KEY QUESTIONS

• Do you want only Business Asset Ownership to
  continue? OR
• Do you want a Viable Ongoing Business to
  continue?

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KEY QUESTIONS

• Do you want to have a Successor?

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The Need for Planning
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Business Owner
Owners priority Continuation of family ownership
assets
Owners priority Continuation of the business
Business Succession Plan Income
Management Retirement
Retirement Plan
Estate Plan
Estate Plan
BUSINESS SUCCESSOR
HEIRS
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Business Succession PlanProcess

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

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Income and Profit

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

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Income Transfer Models

• Spin-Off Arrangement

• Multi-Person Arrangement

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SPIN-OFF APPROACH
C
P
C
P
C
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MULTI-PERSON APPROACH
P
C
P C
P
C
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Management TransferPlan

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

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Management Transfer Plan

• Decision making Authority (Very Difficult)
• Accountability
• RiskReward
• Coach/mentor/teacher
• Retirement???

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Business Succession Plan Management Transfer
Period

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Business Succession Plan Management Transfer
Period

• Short Transfer Period

• owner
• successor

time
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Business Succession Plan Management Transfer
Period
Long Transfer Period
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Management TransferPlan

• Phased plan approach
• 1 Owner make decisions (Mentor)
• 2 Owner and successor make decisions together
• 3 Successor make decisions

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Management TransferPlan

• Involves the Timing of Decision Making Authority
  for the Business
• Involves the Timing and Acquisition of important
  Intangible Relationships

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Retirement Planning For Succession

• Day to day labor management
• Fully retire
• Semi-retire
• Gradually retire
• Abruptly retire

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Retirement Plan

• IF?
• When?
• Where will you live

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Retirement Plan

• What will you do?
• Financial Needs?
• Source of Funding?

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Retirement Plan

• Financial Needs?
• 10,000/year
• 50,000/year
• 200,000/year
• Source of Funding?

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Retirement Plan

• Source of Funding?
• Social Security?
• Pension or 401k?
• Rental Income?
• Sale of Assets?

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Key Concepts

• Family Businesses
• VS
• Nonfamily Businesses

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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.

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Key Concepts

• Family Businesses
• Parent Child Role
• Business Partner Role

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Key Concepts

• Family Businesses
• Family time
• Work time

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Key Concepts

• Family Businesses
• Communication
• Extremely Important
• Differentiate roles
• Business Meetings

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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

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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?

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Business Succession Plan The Transfer Stages
Testing
Commitment
Established
Withdrawal
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Timeline

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

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Business Succession Plan The Transfer Process
LABOR INCOME
MANAGEMENT ASSETS
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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

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Business Succession Plan
Testing Commitment Established Withdrawal
Timeline When How Long
Labor Duties-job description
Income/profit Amount-source-method
Management Authority-accountability-decision making
Assets Who owns/controls





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Labor

• Job description
• Owner
• Successor
• Expectations

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Income and Profit

• How much?
• Sources?
• Financials
• Balance Sheet
• Income Statement
• Trend and ratio analysis
• Cash Flow projections
• Retirement Income?

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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

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Assets

• Which assets
• When
• Basis consideration
• How
• Sale
• Gift
• Inherit

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Barriers to Business Succession

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

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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 [phone]
• Email mjbaker_at_radiks.net
• Roger A. McEowen, Attorney at Law
• Iowa State University
• Associate Professor of Agricultural Law
• Phone [phone]
• Dave Goeller
• University of Nebraska
• Deputy Director NCRMEC
• 402 472 0661

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Estate Planning Questions

• What?
• Who?
• How?
• When?

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Estate Planning Questions

• What?
• What do you own?
• What is the value?
• Who?
• Who do you want to give it to?

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Estate Planning Questions

• How?
• Will, Trust, Title, POD, Beneficiaries
• When?
• Time of death transfer?
• While youre alive (Gift)?

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Estate Planning Questions

• When?
• Time of death transfer?
• While youre alive (Gift)
• How?
• Will, Trust, Title, POD, Beneficiaries

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Estate Plan

• Concepts
• Fair vs Equal
• Contribution Compensation

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Contribution Compensation?

• 1990 Networth 90,000/3 kids 30,000
• 2012 Networth 390,000/3kids130,000
• Contribution/Compensation
• 50/50 Partner and Founder
• 300,000 Partner Founder 150,000 ea
• Partners 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

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Time Management Matrix
Activities Crisis Management Deadline Projects II. Activities Planning Relationship Building
Activities Some Calls, Mail, Popular Activities IV. Activities Time Wasters Busy Work