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October 17, 2002 Issue #008Revised Family Business Experts

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In This Issue...

1. Our Managing Director Announces -

2. Business first family...Family first business

Exit Planning for Family Business Owners

3. Best Practices

Exit Planning - increased cash flow will be needed to fund the transition

4. Around the Family Business Experts web sites

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SPONSOR MESSAGE #1

1. Our Managing Director Announces -

We apologize for the technical glitch that caused an early draft of this Issue to go out prematurely. It caught out list host by surprise and they are working to correct their systems.

When traveling by commercial airline, how many times have you heard a variation of the following: Welcome aboard flight 000 to Anytown. Please pay attention as we direct you to the emergency exits: two exit doors are located in the front of the airplane; two exit doors at the rear of the airplane; and two exit doors located over the wings….

Ever notice how many passengers actually make an effort to actually identify where the doors are located?

This is a powerful example of where people "listen" to the message but do not "hear" the message in terms of triggering a reaction.

"Exit Planning for Family Business Owners" is a similar kind of message – unfortunately, most family business owners have heard this message but have done little or nothing about it.

We're going to present the message from two different perspectives because it is so important... especially if you are one of the majority of businesses that is expected to have an ownership transition in the next five years.

In our "family business" section, we'll summarize a seven step process and link you to our site and some other sources. Our goal? Explode the myth that exit planning is too difficult or complicated to get started.

"Best practices" looks at Key Success Factors or Value Drivers. Why? Exit planning requires improving cash flows to fund the exit strategy. These are the things to watch out for and improve if you are going to maximize cash flow.

Don Schwerzler, Managing Director
Family Business Experts

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... not Graphics

To sell [more], write better. Use words that sell. Emphasize benefits that meet your customer's needs. Make every word count and powerful.

Make Your Words Sell!

SPONSOR MESSAGE #2

2. Business first family...Family first business:

Exit Planning for Family Business Owners

Exit Planning outlines a 7 step process and shows a lot of detail for carrying out the steps. Bottom line: exit planning can and should be done - you will transfer your family business ownership stake - either during your lifetime or when you die or become incapacitated.

The Steps

1. Set exit objectives
2. Determine value / price
3. Preserve, protect, promote value
4. Convert business value to cash - sale to outside party
5. Transfer for a promissory note - inside party
6. Plan for contingencies
7. Preserve wealth

Here's some tips and points to remember about exit planning

• It's never too early to start the process of planning an exit strategy. The sooner the strategy is considered and implemented, the more options are available in terms of ensuring retirement funding; taking full advantage of tax reduction strategies; and succession planning.
• Waiting or procrastinating on developing an exit strategy(s) can position the family business owner to where the best options are behind them (see airplane analogy!).
• Exit planning requires time, funding and outside expertise. In family businesses, time and training is also required as part of the "seasoning' process for the next generation of leadership. Dad and mom may be ready to leave the business but the kids may not have developed the interest or competence to run the business successfully. Old adage about succession: From rags to riches to rags in only three generations!
• Exit planning can also be part of the contingency planing process – "what happens if dad or mom are injured or incapacitated with a heart attack or stroke – or if we have flood or tornado to deal with [Risk Management].
• Some people confuse estate planning with succession planning with exit planning. Overlooked is the fact that ownership in a family business creates legal rights and issues – it also creates an "event", death of owner, that enables your silent partner in the business, Uncle Sam, to make his presence felt!
• Business valuation, as part of the exit planning, can provide a way of establishing performance benchmarks in terms of growth and profitability.
• Board of Advisors can be a great bridging mechanism between generations – provides a management structure for when the parents leave or begin to disengage from the business – a business safety net.

Finally, how to easily make every long, ugly affiliate or website link (that even your best friend wouldn't click on) "turn into" a short, easy to remember, search engine friendly domain name that attracts clicks like a 2-ton magnet!

NameStick

SPONSOR MESSAGE #3

Exit Planning - increased cash flow will be needed to fund the transition

This is true whether the objective is high value for sale to a third party, or low value for transition to insiders. Either way, cash flows need to be improved to fund the transition.

Organizational Strategy - External Assessment focuses on a critical thinking process to evaluate market data, and to determine which factors identify opportunities and drive success within your industry and business.

A. A. Thompson and A. J. Strickland in Crafting and Implementing Strategy, Irwin, 1995, p. 87 identify many types, but here's a few Key Success Factors to give us a flavor of what we are looking for...

• Organizational capability - superior information systems; ability to respond quickly to shifting market conditions.
• Manufacturing - low cost production efficiency; quality; high utilization of fixed assets; high labor productivity;
• Marketing - well trained, effective sales force; accurate filling of orders; merchandising skills;
• Technology - scientific research expertise; product innovation capability;

Exit Planning focuses on improving cash flow by studying Value Drivers - quite literally, those factors that are critical to driving increases in value.

Distribution industry value drivers include

• growth rate and growth stability
• return on working capital, and related inventory and receivable turnover
• technical expertise, employee performance, corporate structure
• solid, diversified customer base
• quality product design and production

Generic value drivers include

• focus on cashflow, pay down debt; establish sustainable earnings; implement strategy to grow;
• develop operating systems to support the above;
• attractive facilities
• build strong management team; groom successor;

No matter how you look at it, improving cash flow is critical to improving value and funding the exit plan.

4. Around the Family Business Experts web sites

Search the entire content site in two different ways

1. A search engine powered by ATOMZ has indexed all the pages on the site and will link you to those relating to any search term you enter.

2. A 'Table of contents' listing that will link you directly to any page / article you select. Visit often, and bookmark the search page in your browser so that you can get directly to the site. Site Table of Contents

Background information, testimonials to our service and understanding, and answers FAQ's [Frequently Asked Questions]. Family Business Experts.

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