BUSINESS DECISIONS Dave Goeller

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

Business Life-Cycle IntroductionGrowth MaturityDecline 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 BUSINESS SUCCESSOR HEIRS Owner’s priority Continuation of family ownership assets Owner’s priority Continuation 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-Cycle IntroductionGrowth MaturityDecline 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 Generation2nd Generation

Business Life-Cycle Introduction Growth Maturity Decline 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 BUSINESS SUCCESSOR HEIRS Owner’s priority Continuation of family ownership assets Owner’s priority Continuation of the business Estate Plan Retirement Plan

Business Succession Plan Process 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 C C C P P P

MULTI-PERSON APPROACH PC Business P & C Business P C

Management Transfer Plan 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

owner successor time Short Transfer Period

Business Succession Plan Management Transfer Period Long Transfer Period owner successor time

Management Transfer Plan Phased plan approach – #1 Owner make decisions (Mentor) – #2 Owner and successor make decisions together – #3 Successor make decisions

Management Transfer Plan 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 Businesses VS 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 Transitions Communication 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 LABOR LABOR INCOME INCOME MANAGEMENT MANAGEMENT ASSETS ASSETS

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 Plan TestingCommitmentEstablishedWithdrawal Timeline When & How Long Labor Duties-job description Income/profit Amount-source-method Management Authority- accountability-decision making Assets Who 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 Transitions Management 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 – Joe M. Hawbaker, Hawbaker Law Office – Phone: – Roger A. McEowen, Attorney at Law – Iowa State University – Associate Professor of Agricultural Law – Phone: Dave Goeller – University of Nebraska – Deputy Director NCRMEC –

Estate Planning Questions What? Who? How? When?

Estate Planning Questions What? – What do you own? – What is the value? Who? – Who do you want to give it to?

Estate Planning Questions How? – Will, Trust, Title, POD, Beneficiaries When? – Time of death transfer? – While you’re alive (Gift)?

Estate Planning Questions 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, 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 Not Important Important