1. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 1 Canadian Association of MoversDecember 2007 Building Value for Succession Luanna McGowan Succession Planning Specialist

2. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 2 Succession Planning Overview of today’s presentation What is a succession plan? Why plan for succession? When to plan? How to plan?

3. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 3 Succession Planning WHAT is it? Planning for transfer of ownership and management responsibilities Deals with such issues as: Who will take over the business? Within what timeframe will the transition take place? How will the transition be structured? What are evolving roles and responsibilities?

4. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 4 Succession Planning WHAT is it? A succession plan is different from, but closely tied to, an ESTATE PLAN An estate plan provides for a tax effective disposition of all of one’s assets at death (including shares of a business) Dovetail with succession plan Successor may inherit shares/lifetime planning “Equalization” for heirs not involved

5. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 5 Why have a Succession Plan? Over the next few years, Canada’s entrepreneurs will retire in significant numbers: 39% within the next 5 years 67% within the next 10 years Source: PwC Pulse Survey, 2007

6. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 6 PwC Business Insights Pulse Survey on Succession 46% Yes 54% No Figure1.Thecurrentowner/CEOhas a successionplaninplace. 5% Over 71 years 6% Under 40 years 26% 41–50 years 39% 51–60 years 24% 61–70 years Figure2.Ageoftheowner/CEO

7. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 7 PwC Business Insights Pulse Survey on Succession 35% Passed to next generation 25% Sold to an outside party 12% Sold to some or all of management team (MBO) 1% Prepared for floatation (IPO) 13% I don’t know 14% Other Figure3.Whenthecurrentowner/ CEOretires,thebusinesswillbe:

8. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 8 Business Insights Pulse Survey on Succession 9% Not yet decided 11% 0–2 years 28% 2–5 years 28% 5–10 years 18% 10+ years 6% Don’t know Figure4.Thetimelineforthisis:

9. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 9 Succession Planning – WHY plan? Statistics 80 – 90% of Canadian businesses are family owned and managed and account for nearly half of Canada’s gross national product Only 30% will continue as a family operation into the second generation Only 10% will remain a family-owned and managed enterprise into the third generation Only 1% will make it to the fourth generation

10. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 10 Reasons for Failure Entrepreneurs fail to plan (topics of death and retirement too hard to address) Plans are devised by entrepreneur according to own perspective and desires Tax driven planning Unresolved issues in family and/or business

11. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 11 Reasons for Failure Succession The founder did not have an adequate succession plan in place Chosen successor was not properly prepared for taking over the business A clear successor to the founder was never identified Chosen successor did not want to manage the business

12. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 12 Reasons for Failure Financial Planning Founder did not have an adequate estate plan in place Founder did not adequately prepare for transfer of the business Needed to raise funds to pay estate taxes Financial advisors performed inadequately Insufficient capital to run business effectively

13. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 13 Reasons for Failure Other Conflicts with family members both within and out of the business (e.g. active/inactive siblings) Conflicts with non-family employees in the business (e.g. career path, uncertainty) One or more key employees left the company Management mistakes after business was inherited

14. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 14 The Answer? Proper Planning Effective Communication

15. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 15 Succession Planning WHEN to plan… Retirement Commencement or restructuring of the business Death (of spouse, beneficiary, key employee, potential successor) Birth of children or grandchildren Marriage or divorce Entrepreneurs should be planning for succession in contemplation of, and after, any of the following events:

16. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 16 Succession Planning WHEN to plan… Major change in circumstances (e.g. illness or disability) Tax or other relevant legislative changes Sale of all or portion of the business Employment of family members in the business Buying buy-sell insurance; insurance to fund purchase Changes to existing wills, estate and succession plans Entrepreneurs should be planning for succession in contemplation of, and after, any of the following events:

17. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 17 Succession Planning WHEN to plan… Planning for the succession of a business is not an event – it is a process. Many entrepreneurs assume that they do not need to start planning for succession until their later years. However, this is not the case. As the owner advances through the various business, ownership and family stages, their goals and circumstances change and it is necessary to revise plans.

18. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 18 Succession Planning How to Plan…

19. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Family System Business System Ownership System Board of Directors/ Advisory Committee Strategic Plan Family Council Family Policies Management Development Team Management Development Plan Succession Plan Contingency Plan Model of Family Business

20. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 20 Typical Objectives Identified Maintaining economic independence Ensuring short-term and long-term success of the business Maintaining family harmony Minimizing tax

21. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 21 Succession Planning – How to plan… Planning Documents Legal Documents Wills Powers of Attorney Shareholders’ Agreement Domestic Agreement Trust document Other Plans and Policies Contingency Plan Management Development Plan Personal Development Plans Strategic Plan Family Participation Plan Other

22. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 22 Succession Options Inter-generational transfer Management buy-out/employee buy-in Sale to third party Other

23. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 23 Case Study Intergenerational transfer Parents started business 4 active children, 1 inactive Reorganization Poor communication Inadequate training of successors No contingency plan (not aware)

24. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 24 Case Study Management buy-out No next generation successors Proposal to entrepreneur to buy- out Entrepreneur vs manager Value Funding Timing

25. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 25 Case Study Sale to Third Party No next generation successors No management interest Contacts in industry

26. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 26 Succession Planning Best Practices

27. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 27 Succession Planning Best Practices Open communication Understanding perspectives Building trust Harmony Good Governance Values, Vision, Mission Plans and Policies Clear ARAs Education

28. PricewaterhouseCoopers LLP The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. The colour contrast has been set to maximum. Click on PwC, Tools, Colour Contrast, to select Normal-contrast colours. Page 28 Succession Planning Toolkit for Business Owners This toolkit is a guide to covering key and typical aspects business owners face when exiting their business. The 10 chapters guide you through the process of creating a succession plan, including: Chapter 1 – Your roadmap to success; Chapter 2 – Exploring your options; Chapter 3 – Keeping the business in the family; Chapter 4 – Selecting and grooming a successor; Chapter 5 – Planning a management buy-out; Chapter 6 – Selling the business; Chapter 7 – Determining the value of the business; Chapter 8 – Financing the succession plan; Chapter 9 – Understanding tax and legal issues; and Chapter 10 – Managing your wealth to secure your future. www.cica.ca/businessowners