Exam (elaborations)
CEPA - 12. EXIT OPTION ANALYSIS
- Course
- Institution
CEPA - 12. EXIT OPTION ANALYSIS
[Show more]
Content preview
CEPA - 12. EXIT OPTION ANALYSISWHY SHOULD CEPA'S CARE ABOUT ALL THE EXIT OPTIONS? Right Ans - •
Empowering owners with choices
• Differentiates the advisor - qualified & well-trained
• Avoids the appearance or perception of bias toward one or just a few
options
• Helps with "issue spotting"
• Organizes how the inter-disciplinary advisory team is structured
• A broad spectrum of options decreases the transition failure rate without
planning, success rate is 20-30%.
THE TRANSITION-READINESS OPTIONS CALCULUS Right Ans - Readiness
= Options
Options = Higher probability of successful transition
Successful transition = Wealth continuity
FUNDAMENTAL: THREE LEGS OF THE STOOL Right Ans - - PERSONAL
FINANCIAL READINESS
- OPTIMIZE THE VALUE OF THE BUSINESS
- LIFE-AFTER-BUSINESS PLANNING
ONE COMPANY, MANY VALUES depending on ... Right Ans - The kind of exit
options.
ESOP use Right Ans - FMV valuation approach
UNDERSTANDING OWNER MOTIVATIONS AND DESIGN CONSTRAINTS: 3
main motivations to consider when designing exit planning options - what are
driving the motive? Right Ans - - Clarity (without clarity doing is guessing)
- Liquidity
- Legacy
TWO (Main) CATEGORIES FOR PRIVATE OWNERSHIP TRANSITION Right
Ans - - Inside
- Outside
- Hybrid option is also available
, Two general categories for private ownership transition: "Inside" Right
Ans - i) Intergenerational transfer
ii) Management buyout
iii) Sale to existing partners
iv) Sale to employees (ESOP)
Two general categories for private ownership transition: "Outside" Right
Ans - i) Sale to a Strategic third party
ii) Sale to a Financial third party
iii) Recapitalization
iv) Orderly liquidation
INTERGENERATIONAL TRANSFER/SALE Right Ans - Transfer or sale of
equity to a successor generation, usually (but not always) children.
50% of family business owners want to exercise this option - in reality, only
about 30% do so.
Intergenerational Transfer - How does it work? Right Ans - • Sale or a gift,
or a combination. Estate and tax planning may play a significant role
• Exiting family member(s) often finance the transaction themselves
• Equity may be transferred over time in smaller pieces
• Earned equity requirements are sometimes attractive
• Diversified classes of stock can be considered (most flexible in LLC and C-
corporations)
• Family equity and employee ownership/incentives are not mutually
exclusive
Intergenerational Transfer - Why would the owner do it? - Pros Right Ans -
• Legacy preservation
• Wealth preservation and stewardship
• More control over the process and confidentiality protections
• Less operational disruption (can be planned for)
• Aligned motivations (high buyer/seller motivation)
• Emotionally rewarding if it works well over time - transitioning owners are
proud of their children's success
• It could be a "tie breaker" in a balanced gifting strategy if there are multiple
siblings
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller LeCrae. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $10.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
83637 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now