Process Map Example

The foundation of our site is to help Personal/Family Trustees or Corporate Trustees and their advisors navigate through properly managing their trusts. Trustees are fiduciaries with complex law requirements, and maintaining their duties of care, loyalty and prudence. Typically, once the owners or grantor places assets in a trust, the trustee is now the legal, not beneficial owner. When that happens, one of the most challenging things a family or company trustee has to face is when the trust assets are the company’s stock, and the company is suddenly for sale. Or, the company and management desire to expand through acquisition; which requires the trustee’s approval as a shareholder. Whether it be selling to the family or to another party, or buying another company, a trustee must understand this complex process of buying and selling a company and be careful when documenting their decision process. We developed this process map to help Trustees navigate through the process in a less intimidating way, and prove they followed a process for a proper decision.

TrusteeMarketplace.ORG’s advisors can help reduce tensions and emotions that typically surface during these transfer events. We have designed an confidential interactive process map to identify the key activities and milestones to help move the effort forward quickly and painlessly. Below is a stripped down version of our online map, without the interactive features such as creating a project, adding advisors, and managing the documents using secure online documents services. To be able to use our interactive process map, you need to create a log-in and then input the project features; then, your document process for duty of prudence begins!

A
Business Owner Process
Weeks 1-4
Explore Ownership Transition Alternatives
Engagement Letters are Signed
Business owner, developing a long range plan, begins exploratory search for business ownership transitions, such as selling portions of stock, selling the company to Strategic buyer, management, employees, family, private equity firms, or philanthropic entity. This may include the owner selling to another party or the owner wants to acquire another company to create a transition. At some point, the owner decides to place their stock in a trust. As a result, they talk to their local trusted advisor, who may not have the expertise in certain transitions or transactions. The goal is to use a trust for ownership transfer.
At this stage, a business owner should be talking to their corporate counsel, their Trust & Estate Lawyer, their CPA, their Investment Banker, Valuation Firm, or other trusted advisors. If they don't have all of their advisors, TrusteeMarketplace.ORG will provide you with seasoned experts in fields business owners may not already have in place.
By selecting the advisors from TrusteeMarketplace.ORG, the advisors will help improve decision making over time, as they don't just do Family Businesses; they are transition experts!
The advisors begin to determine if the value of the company with the goal to determine if the transfer is feasible, so a valuation advisor should be engaged. They advisors also develop alternatives to meet the owner’s goals and expectations.
A secure, on-line document sharing application, like dropbox or V-rooms; can help you safely store and manage your due diligence material. Then, when sharing or updating documents via this method, all parties with access have the most updated content for their due diligence process
Each Advisor should provide the owner with a document spelling out the agreed scope and charter for action.
Business Owners and their advisors are now going through checklists to gather information in the due diligence process, to help them determine a “Go or NO GO” in Section E.


B
Trustee’s Process
Weeks 1-4
Trustee Explores Strategy & Alternatives
Engagement Letters are Signed
Trustees, as part of their responsibility to manage the assets of the trust, must develop a long range plan. The trustee then begins exploratory search for Asset management alternatives, business ownership transitions, or holding the assets in another entity. At some point, the trustee decides to execute a plan for the trust. But before they can execute, they need to talk with their trusted advisors, who may not have the expertise in certain transitions or transactions.
At this stage, a trustee should be talking to their corporate counsel, their Trust and Estate Lawyer, their CPA, their Investment Banker, Valuation Firm, or other trusted advisors. If they don't have all of their advisors, TrusteeMarketplace.ORG can provide trustees with seasoned experts in fields business owners or beneficiaries may not already have in place.
Sometimes, at this point in time, it is most important the trustee communicates with the trust’s beneficiaries of the trustee’s efforts and direction. Sometimes, it is not appropriate to do so. Therefore we placed this item here in case it is needed now. Getting the beneficiaries’ support through information meetings reduces conflict and fiduciary liability.
The advisors begin to determine if the value of the assets or company with the goal to determine if the transfer or sale is feasible, so a valuation advisor should be engaged. As trustee, you are expected to hire your own advisors including the valuation expert.
A secure, on-line document sharing application, like dropbox or V-rooms; can help you safely store and manage your due diligence materials and monitor their use. Then, when sharing or updating documents via this method, all parties with access have the most updated content for their due diligence process
Each Advisor should provide the trustee with a document spelling out the agreed scope and charter for action.


C
Populate Documents Online
Weeks 5-6
Company's last 3 Yrs Financials and Tax Returns
Cash flow Projects for 3-5 years
Organizational Chart with Family Members Identified
Company Census
Ownership Structure
Ownership Goals
Estimated Stock Price
Documents should be CPA Prepared; Audited Statements are preferred.
Projections are internally developed; A CPA's review would be preferred.
Importance is to identify key managers and family members for retention or other compensation issues.
Census should include Demographic information such as age, length of service, as well as Salary/Bonus agreements, and other compensation plans.
Is there Common and Preferred Stock? Who owns what? How about Warrants and other synthetic equity? Is the stock in Trust? Who are the Trustees?
A written story of the goals and objectives is a great way to define who the advisors need to be and who is selected.
If there has been a formal valuation prepared recently, that should be available.


D
Feasibility Study
Weeks 7-9
A Simple Valuation to develop a range of values, not a precise price; ESOPMarketplace.com advisors are experienced to develop accurate ranges.
ERISA law has a number of qualified and non qualified issues to be addressed.
ESOPs have great tax benefits for both the selling shareholder and the company.
A number of legal surprises surface in this stage to reduce due diligence effort later, selecting an ESOPMarketplace advisor will reduce costs during and after the transaction.
Additional Advisors could include Trustees, TPA's, ESOP CPA, just to name a few.
At some point, an estimated cost to complete the project will be developed to help in the decision making process.


E
GO or NO-GO
Weeks 10-11
Tax Issues
Legal Issues
Costs Issues
Decision to Go
Valuation Ranges don't meet expectations.
ERISA law has a number of qualified and non qualified issues to be addressed.
Tax benefits are not achievable or require changes in Plan Design.
Anti-trust, by-laws, or some legal issue.
Owner changes their mind, Conflict surfaces, Key Managers or family are threatened, or threaten to leave, unclear successor.
Costs are excessive or unclear.
For Go Decisions, continue; No-Go may require help.


F
Due Diligence
Weeks 12-15
Setting up a V-Room saves money in delays, overnight mailing, and confusion.
This is the most challenging part of the process. ESOPMarketplace.com valuation advisors are well experienced to avoid pricing and other plan issues with the Department of Labor (DOL).
Plan Design refers to the structure of the ESOP Trust and the rules by which beneficiaries are selected, distributed, vested, and allocated shares.
What are the tax benefits for both the selling shareholder and the company?
ESOPs, much like all other Qualified Plans require some level of Communication. However, to gain the value with ESOPs, developing a Communication plan and Committee will excite the employees on building an "Ownership Culture."
What are the compensation and employment agreements? Top Heavy profiles.
If the demographics are heavily aged, a study to determine cash flows on stock repurchase will be required.
For complicated and or High Dollar transactions, it is imperative an independent Trustee be involved in the transaction from the beginning. By selecting the Trustee early, they can be a wealth of help in selecting advisors and protecting the selling shareholder from DOL challenges.
(Third Party Administrators) Many employee benefit plans have highly technical aspects and complex administration requirements that can make using a specialized entity, such as a TPA, more cost effective than trying to do the same processing in-house. An ESOP, for example, must remain in strict compliance with ERISA, Department of Labor, IRS and Securities and Exchange Commission laws. Failure to remain compliant can result in the ESOP being disqualified. Such disqualifications create very real problems with employees, with corporate accounting, banking relationships as well as with the IRS. Selecting an ESOPMarketplace.com TPA will save you time, money and frustration both immediately and over many years.
Unless the selling shareholder will risk taking debt, the need for an ESOPMarktplace.com investment banker or financial advisor will help the owner navigate through the challenges of financing the transaction.
By having a wealth advisor involved, a number of financial strategies will align with the transaction.


G
Negotiations to Close
Weeks 15-16
Tax Issues
Legal Issues
By-Law Commitment
Banking or Funding Issues
Board and Ownership Approval
Marketplace changes or disruptions change the valuation.
Employee Retention or other Compensation issues surface.
New Laws take effect, or other tax surprises.
A number of legal surprises surface in this stage to reduce due diligence effort later, selecting an ESOPMarketplace advisor will reduce costs during and after the transaction.
Corporate Counsel will be needed for developing final corporate structure.
Banking and funding sources can change the funding requirements.
In some cases, Board and Shareholder approval is required.