1. FPO SolutionsCreating a Succession Plan

2. Who is FPO Solutions?

The professionals behind NAPA stores on the move.

Partner with over 1400 NAPA Auto Parts Stores

Started NAPA accounting in 1997.

Our office & staff are dedicated solely to your business.

We workwithGenuine Parts Company. We workforthe NAPA Store Owner.

Our mission: Helping you manage your 401k.

3.

NAPA Specific Consulting Services

Financial Performance

Store Operations

Risk Management

Sales & Business Planning

Executive Coaching

Who is FPO Solutions? The professionals behind NAPA stores on the move. 4. Communication?

Does it ever seem like you and your accountant really

dont speak the same language?

5. 6. Succession Planning Overview

This session is an broad overview on how to get

started, what to think about and some ideas on where

to go.

If you get nothing else out of the next hour, get this;

Start Early!

7. Succession Planning Overview

Developing Your Strategy.

Preparing Your Business For Transition

Succession Options Other NAPA Owners Are Using

Key Employee

Outside Buyer

Family Member

8. Preparing for Transition

Stop procrastinating and start planning.

9. Preparing for Transition

Heres a scary thought

What would happen to your business if you suddenly

couldnt function?

10. 11. Preparing for Transition

Succession Planning is about taking control of

the inevitable

If no planning is done, lawyers and the government will control the process

But if you plan it;

You can reduce the taxes paid

Get the maximum value out of the business

Leave it in the hands of your chosen successors

And avoid business crisis!

12. Preparing for Transition

Become as profitable as possible

Profitable NAPA Stores are always in demand

Profitable NAPA Stores are easier to finance through banks and SBA

Start family member in a growing, profitable business

Build additional wealth for yourself

13. Nothing Fails Like Success Natural Law 14. The Greatest Enemies of Mature Business

Size (Both physical & market share)

Age

Past Success

15. The Challenge of Success Sigmond Curve Life Cycle of a Business Time Success SuccessX Time= Increased Odds of Stagnation, Complacency and Failure 16. With Success, Size and Age comes

Rigid Thinking tendency to think that they are already doing the right things. The more successful theyve been, the less they are open to new ideas.

Bureaucracy large or small, time tends to build a lot of layers or traditions into a business that creates inflexibility.

Limited Perspective great at improving the way they do things, but poor at questioning iftheyre doing the right things.

17. You cannot stay on top forever. First, it was my dream to become number one, and now that I am on the top, staying there would be far more difficult and challenging than to get to the top slot. Vijay Singh Natural Law 18. The Second Cycle 19. Preparing for Transition

Implement a strong sales and gross profit plan

A track record of year over year sales growth is golden when selling a business

Start family member in a growing, profitable business

Build additional wealth for yourself

20. Preparing for Transition

Implement a strong sales and gross profit plan

NAPA Dealer & Retail Programs

EmployeeIncentives

Reputation Categories, Category Managementand Focus Lines

21. Preparing for Transition

What is a Reputation Category?

22.

Pads

Shoes

Wheel Bearings

Calipers/Caliper Pins/Caliper Bolts

Oil Seals (Spline, Hub, Wheel)

Combination Kits

Drum/Rotor

Wheel Cylinder

Hydraulic Hoses

Brake Category Example 23. Where Do Reputation Categories Begin? 24. Where Do Reputation Categories Begin? 25.

Determine your stores top product lines using sales by manufacture report (RPT023).

Focus on 1-3 specific lines or categories that drive the majority of sales in your store.

Determine your sales and pricing strategy. (Example: Rotor pricing drives brake sales).

Determine your stocking strategy. (Example: if inventory is class driven stock up to WW items. If MIC, use a stock 1 for every 3 or 4 vehicles in market).

How to develop your Reputation Categories 26.

Find subcategories that matter. A reputation in gaskets doesn't live or die with head gaskets. It does however live or die with valve cover gaskets.

Set a fail safe. Auto order the part on nightly stock order if you run out.

Determine factory ordering strategy based on days of supply.

How to develop your Reputation Categories 27.

Identify current customers who are not currently buying this line or category. Use RPT013 (Sales by Customer) or RPT057 (Sales by Product by Customer). No current customer should NOT be buying this line from you.

Keep accurate shelf counts. Inventory on a regular basis. (Use data review to run sales more than X report).

Sales. Focus on these lines in store meetings and in sales calls to your customers. Train employees to ask for the complete sale.

How to develop your Reputation Categories 28.

Turn on Sales Tracking by Customer in TAMS of your top customers. This is in AR2. D Detailed Sales. (RPT127).

Use RPT056 (Sales by Customer by Part Number) & RPT057 (Sales by Product by Customer).

Measure Customer Catagories using RPT055.

Measure same customer overall sales growth. (+5%)

Measure same customer sales growth in reputation catagory.

GMROI by product line.

How to Measure Reputation Categories Results 29. Asset Management - KPI 1.5 1.3 1.2 Trend Gross Margin Return on Inventory Investment How to measure: Gross profit dollars divided by Inventory linevalue dollars. 30. Asset Management - KPI

Gross Profit Return on Investment

What does it indicate?

Rate of return on inventory investment.

High profit, high velocity part numbers & product lines.

Marketing effort and sales strategy.

What has been Advanced Auto Parts highest GMROI SKU?

31. 32. Preparing for Transition

Keep operating costs and business performance

(KPIs) within the normal range

Potential buyers and lenders want to see healthy business performance

Use the NAPA Consolidated Operating Statement & FPOSolutions KPIs to measure your stores performance

33. Preparing for Transition Time for a Check-Up? Four Critical Areas to Measure the Financial Health of Your NAPA Auto Parts Store Cash Management Inventory Store Operations Building Wealth Comparison to NCOS FREE from FPO Solutions 34. Preparing for Transition

Have clear accurate financial statements that

document business growth and earnings

Explaining the Past will Sell the Future

35. Preparing for Transition

Clean up Balance Sheet

Accounts Receivables (Past Due, Battery DEBIs, A/R Aging correctly)

Asset Listing Complete and Current

Non-Existent Investments, Loans, Etc.

36. If Your Dream is This. 37. Make Sure You Dont End Up With This! 38. Preparing for Transition

Align Book Inventory and TAMS Inventory

39. Inventory is the bulk of your retirement fund

Variance between your book inventory and TAMS inventory = not knowing where you are at.

Book higher than TAMS = Loss (less money to retire with)

Book lower than TAMS = gain (Higher capital gains when you sell your store)

TAMS Book Actual 40. Start Working 0nInventory Now 41. Dont let understated income and inventory value ruin your day

IRS Form 1335 Amnesty

Change in accountingdepreciation methodology

4 year grace period

Look for bad debt and other operating costs to offset as part of your exit strategy

42.

What if I have an employee or several employees I

would like to sell my business to, but they dont

have enough money?

Or

How can I make a key employee or employees

stakeholders in my business with a profit sharing

program?

Succession Planning Key Employee 43.

Three Approaches for developing Key Employee Equity

Plans (KEEPs) to purchase your business or as a Equity

Incentive Bonus Plan

• Real Equity

• Phantom Equity

• Deferred Income

Succession Planning Key Employee 44.

Key Employee Equity Plan Basics

Todays plans we are discussing are non-qualified

Qualified plans (ESOP,401k SEP IRA, Simple IRA, etc.) must be offered to all employees (cant discriminate)

Succession Planning Key Employee 45.

Effects of Key Employee Equity Plans

• Greater productivity

• Better alignment between Key Employee & Owner

• Gets everyone focused on sales, marketing, customer service, expenses, and asset management

• Increased earnings for you

• Chance to build equity for everyone

• Attract/Retain the best people

Succession Planning Key Employee 46.

Key Employee Equity Plan Basics

• Plans needs to fit your strategy and time table

• Plans need to be put together by a professional

• Key Employee(s) need to know what theyre getting

• Key Employee(s) need to be kept in the loop

Succession Planning Key Employee 47.

Plans Can Take on Various Forms

• Restricted Stock

• Stock Appreciation Rights (SARs)

• Phantom Equity Agreements

• Deferred Income

Succession Planning Key Employee 48.

Real Equity- Restricted Stock

Restricted stock is actual stock ownership in your corporation. By giving restricted stock to an employee, your making him/her a business partner.

Succession Planning Key Employee 49.

Real Equity- Restricted Stock

What are the restrictions?

• • Non-Voting

• • No say in whether company is sold

• • No say in valuation of business

• • No say in asset acquisitions or taking on debt

• • Forfeiture if the employee terminates before the stock has vested

Succession Planning Key Employee 50.

Real Equity-Restricted Stock Example

Im a key employee in your store who wants to buy the

business, but no equity.

We set up an agreement providing me with 5% ownership of the company through restricted stock.

I dont own 5% of the company overnight. My equity vests over a time period set up in our agreement.

As the business grows, my stake in the business grows with yours.

Succession Planning Key Employee 51. Succession Planning Key Employee 52.

Restricted Stock Benefits/Downside

Real equity for the employee

Shares vest over time

No immediate cash deployment

Remember, it does dilutes future earnings for you

Tax issues for employee as vesting takes place (Section 83)

Succession Planning Key Employee 53.

Stock Appreciation Rights (SARs)

SARs are the right to the monetary equivalent of the increase in value of a specific number of shares in a company over a specific period of time.

Similar to a stock option, SARs are valued based ontodays equity and set up to become vested in the future.

Succession Planning Key Employee 54.

Stock Appreciation Rights (SARs)

No legal ownership

No voting or shareholder rights

Gives employee right to the appreciation in the value of stock

Generally designed to be paid out in shares in the company

Succession Planning Key Employee 55.

Stock Appreciation Rights Example

Im a key employee in your store who you want to keep or want to buy your business, but I have no equity.

We set up an agreement providing me with X number of SARs that will fully vest at some point in the future.

I dont own any part of the company. Our agreement is that in the future, Ill be paid the difference between todays value of those shares and the actual value in restricted stock.

As the business grows, my stake in the business grows as well.

Succession Planning Key Employee 56.

Stock Appreciation Rights Benefits/Downside

Not ownership of the business by the employee

SARs can vest over time similarly to restricted stock

Like restricted stock, no immediate cash deployment by you

Tax considerations for the employee when exercised

Succession Planning Key Employee 57.

Phantom Equity Agreement

No legal ownership

No voting or shareholder rights

Gives employee some form of payout at designated time

Generally designed as deferred income to be paid as cash rather than converted into stock

Can be set up where money goes into a mutual fund or other investment

Succession Planning Key Employee 58.

Phantom Equity Example

Im a key employee in your store who you want to keep or want to buy your business, but I have no equity.

We set up an agreement stating that based on the increased equity/earnings/profits you will pay me a annual deferred bonus.

I dont own any part of the company. That bonus goes into a mutual fund or other outside investment.

As the business grows, my stake in the business grows as well.

Succession Planning Key Employee 59.

Keep in mind with this plan

Company records an expense, sets up a

liability, and sets up an asset

Actual cash outlay to mutual fund

Succession Planning Key Employee 60.

What happens if

• Key employee changes his mind?

• Employee steals from you?

• Goes to work for a competitor?

• You have a son/daughter wants to come into the business?

• Theres a personality difference?

Succession Planning Key Employee 61.

Buy/Sell Agreement document that determines the

rules of ownership.

• Vesting

• Buy/sell provisions

• Financing

• Valuation

• Termination

• Change of heart/change in control

• Transferability - Death/disability/divorce

• Non-Solicitation

Succession Planning Key Employee 62.

Start business succession planning early and involve

your entire family in business succession planning

discussions

Currently estate and gift tax are on a course to non-existence 2010.

Many financial planners recommend starting this process ASAP because of uncertainty in 2011.

Succession Planning Family Member 63.

Look at your family realistically and plan accordingly

Bring in outside professionals. The price you pay for good advice is minimal.

Succession Planning Family Member 64.

Get over the idea that everyone has to have an equal

share.

Equitable Treatment Techniques

Life Insurance Proceeds

Real Estate

Not Working in the Business

Non-Voting Stock

Buy-Back Agreement w/Installments

Succession Planning Family Member 65.

Train your successor(s) and work with them.

30% of second generation family businesses survive.

15% of third generation family businesses survive.

Succession Planning Family Member 66. Succession Planning It Takes Everyone 67. Thanks for your time! Greg Foss Senior Consultant FPO Solutions1-866-622-7011 Ext. 2908 1-254-732-5970