+ All Categories
Home > Documents > Business Succession Planning - Blackhawk Bank

Business Succession Planning - Blackhawk Bank

Date post: 11-Apr-2022
Category:
Upload: others
View: 4 times
Download: 0 times
Share this document with a friend
31
1 “The advice you need for the life you want” MEMBER FDIC EQUAL HOUSING LENDER Business Succession Planning “Where do I start?”
Transcript
Page 1: Business Succession Planning - Blackhawk Bank

1

“The advice you need for the life you want”

MEMBER FDIC EQUAL HOUSING LENDER

Business Succession Planning

“Where do I start?”

Page 2: Business Succession Planning - Blackhawk Bank

“The advice you need for the life you want” 2

Introductions

Jim Reynolds, CExP™VP Business BankingBlackhawk [email protected]

Page 3: Business Succession Planning - Blackhawk Bank

Steve DouglasDirectorPorteBrown Accountants & Advisors

3

Today’s Presenters

Timothy J. LeakePartnerHinshaw & Culbertson LLP

Henry Kaskov, ASAPresidentKaskov Valuations, Inc.

Page 4: Business Succession Planning - Blackhawk Bank

4

Steve DouglasDirectorPorteBrown Accountants & Advisors

Accounting

Page 5: Business Succession Planning - Blackhawk Bank

5

Why Do I Need a Transition or Exit Plan?

1. Most important financial transaction2. Complex3. Financial security4. Family, key management, employees5. Manage risk6. Want to achieve financial, other goals

Page 6: Business Succession Planning - Blackhawk Bank

A Team of Advisors is needed to handle all of the potential components of a successful plan

You Can’t Do It Alone!

Estate & Gift Tax

Planning

Retirement

Planning

Governance

Financial PlanningFamily Dynamics

Business Planning

& Strategy

Leadership &

Management Succession

Talent Management

Income Tax PlanningCompensation

Strategy & Design

Life Insurance Planning

Page 7: Business Succession Planning - Blackhawk Bank

Exit Planning Process/Framework

Page 8: Business Succession Planning - Blackhawk Bank

Financial

Departure Date

Successor

Identify the Owner’s Exit Objectives

Page 9: Business Succession Planning - Blackhawk Bank

Quantify Business & Personal Resources

•After-tax income / cash flows to retire

• Business valuation

Page 10: Business Succession Planning - Blackhawk Bank

Maximizing and Protecting Value

•Value drivers

•Minimize income tax impact

Page 11: Business Succession Planning - Blackhawk Bank

Most Common Transition Options

Sales or Transfer to Insiders

• Family

• Key employee(s)

• ESOP (Employee Stock Ownership Plan)

Third-Party

• Competitor

• Private Equity

Page 12: Business Succession Planning - Blackhawk Bank

• Maximize Value

• Minimize Risk

• Stay in Control

Three Main Value Propositions

Page 13: Business Succession Planning - Blackhawk Bank

13

Henry Kaskov, ASAPresidentKaskov Valuations, Inc.

Valuations

Page 14: Business Succession Planning - Blackhawk Bank

Why Do I Need a Business Valuation?

Succession Planning• Understand the Fair Market Value in anticipation of a future exit

• Buying/Selling ownership interest to existing management, family, or a third party

• Financial & Retirement Planning

Estate & Gift Tax Reporting• Transferring ownership interest to the next generation

• Valuation is typically required by the IRS upon a gift or death

• Discount Studies for minority (<50%) interest in a business

Litigation• Divorce

• Shareholder / Partner Dispute

• Damages Analysis: Lost Profits / Lost Business Value

Page 15: Business Succession Planning - Blackhawk Bank

Business Valuation Process

Best if done several years prior to business exit• Typically results in best planning and positioning for the owners and the company

• Allows for time to make changes/improvements to increase value before exit

• Bring in consultants & experts to position the company for sale

Aspects of a Business Valuation• Analyze Financial Statements, Tax Returns, Operating Metrics, Etc.

• Review Shareholder / Operating / Partnership Agreements, Contracts, Leases

• Management Interview and Site Visit

• Industry, Market, Competition, Economic, & Valuation Analysis

• Duration: Approximately 1 month

• Cost: Depends on Scope

Page 16: Business Succession Planning - Blackhawk Bank

Scopes of Business Valuation

Full Appraisal• Unambiguous Opinion of Value utilizing all applicable

valuation approaches and a full due diligence analysis• Used in Gift and Estate Tax Reporting, Lending, Litigation

Limited Appraisal• Estimate of Value utilizing applicable valuation approaches

and a limited due diligence analysis• Used for informational & internal planning purposes

when a full appraisal may not be required

Calculations / Consulting• Preliminary Approximation of Value utilizing very limited

approaches & due diligence• ‘Rough estimate’ for initial planning and consulting purposes

Page 17: Business Succession Planning - Blackhawk Bank

Business Valuation Approaches

Asset Approach• Net Asset Value calculated by adjusting the company’s assets

& liabilities to market values

• Primarily used for asset-holding and asset-heavy companies

Income Approach• Future company profits are converted into present value that

reflect the sum of all future economic inflows

• Company profits are forecasted and discounted based on the company’s risk/reward profile

Market Approach• Value of a company based on sales of similar businesses in the

marketplace

• Utilize multiples of revenue, profit, cash flow, seller’s discretionary earnings, etc.

Page 18: Business Succession Planning - Blackhawk Bank

“The advice you need for the life you want” 18

Timothy J. LeakePartnerHinshaw & Culbertson LLP

Law

Page 19: Business Succession Planning - Blackhawk Bank

“Counselor” Role

The advisor needs to understand:• The type of business involved

• The family dynamics

• The value of the business

• Help the business owners understand the magnitude of the project

• Break down decisions to a manageable amount at any one time

• Need to have several discussions and planning sessions to open a dialogue

• There will be homework for the business owners to make meetings productive

• The key is continuity for the business!

Page 20: Business Succession Planning - Blackhawk Bank

Without Competent Successors, There is No Succession Plan

• What does the business owner want to do?

• What training does the successor need?

• What mentoring does the successor desire?

• What leadership style is necessary to succeed in the corporate culture?

Proper succession planning takes time…

Page 21: Business Succession Planning - Blackhawk Bank

Why Does Succession Planning Fail?

• Lack of communication and trust within the family around the group-decision making and governance

• Unprepared heirs

• Failure in financial planning, taxes, and investments

Most of the time, it isn't because of faulty documents

• But that doesn't mean we should pat ourselves on the back…

Page 22: Business Succession Planning - Blackhawk Bank

Business Succession Planning Approaches

Do Nothing

• At a minimum, write down notes to survivors!

Sell

• Develop a buy/sell agreement

• Develop employee retention plan

• Develop a liquidation plan

Transfer to Subsequent Generation

• Develop roles and responsibilities

• Development compensation plan

• Develop new shareholder agreement and buy/sell provisions

Page 23: Business Succession Planning - Blackhawk Bank

Techniques

Each succession plan has its own unique wrinkles and flashpoints

There are numerous techniques available to transition a business

Let’s focus on some issues and considerations to keep in mind

Page 24: Business Succession Planning - Blackhawk Bank

Documentation…Documentation…Documentation

• Corporate documents• Bylaws/Operating Agreement

• Buy/Sell Agreement

• Shareholder Agreement for management provisions

• Employment arrangements

• Board of Directors

• Contingency plans

• Ownership Information (Is title where it is supposed to be?)

• Trusts

• Partnerships/Limited Liability Companies

• Who is “next in line” to manage the assets

• Transfer Documentation• Purchase/Sale Agreements

• ESOP

• Estate planning documentation (gifting, Wills, Trusts)

Page 25: Business Succession Planning - Blackhawk Bank

Planning Issues to Consider

• Funding issues too!

• Bank loan documentation

Should some of the growth be transferred to

the next generation now?

How will a business interest be held in the short-term

and in the long-term?

Are there corporate agreements affecting the

estate planning documents?

• Gift

• Estate

• Income

What about taxes?

Page 26: Business Succession Planning - Blackhawk Bank

Estate Planning – Transfer Considerations

Who should be an owner?• Outright

• Concern regarding spousal rights

• Trust

Estate planning considerations for the next generation• Taxes for them

• Per Stirpes transfers, or passing to spouse

• Special Needs

Page 27: Business Succession Planning - Blackhawk Bank

Estate Planning – Tax Issues

Estate Taxes• Section 6166 elections

• Life Insurance

• Irrevocable Life Insurance Trust

• Funding sources• Income producing gift?

• Annual premium financing?

• Combination of both

Income Taxes• Capital Gains vs. Income Tax

• Sale for less than full fair market value creating a gift

Page 28: Business Succession Planning - Blackhawk Bank

Planning Considerations

S Corporation stock• Need to make sure that estate planning vehicles are qualified shareholders

Trustees• Important discussions concerning business succession

• Is this individual involved in the day-to-day operations?• Does this individual have necessary business acumen?• Does a potential corporate trustee have the relevant business background,

or a division, to be able to run the business?• Issues potentially multiply if there are co-trustees

Page 29: Business Succession Planning - Blackhawk Bank

Planning Considerations – continued• Business Advisors

• Ability to name individual(s) to have control over the business operations, and to direct the trustee to take certain actions

• Individual vs. Group

• Experience vs. Inexperience

• Relationship with the trustee

• Relationship with the beneficiaries

• Constraints on operations and timeline for operating business

• The scope of authority for the Business Advisors is important because one never knows what type of exit transaction will occur (stock sale vs. asset sale)

• Consider adding provisions to place oversight on the Business Advisors• Great role for a Trust Protector

• Power to overrule decision

• Power to remove a Business Advisor

• Power to appoint a successor Business Advisor

• Philosophy memorandum

Page 30: Business Succession Planning - Blackhawk Bank

30

Q&A

Steve Douglas, Director PorteBrown [email protected]

Henry Kaskov, ASA, PresidentKaskov Valuations, Inc.847-637-0511Henry@KaskovValuations.comwww.kaskovvaluations.com

Timothy J. Leake, PartnerHinshaw & Culbertson [email protected]

“The advice you need for the life you want”

Page 31: Business Succession Planning - Blackhawk Bank

“The advice you need for the life you want” 31

Thank you!A copy of the slide deck and recording of the meeting will be sent as a follow-up. Thank you for attending.


Recommended