Pub. 5 2016 Issue 7

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 24 A RECENT SURVEY commissioned by BKD found that nearly nine out of 10 respondents viewed ownership and management succession planning as an important issue. However, an alarming 64 percent indicated they had no formalized succession plan in place. With the baby-boom generation aging, it’s no surprise that a majority of these participants anticipate an ownership and/or leadership change within the next 10 years. This trend applies to all commercial businesses, but it may occur more frequently in the banking industry due to competition and growing regulatory costs. The number of Kansas commercial banks has fallen from 630 in 1985 to 230 at the beginning of 2016—50 banks were lost in the last five years. We believe an intentional business succession process, designed to satisfy all of the owner’s objectives, will result in the best outcome. Unlike an audit or tax return, the outcome of a succession plan is not well-defined. Instead, it’s tailored to an individual owner’s specifications—it’s unusual to have a third-party enforced deadline. It also involves coordination of multiple advisors, including the CPA, attorney and investment and insurance advisors. Given all of these factors, the owner may not even know where to start. Below are six questions every business owner must ultimately answer about business succession and its effect on the personal wealth and legacy of the owner. 1. Who will run the business when I’m gone? If the business’ success relies too much on the owner’s skill, vision and passion, it may be difficult to continue the business legacy or maximize value in a sale without that owner. Successors must be identified for the various owner roles, and the right people must be directing operations, lending, compliance, finance and other key areas. Appropriate incentives should be in place to retain key employees. Assessment of the management team also will include identifying the roles, if any, for family members working in the business. 2. Who will own the business when I’m gone? Ownership can be transferred in several ways, including the transfer to family or a sale to management or a third party or an employee stock ownership plan (ESOP). Transfer to family could involve gifts during lifetime, bequests at death, sales or some combination. An ESOP could have tax advantages to the owner—but it has financing issues and ongoing compliance BUSINESS SUCCESSION FOR BANKS & THEIR OWNERS By Kara Cramer, CPA, BKD, LLP and Teal Dakan, CPA, BKD, LLP