Enlighten™ - Winter 2021

Page 1















P R O T E C T I N G & G R O W I N G Y O U R W E A LT H W I T H F I R S T B U S I N E S S B A N K





We’re pleased to bring you our fourth issue of Enlighten™ as First Business Bank. This year, the entities that encompass First Business, including First Business Trust & Investments, united under a single name, changed our website to firstbusiness.bank, and refreshed our logo. We hope these changes help to unify and reinforce the client experience you expect across the entire company footprint.

BRENDAN FREEMAN PRESIDENT - PRIVATE WEALTH FIRST BUSINESS BANK bfreeman@firstbusiness.bank Brendan Freeman has more than 20 years of experience in private wealth management, banking, and leadership. He oversees private wealth services in Greater Dane County, Southeast Wisconsin, Northeast Wisconsin, and Kansas City Metro.

As I envisioned this issue about succession planning, I immediately hoped Tim Keane would participate in our feature article. Tim is an accomplished individual in every sense of the word — there is no one else like him. His many successful transitions and his stature in the startup and angel investing world is unparalleled. He speaks with us about lessons learned, his greatest achievements, and people who helped him along the way. Did you know that sharing family business stories across generations helps them achieve a longer lifespan? “Capture Family Business Stories to Improve Long-Term Success” shares two Wisconsin family businesses that successfully documented stories for family members. Wealth Advisor Paul Jansen answers some common questions about buy-sell agreements, the advantages, common forms, restrictions, and steps to consider as you evaluate business transition vehicles. Our Ask an Expert article with Matt Karnick, Commercial Banker, outlines Employee Stock Ownership Plans (ESOPs), how they work and the benefits, and how he helps clients approach the succession planning process. Wealth Advisor Ryan Witt writes about keeping the peace in a family business with four main tips to help guide your focus to improve harmony and the bottom line. Many impediments keep businesses from succession planning, but our Market Strategist Nancy Johnshoy, CFA, writes about the five most common ones we encounter and how to move beyond them. Trust Advisor Cymbre Van Fossen discusses charitable trusts and reasons you might consider one depending on your needs and goals. Lastly, selling your business outside the family is sometimes the most lucrative. Diane Smith, Commercial Banker, writes about the benefits of buy-sell agreements with nonfamily buyers. Thank you for reading Enlighten and for trusting us as a resource in these uncertain times. We hope you enjoy this issue.

























Welcome to Private Wealth at First Business Bank There’s a distinct difference when you work with people who care – experts who get to know you, your family stories, and your specific priorities. It’s about building trust. At First Business Bank, we honor this relationship by carefully listening, understanding what’s important, and proactively helping you set and maintain a course to meet your desired financial and estate outcomes. As your trusted Private Wealth partner, we will always work to ensure the long-term vitality of your hard-earned wealth. Our team of experienced specialists dedicate more time, resources, and personal attention to your individual financial planning, estate plans, investments, and private banking requirements.



FEATURED FINANCIAL EXPERTS Meet the team known for a high-touch, proactive approach to helping you preserve your wealth and achieving your personal ambitions throughout every stage of your life. PAUL JANSEN WEALTH ADVISOR, NMLS# 1975292 Paul has 30 years of management, sales, and marketing experience and is responsible for business development with First Business Bank. Focused on building strong client relationships, he works closely with clients to develop financial planning and investment management strategies to meet their individual objectives.

NANCY JOHNSHOY, CFA PORTFOLIO MANAGER & MARKET STRATEGIST Nancy has over 35 years of experience helping clients maximize and protect their wealth. Nancy works with individual clients, corporations, and nonprofit organizations to achieve their investment and planning objectives. She authors the First Business Bank Quarterly Market Review, an in-depth analysis of markets and investments, and regularly presents to audiences about economic insights.

MATT KARNICK COMMERCIAL BANKER Matt has nearly 20 years of banking experience including over 15 years of extensive work in commercial lending. Over the past 13 years with First Business Bank, Matt has partnered closely with clients to help them achieve business success.

DIANE SMITH COMMERCIAL BANKER Diane has over 20 years of business experience. She is passionate about helping clients achieve their goals, and focuses on clients in the manufacturing and trucking sectors headquartered in the Kansas City Metro.

CYMBRE VAN FOSSEN, JD TRUST ADVISOR & DIRECTOR OF FIDUCIARY RISK Cymbre has over 20 years of experience in legal and financial services. In her role, she serves as a Relationship Manager for individuals and nonprofits and advises clients on estate planning, tax planning, and wealth preservation and transfer techniques.

RYAN WITT WEALTH ADVISOR, NMLS# 963742 Ryan has over 17 years of experience in the financial industry with a focus on private banking, estate planning & trust services, commercial lending, and mortgage lending. Ryan’s broad, analytical background allows him to take a personalized approach to help clients plan for the future.

To view the entire First Business Bank team, visit firstbusiness.bank/representatives



LIFE, LEADERSHIP, AND BUSINESS TRANSITION WITH TIM KEANE Tim Keane has been broadly involved in entrepreneurship throughout the Midwest for a long time. Through that period, he’s seen lots of successful transitions including some that could’ve been better, he says. Tim’s transitions through corporate life, entrepreneurship, and teaching are ones we were eager to explore for this issue of Enlighten. “I certainly changed career paths several times,” he says. “Like most folks, I was looking for a fulfilling career that was also able to support a growing family.” He’s been a high school teacher, a marketing manager at GE Healthcare, a partner in a marketing business, founder of Retail Target Marketing Systems (RTMS), now part of FIS, and Golden Angels Investors (GAI), as well as a data analytics company, Keane Consultants. He has invested in a few publishing companies, including one in Dublin, Ireland, and is a limited partner in three venture capital funds. He was the co-founder of the podcast “How Did You Do That?” which showcases successful entrepreneurs, and writes a blog, “Startups and Angels” on his website, timkeane.org. He’s also a photographer, a pilot, plays several versions of the bagpipes, and holds dual citizenship in the United States and Ireland. Today, in addition to managing Golden Angels Investors and Keane Consultants, he is a director of three privately held companies: Promentis Pharmaceuticals, Transportant, and Marolina Outdoors, and also serves on the board of the parent company of First Business Bank, First Business Financial Services, Inc. (Nasdaq:FBIZ)

We asked him for his “top list” of leadership lessons learned through this long career. “A strong family support system, to me, has been the defining fact in my success,” he says. “My wife of 48 years, Mary, has been there every step of the way. It’s not a small thing to know that you can explore new opportunities with the full support of your spouse.”

When he left GE to start what became RTMS, Tim and his wife had three children under the age of seven. Mary never hesitated to support that idea, “I had a promised contract from our first prospective customer so I knew we could be ok – for a while. But it was one customer and we needed to grow to be successful. I’m really blessed to have her by my side, a partner in every decision.” “Great mentors are an important leg up. None of us come with all the tools we need and having someone you can trust is a huge difference-maker and they’re not easy to find.” Working at GE for seven years, Tim found a lifelong mentor in Leon Janssen and gained management and leadership skills he uses. “He was the head of one of the GE Healthcare businesses, but I didn’t work in his business,” Tim says. “He offered me his advice and counsel – just because. When I met him, he told me, ‘Listen, let me explain to you how stuff works here and what you’re going to need to be successful.’”

He was the guy I would go to and ask, ‘What should I do about this?’ It has always been a great relationship. I learned a lot about coaching from him and how valuable mentoring can be. He is very important to me and I certainly wouldn’t have been promoted if it hadn’t been for him. ~Tim Keane, about Leon Janssen


For his part, 40 years ago Leon Janssen says it was easy to quickly identify Tim’s innate characteristics that showed his potential. “Tim is highly intellectual with a creative mind, and he had such a high energy level,” Janssen says. “But his best attribute was his curiosity. Tim always wanted to learn more. He wanted to understand how and why a business worked. He was passionate about what running a business was all about. This same fire and curiosity are what led him out of GE — he was destined to be an entrepreneur.” Leon remembers mentoring Tim was just the beginning of a long and meaningful friendship. “When you get to a point in your career, lots of people ask you questions,” he says. “Few have the engagement, curiosity, and follow-up that Tim displayed. This is what truly engages a mentor.”

“Never take for granted how important it is to be asked.”

When Tim sold RTMS in 1999, he says, “I wasn’t sure what my plans for the future were going to be.” He was asked to teach an MBA class at the very same school from which he graduated — Marquette University in Milwaukee. Though he signed on initially for a year, that turned into 14 years, teaching in the MBA program and helping with the Kohler Center for Entrepreneurship. “Taking that opportunity – and being grateful for being asked – meant that I met scores of great people and got to make a small difference to several of them.” He was asked, ten years ago, to help some people review a publishing investment in Kansas. That led to a board seat and a ten-year relationship with the people at the company, including an opportunity to invest with some great folks in Kansas City. He was asked to help form an angel group in Italy by the U.S. Ambassador in the Bush Administration, and that group, in 2008, called themselves, “The Golden Angels of Italy.”


appreciated. I look forward every day to getting asked.” “Smarts won’t get you there. No one cares how much you know unless they know how much – or whether – you care. Moving heaven and earth for a customer is the right thing to do. And, it’s often something they remember.” Tim’s company, RTMS, had a regional retail customer – Boston Store – for whom, in 1989, they managed sale catalog mailings. RTMS had a software glitch that missed sending 20% of the best customers catalogs in advance of the annual sale, potentially a multimillion-dollar error. With only days to go before the event, and no time to re-mail due to delivery times, RTMS rented a DC3 plane and flew the missed catalogs to local post offices across three states in a 24-hour period, delivering them locally so that they’d be in customer homes in time for the sale. “We financed that with a second mortgage on my house, but we strengthened the relationship. From that day forward, they knew we could be trusted, and that customer relationship continued for many years,” he says. “It’s easy to plan for what can go wrong. Try imagining what can go right, and what you need to get there. The real geniuses find ways to learn from the experience of others. Everybody else learns the hard way.” Andy Nunemaker, Vice President of Product Manager – Benefits Solutions at Applied Systems, certainly has leveraged Tim’s experience through their long relationship that started in the late 1990s. “When Tim was with RTMS, I met him through Bob Hedgcock who connected us because RTMS wanted to learn what motivated Generation X as individuals,” Andy says. “That was the beginning of a long-standing relationship that evolved into a friendship.”

“I almost passed on that one,” he says. “It turned out to be a great opportunity to meet more interesting people.”

Since that time, Golden Angels Investors made investments into two software companies and asked Andy to step in to lead, grow, and exit the firms.

What does he take from this? “Sometimes being open to a request or a conversation goes somewhere – and the reward is the journey — the interactions, brainstorming, conversations,” he says. “Every contact you get deserves some sort of response. Even if you can’t help, a quick answer is almost always

“Tim has been so generous with his time with me and so many others,” Andy says. “The ripple effect of the lives he has touched is immeasurable. I try to model myself after Tim. I have seen the impact he has made and I am in awe. As my coach and mentor, I try to live my life the same way. To this day, he


still reaches out, he still listens, gives feedback, and he still connects people.”

Starting Out Tim attended Marquette University, graduating with a degree in journalism. “At the time, I thought I’d like to be in newspapers and Marquette had an accredited journalism school,” he says. After college, Tim began teaching high school journalism and English and enrolled in a summer Master of Education program at Seattle University, on a path to continue as an educator. Tim met his wife, Mary, when she attended a seminar at the school. “She was a teacher at Alverno Elementary School, the laboratory school of Alverno College,” he says. He and Mary married in 1972, and in 1973, he finished his Master of Education program. “Our first child was born in 1978, and it was clear to us that teaching wasn’t going to pay very well, so I went back to the placement office at Marquette,” he says. “They had posted a job for a writer in public relations, and I thought that was what I wanted to do, so I applied for a PR job working for a company called MedComm that had GE as its client and I got it,” he says. Around 1979, GE Healthcare (then called GE Medical Systems) recruited Tim to be a marketing and communications specialist. “My job was to do what we, today, would call marketing for healthcare products,” Tim says. GE entered the portable ultrasound market selling to obstetricians in about 1981. Up until that time, Tim says, they’d been selling large equipment to radiologists in hospitals. “We sold a lot of ultrasound equipment that was big and expensive, and this thing was little and


was intended for office use – a new idea then.” They tried the traditional sales tactic of the day — pounding the pavement and visiting obstetrician’s practices. “In those days, salespeople were mostly male, and anyone could figure out — if you’re sitting in the waiting room of an obstetrics practice in a suit with a briefcase, you’re probably not a patient. So our sales team didn’t do very well at that for about six months.” In those days, however, there was a growing market for office-based ultrasound, and Tim purchased a list of obstetrics practices showing which ones had an office-based ultrasound. “What we discovered, analytically, was the big practices with four physicians or more were the only practices buying these. They were about 15% of all practices in the country, so we targeted those without an ultrasound in their offices and started sending them sales material. It generated a lot of leads. That’s how I discovered direct marketing.”

Retail Target Marketing Systems Then, in the early 80s, Tim and Tom MacArthur, who he’d worked with as a writer, started talking about bigger opportunities using direct marketing. “We kept saying, ‘Where could this really work where nobody’s doing it?’” he says. “The answer to that was U.S. retail, because U.S. retail in 1984 was all newspaper advertising at the time.” They met with Ed Carroll of Boston Store, and they came away with a $1 million contract, establishing Tim as one

of the first people to bring data and analytics to retail marketing. “He gave us the business and he saved quite a bit of money on newspaper advertising. That’s how RTMS began, by

meeting an unmet customer need.” Tim says successful entrepreneurs often have two things in common. “They start every discussion with an unmet market need and their product answer is focused on filling that market need,” Tim says. “They’re also great at controlling resources they don’t own. They find ways to leverage and use assets without having to make large, substantive investments before they know whether their business is going to be successful or not.” As RTMS grew, Tim was approached by Battery Ventures in Silicon Valley who wanted to make an investment. He passed. “It turns out they were from the dominant venture capital firm in San Francisco and I had no clue what the value of having venture investors was or how it worked. I didn’t learn from the experience of others and wish I had.” In the late 90s, it became clear to Tim that the rapidly growing company either needed to find more growth capital to get larger or pursue a sale to a larger company. And, culturally, the company had grown so quickly, he no longer knew all the employees. “I started out buying a birthday present for all our employees when there were four of us, and I kept doing that until we were about 100 and some,” he says. “Somewhere along the way, I’d started buying them for spouses, and by the time ’99 came around, I was spending every Saturday at the department store. At some point you don’t know everyone’s name anymore, and that’s a shame.” RTMS was sold in a two-part transaction, first as a joint venture with Experian in 1999 and then to Metavante, which is now FIS, for more than $20 million. One of his proudest accomplishments are the



One of his proudest accomplishments are the employees who put their children through college and several who still remain working in the same capacity with the original RTMS technology.


employees who put their children through college and several who still remain with FIS working in the same capacity with the original RTMS technology, now called NuEdge Systems.

Transitioning to Investor & Coach In 2001, Tim began a 14-year stint at Marquette University as Entrepreneur in Residence at the same time he began building the foundation for GAI, an active member-owned angel investment membership group in Milwaukee with more than 100 investors who individually invest in startup tech companies. When he was first starting the organization, Tim called Hans Severiens who founded The Band of Angels, the first high-tech angel investment group in the United States. “He came out and spent three days and really helped us structure Golden Angels. I learned, once again, that all you have to do is ask. Or, in the words of one of my former managers, ‘the answer to the unasked request is always no.’” Members of Golden Angels Investors come from all walks of business as company founders, CEOs, and business leaders. As business investment opportunities arise and are presented to


the group, “at Golden Angels, we do everything except pick the deals,” Tim says. “We screen the companies, do all the legal work to negotiate the terms, manage the tax paperwork, and everything that goes with it, but each individual investor makes their own decision about whether they want to invest. For me, this is what works. I think the ‘make your own decision’ structure is central to what we do.” Despite all the data and hard numbers, Tim says, again, the startup founders are the most critical piece of the equation. “The number one criterion for us, I would say broadly, is, who are these people? Do they like us? Do we like them? Can we have a good relationship? That goes both ways — if we can figure out a good working relationship with mutual respect and gratitude, then it’s very easy to connect the dots and connect people who can add value,” Tim says. Dan Lawton, CEO of Promentis Pharmaceuticals, Inc., in Milwaukee, is a self-professed “recovering attorney” who has known Tim for 10 years. “It would be interesting to look at a scoreboard of all the companies Golden Angels has been a part of,” Lawton says. “All that they have started, grown, or


helped. In parallel to that — look at the people. They have had an extraordinary roster of success,” he says. “With my current company, Golden Angels has co-led the first two investment rounds. Simply stated, Promentis would not exist without Tim & Golden Angels.” “Tim has a breadth of knowledge and expertise across a range of sectors,” Lawton says. “He has a sense of what the ultimate business objective ought to be, which is so critical, compared to just what the next step is.”

It’s clear that Tim is playing chess where, so often, others are playing checkers. ~Dan Lawton CEO of Promentis Pharmaceuticals

Golden Angels also sometimes take a seat on a company’s board, but only if it strategically makes sense to help the company, Tim says. “Our philosophy is that you shouldn’t be a director if your expectation is you can show up at the meeting and say, ‘Tell me again what it is we do here.’ We only put directors on boards where we think we can have an impact, or we think we can be helpful.”

Board of Directors Serving on various Boards of Directors and Advisory Boards for businesses through the years, Tim recommends those who have interest in being a board member start with nonprofits. “My advice to people is, if it’s just a general concept that you’d like to be on a board someday, start with nonprofits. Volunteer for an organization like the Humane Society, for instance, and start working on a committee, and then when people see your talent, you may be asked to be on the Humane Society board. Exposure to the process and how it works is very valuable. I learned quite a bit from serving on the Taliesin Foundation board as well as LISC in Milwaukee,” Tim says.


Despite the economic downturn due to the COVID-19 pandemic, Tim is very positive about the future of angel investing. “It seems to be going great right now. I think everyone’s expectation is that this will be over at some point, and we’re all thinking about what’s going to change structurally and what isn’t. We may be right or wrong about those things, but I think that’s our attitude.”

Meaningful Business Of all his accomplishments, we wondered what made Tim most proud over the years? Was it his Lifetime Achievement Award from the BizTimes in 2018? Being nominated to the Wisconsin Technology Council’s Investor Hall of Fame in 2020? Founding a successful angel investing firm? Launching a photography business? Winning the inaugural Entrepreneurial Education Award from The Wisconsin Technology Council?

“Were it not for the woman I married, none of this would have happened,” Tim says. “She saved me from myself a long time ago.” With three children and seven grandchildren, all within Southeast Wisconsin, Tim says he feels lucky. “I’m very proud of my three children and the families they’re raising. It’s another blessing from Mary that I am grateful for every day.” “This always sounds a little cynical, but money is only money,” Tim says. “RTMS gave a lot of people a career. A lot of kids who started there had families and they’ve done well, too. I got a note from one of them who retired last year recalling all the great opportunities his career had brought him. I think that’s great.” “I’ve been so fortunate that there are just too many people to thank for all of the opportunities I’ve had. My colleagues at Marquette, including Mark Eppli, Father Wild, Mike Lovell, Charles Ries, and others; all of my friends from RTMS and Golden Angels; the late Peter Laper who I flew with for years; all of the students from Marquette and so many more.” “Leon taught me to offer to coach people and don’t really expect anything in return. He just did it because he thought it was the right thing to do. There’s a lesson, right? It’s a great attitude to have as you approach the work you’re doing.” v




Family dynamics — and the disharmony that can accompany them — are normal. Whether it’s between parents and children, siblings, or in-laws, these squabbles and frustrations tend to remain within the family unit. However, what happens when a family unit overlaps with a business unit? Running a business is challenging on its own, and when a family is in business together, it’s not uncommon for that disharmony to spill over and become a disruption to all parts of the business. And, it can come back around — when conflicts arise within a family business, they often find their way back to the kitchen table. The adverse effects of family business conflicts don’t just impact the family. They can have an impact on all aspects of the business, and at every level of operation — from small tasks like preparing reports and taking part in meetings to larger ones like retaining quality employees and establishing the goals of the business. And, feuding family members can sabotage — without meaning to — the progress of the business by creating a toxic environment for non-family employees. There are many positive aspects to a family business — a high level of commitment, a shared vision and approach to longterm goals, and the infusion of next-generation ideas and innovations. There’s also been research of family businesses that suggest only 30% of family-owned businesses make it to the second generation, and only 13% make it to the third. While discord within a family may not be the primary reason a family business fails, it certainly doesn’t help.

Here are four ways that you can overcome potential challenges in your family business and ensure it’s as rewarding of an experience as possible for everyone involved.



Just as non-family businesses engage in a process of strategic planning to ensure business goals and company mission are aligned, family businesses also need to engage in the same exercise. Engaging all family members in a plan that includes a family mission, goals, responsibilities, and roles ensures that all of you are on the same page with the most important aspects of the business. When family members agree on and understand the business values, it has the ability to shape the overall business mission — and strengthens a commitment to building a profitable enterprise together. It’s also a good idea for family business to form an advisory board to give counsel to the business leader and provide guidance on company policies. The board should include family members as well as non-family members who can bring an outside perspective and relevant business experience to business operations. These advisors can also bring a healthy dose of objectivity and help to counter emotions of the family members.



This action is something that might be easier said than done, but it’s a crucial part in ensuring the success of your family’s business. Establish a company rule, or have family members sign off on a policy, that says family issues must be kept outside of the four “walls” of the business. If any family issues or discord find their way into business dealings, it can be treated like any other violation of company rules — and met with an appropriate penalty.



Keeping the “business” part of “family business” at the forefront can also be accomplished by assigning roles and responsibilities to each family member as you’re going through the work of creating your strategic plan. Having each family member agree to and sign off on their respective area of responsibility can reduce potential conflict in the future. If there is a family member who feels that they’ve been short-changed when it comes to these roles and responsibilities, it’s a good idea to develop specific plans that address advancement, timeline, and milestone for achievement. Providing family members with a clear path to achievement will let them know they’re an important part of the business and their contributions are valued.



According to PwC’s 2019 US Family Business Survey, 58% of family businesses have a succession plan, even though most of them are informal. That still leaves a hefty 42% of family businesses that don’t have a succession plan in place. The succession plan process is often a tough one for families to face, as it requires coming to terms with a hard-to-face fact — that the family member at the head of the company is going to eventually get older and want to retire. That’s why it’s important that succession planning should begin while children and other younger family members are actively involved in the business. They should already be a part of the company’s strategic planning and the process of establishing long-term family and business goals. As the younger generation gets exposed to this level of the business, it might become clear that one or more of them might not be suited to be a successor, so it will be important to determine what role, if any, they might play in the business. For the children or other family members that do express interest and demonstrate both the hard and soft skills needed in a successor, a clear development path and timeline should be laid out that will enable them to develop skills, gain experience, and achieve milestone goals. This is where your Advisory Board will also come in handy, as they can create a set of standards and qualifications that must be met. This also helps keep the

process objective, as there might be a situation with competing children or family members. If there are children or family members that express interest in becoming a successor and don’t make the cut, it doesn’t mean they wouldn’t continue to be a valuable part of the business. With any career opportunity, plans for advancement in another role or aspect of the business can be clearly laid out in a way that keeps them encouraged and interested in meeting the goals of the business even if they’re not in the driver’s seat. This could mean heading up a specific division of the company, being assigned to the Advisory Board, or another role in which their input is vital to moving the business forward. Inevitably, there are situations where there might be discouragement or frustration in not being selected to move the company forward at a high level, and it will be important to plan for those situations so disruptions to the business are minimized.



There are a number of business consultants that specialize in family businesses. These consultants, like the non-family members of your Advisory Board, can provide an objective and stabilizing presence when it comes to the emotional biases of family members during business planning. Think of a consultant as a facilitator or a mediator — one who can make sure the input and opinions of each family member are weighted equally with those of the non-family members, or step in if there are issues that need to be discussed.

These four actions will take time and patience — but they’re critical ingredients for family business success. If you’re looking for a trusted advisor to guide your family business through succession planning, reach out to the Private Wealth team at First Business Bank. We can help you preserve your family business and craft a plan to ensure its future. v




As a generation of Baby Boomers gradually transitions from full-time work to pursue post-work adventures, those who own businesses are faced with transition decisions. Sell or transition to family members? Sell to an outside firm? Each year, many business owners opt to transfer ownership of their companies to current employees through an Employee Stock Ownership Plan (ESOP), providing an exit strategy and a path to retirement for business owners while returning some benefit to the employees and company.

The Employee Retirement Income Security Act, passed in 1974, formally established the ESOPs as a retirement plan. The latest 2020 data from the National Center for Employee

Ownership (NCEO) shows there are more than 6,600 ESOP companies in the United States with more than 14 million participants. On average, the United States gains about 250 ESOPs every year. How ESOPs Work As outlined by the Internal Revenue Service (IRS), an ESOP is a qualified defined contribution plan like a 401(k). However, the plan contains stock of the company and the employees contribute none of their own funds to the plan. Through an ESOP, a company creates an employee benefit by contributing tax-deductible shares of its own stock. Cash distributions to employees from the ESOP are usually tied to a vesting

schedule and the employee can access a certain percentage of the shares for each year of service. After employees leave or retire, the company buys back the vested shares. Along with giving ownership to employees, ESOPs also offer tax benefits to the company and the owner. ESOPs allow companies to borrow money and repay it pre-tax and they allow business owners to sell part or all of the company and defer tax on the profits. At First Business Bank, our teams work with many closely held companies that transfer ownership through ESOPs. Matt Karnick, of the Commercial Banking team, has worked with several companies over the past 15 years in various stages from considering an ESOP to those with


existing ESOP structures. He answers some key questions about ESOPs.

Q: It looks like of the more than 6,000 ESOPs in the U.S., the Midwest has the highest percentage of ESOPs in the country. Have you found it to be a popular choice of business owners to transfer ownership? Why? A: I first learned about ESOPs when I started working at First Business Bank. I inherited an existing client list that had an ESOP company in it and really learned about it on the job as I worked with them. Throughout the years, I’ve had a chance to work with about 12 clients that have gone through the ESOP process. It’s a popular choice. When business owners are in the first phase of selling, sometimes they take it to the general market to see if a competitor will buy it. In a good economy, sometimes that brings the owners their biggest payday. However, it’s not the most friendly option for the existing management. As you can imagine, a competitor purchasing a company will look to cut expenses and reduce redundancy and employee base. So, in my experience, business owners typically move quickly to the second option. Their second option is often reaching out to the key management team and saying, “Hey, are you guys able and willing to purchase the company?” Often they really want to, but sometimes they don’t have the ability to do that. The third phase down this ESOP path is to retain value for the business owner while still retaining key staff. We often see second or third-generation


companies turning to ESOPs at key transition points. It’s not everyone’s choice because sometimes business owners want and need the maximum value for their companies. But sometimes it’s more important to the value of the company to keep key management in place.

Q: What types of companies should consider an ESOP ownership transition? Are there specific instances where it’s not a good idea? A: An ESOP is a good fit for most any company, but in my experience, it seems a better fit with companies that have very strong management in place. You’re comfortable having these folks run it and there’s a strong and consistent historical cash flow. That can help the valuation process. In my experience, it seems more challenging in a cyclical or seasonal business, but it can work. It’s much easier in a company that has a stable management team and predictable cash flow.

Q: What are some benefits of ESOPs for business owners and employees? A: The biggest benefit to the business is that ESOPs are not subject to federal and most state income tax, which, you can imagine, is a huge advantage. The ability to continue to operate with the same management team in place is often a very important benefit of business transition through ESOP compared to a sale. Often these business leaders have had relationships with each other for decades and keeping those people in place is better for the future of the company. In most cases with ESOPs, business owners will maintain a spot on the board of the ESOP so they can still

be involved in decisions, which also often is an advantage for the company and managers. Along with its tax benefits, an ESOP may offer incentives for business owners and their employees. It provides employees a stake or ownership interest in the company, which may boost company morale and give employees an incentive to contribute more to greater overall productivity. Increased productivity may improve a business’s bottom line over the long term. Also, employees who feel well rewarded are more likely to stay with the company, allowing businesses to retain quality workers and reduce employee turnover rate.

Q: What’s important to keep in mind as an owner when considering an ESOP? A: Timing is important because forming an ESOP is not an overnight process. Business owners need to prepare for many discussions with their trusted advisors, including lawyers and bankers. It may seem obvious, but it’s important to partner with advisors who have experience with ESOPs, who have been through it many times before, and can guide you around the pitfalls they’ve seen other clients fall into. Employee education and communication is also key. You need a plan to fully inform employees about the transition. I’ve seen a few clients have major challenges with this because some employees are resistant to change. It’s really not something you should plan to spring on employees in a few months — business owners should really plan a year or more out to transition to an ESOP. The problem is that many business owners have business succession planning on their minds, but they’re running the


business and it’s not something they act on early enough, often times. There’s a cost associated with educating employees about an ESOP, costs associated with setting it up through an attorney, and also with the financial reporting required. There are also annual valuations required and audits of annual statements.

Q: Statistics show that ESOPs are most common in manufacturing, engineering, and construction. Why is that? A: I’ve seen ESOPs work in all types of industries, but particularly we do see construction and manufacturing tend to gravitate toward business ownership transition through ESOP. Many of them are multi-generational companies with a strong culture and leadership that are very important to their success. ESOPs are a great way to maintain what they’ve put into place. When you sell to a private equity company or other outside buyer, none of that is guaranteed.

Q: Historically, a large percentage of small businesses and family-owned businesses often don’t have succession plans in place, but the pandemic might have brought this issue to the forefront. Do you hear any clients suddenly talking about succession planning? A: Most businesses are still navigating operating their businesses through the pandemic. We saw a similar situation in 2008 through 2010. In my experience, it was a few years later, once they got past the recession, that business owners began to actively put ownership transition plans into place. Many were saying to us, “I went through this and I don’t want to do this again.” Once they get out of their rough situations — and this is one of the most challenging times many of them have faced for their businesses — I think many will start to expedite the process of transitioning ownership. As a regular course of business, it’s usually a topic of conversation once they hit a certain age, and a lot of Baby Boomers running companies are trying to find a way to exit. Also, from a valuation perspective, most companies have been affected by COVID-19 and may be at the point where they aren’t the most profitable, so it’s likely more advantageous for the owner to wait a year or so after the bottom of that valuation.


Q: What tips do you give clients about how to navigate succession planning and ESOPs, in particular? A: Cover all your bases. Look at the other options, including a strategic buyout with a competitor. Talk to a business broker about selling your business. Put all your feelers out there at the beginning. While you’re doing that, look at your key management and talk to them about an ESOP. Make sure you consider all other options and find out what’s the best fit for your business from a financial and personal perspective.

It’s extremely important to get the right team into place with an experienced attorney, accountant, banker, and valuation expert. Each partner has to be on the same page as you move forward — that is really key. Q: Do you see any downsides to an ESOP that would keep you from recommending it to certain clients? Why? A: You have to be prepared to educate your workforce about ownership transition through ESOP. Business owners should also learn a lot about it and having higher-level business and financial acumen is helpful. There’s a cost associated with it; it’s not just a one-page form you can fill out in one day. Those who aren’t willing to put the time and education into the process should likely consider another form of ownership transition.

Q: Anything else to add about succession planning or ESOPs? A: I always recommend that business owners start talking to their partners sooner rather than later. If you’re thinking about it now, it’s potentially a conversation you should have started years ago. ESOPs have helped the companies I’ve worked with in the past in M&A transactions. It’s actually a small competitive advantage when a competitor is looking to purchase the company; having an ESOP can help bridge a gap because the company purchasing knows the employees are invested in it as owners, too. v



The NCEO is a nonprofit organization that has been supporting the employee ownership community since 1981. The NCEO provides information and research about employee stock plans and says ESOP companies: • Are 25% more likely than others to stay in business • Provide greater retirement accounts for employees • Often offer higher wages for employees • Feature more stability for employees

MOST COMMON INDUSTRIES IN WHICH YOU FIND ESOP COMPANIES Information Accommodations/Food Service Healthcare/Social Assistance Waste Management Management Other Retail Trade Wholesale Trade Construction Finance/Insurance/Real Estate Professional/Scientific/Technical Services Manufacturing 0%







Number of ESOPs

Number of Participants


Number of ESOPs

Number of Participants







Minnesota 225



























If you’re intent on leaving a legacy, especially when it comes to your business assets, it might be a good idea to take a look at charitable trusts.




Charitable trusts can be an excellent vehicle for doing several things that may be important to you — setting aside present and future funds for a charity while retaining both a current income and other economic benefits for you and your family. When you make a transfer into one of these trust types, you may qualify for income, estate, and gift tax charitable deductions. In this article, I’ll go through the two main types of charitable trusts, the reasons it might make sense to use one or the other depending on your needs and goals, and a few hypothetical scenarios that can help you get a better picture of the nuances of this type of gifting.

The Two Types: Charitable Remainder Trust & Charitable Lead Trust There are two types of charitable trusts — the charitable remainder trust and the charitable lead trust. Charitable remainder trusts are the most common. It allows you to set up a trust and transfer property to it that you’d like to donate to a tax-exempt charity — this typically happens at your death. When you transfer your closely held stock into a charitable remainder trust, you’re retaining the right to receive payments from the trust for a certain number of years — usually your life span. At the end of the payment period — usually at your death — your assets will pass to the charity you’ve named. The benefit to you is an immediate tax deduction equal to the charity’s remainder interest in the gift (subject to standard adjusted gross income limits). This also means that the assets in the trust, and the growth on those assets, typically will not be included in your estate. Sometimes a public charity will have to sell the closely held stock and buy marketable securities to provide you with lifetime income. If the charitable trust were to sell the closely held stock, it pays no capital gains tax as it is deemed to be a tax-exempt

entity. Therefore, this type of trust is an excellent vehicle for gifts of highly appreciated, closely held securities or real estate. There are two primary types of charitable remainder trusts:


A Charitable Remainder Annuity Trust (CRAT), where you’d pay an income stream to a designated beneficiary in the form of an annuity, which is calculated as a fixed percentage of the initial value of the trust’s assets;


A Charitable Remainder Unitrust (CRUT), which ties your annuity to a percentage of the fair market value of the donated assets.

Charitable lead trusts are just the opposite of charitable remainder trusts — well, almost. You still transfer your closely held stock to the trust and the trust will sell those low-basis assets thus avoiding capital gains tax on appreciated assets. However, the charity itself receives regular payments for a certain period, and at the end of the payment period, the trust’s assets either pass back to you, or to your designated beneficiaries. Unlike the charitable remainder trust, there’s typically no income tax deduction, but there might be substantial estate tax savings when you pass away. Similar to the charitable remainder trust, a charitable lead trust can be set up as a Charitable Lead Annuity Trust (CLAT) or a Charitable Lead Unitrust (CLUT).

CHARITABLE TRUSTS & CLOSELY HELD BUSINESSES If you have a closely held business, where shares are only held by a small number of stockholders and shares of stock are generally not traded on the public market, using a charitable trust isn’t very common for



a few reasons. One is if the business doesn’t pay a dividend on that closely held stock, then the charity will have to foot the bill when it comes to annuity or unitrust interest. And, the charitable organization may not be able to even sell your stock on the open market — there might not be a buyer, and frankly, you probably don’t want a stranger owning your company anyway. Some estate planners use a specific technique, where the charitable trust sells the stock back to the company and invests the money they’ve made in income-producing assets.

Why Use a Charitable Remainder Trust? The type of charitable trust you choose to set up will largely depend on your income situation. A charitable remainder trust — either type — will give you a substantial, steady income for the rest of your life, will allow you to take an income tax deduction the year you transfer your assets, and will remove those assets from your taxable estate. Here is an example with some numbers to put it into context: Let’s say you transfer stock (worth $1 million) from your closely held business to a charitable remainder annuity trust (CRAT). The charity sells the low-basis stock and reinvests it into income-producing assets. You receive a set income payment of $50,000 a year until you pass away, and, based on these numbers, your accountant determines you can take a $425,000 income tax deduction the year you transfer the assets. When you die, the assets in the CRAT won’t be included in your taxable estate. So, in doing this, you’ll receive a good income for the rest of your life, receive a large income tax reduction, and effectively remove all assets from your taxable estate. Of course, keep in mind you then won’t have these assets to leave to your family members or other individual beneficiaries! In addition, using a charitable remainder unitrust (CRUT) comes with the potential to provide you with an increase in income over your income interest period. With a CRUT, the income interest is based on a percentage of the assets, and the assets have to be revalued each year. If the assets increase over time, your income will increase over that same period — although, it’s important to note that if the assets decrease in value, so will your income. This is different from the CRAT scenario above, in which you get a set income

from the trust every year which won’t increase or decrease. A CRUT is a good option for someone who wants to maintain a standard of living through a time of inflation but is confident the assets in your trust will increase in value. So, let’s put this into context with some numbers as well: Let’s say you transfer your stock (worth $500,000) to a CRUT and retain a 7% unitrust interest. In the first year, the trust pays you $35,000, and that’s taxed as ordinary income. By year three, your assets in the trust have increased to $700,000, and the trust now is paying you $49,000. Same as the CRAT, there will be a substantial income tax reduction for the first year of the trust, and the assets will effectively be removed from your taxable estate.

Why Use a Charitable Lead Trust? One of the key reasons to use a charitable lead trust is for the dual benefit of making current gifts to a charitable organization while still leaving a large portion of your assets to your heirs and simultaneously reducing your estate and gift taxes. You transfer your stock into the trust, the charity of your choice either retains an annuity or unitrust interest in the trust for a set period of years, and at the end of the term, your assets revert back to you or can be passed to your heir(s). There’s a gift or estate deduction available based on the value of the charity’s interest, which makes it an effective way to pass assets on to the next generation at a reduced tax cost. The key here, however, is that you have to agree with giving up the income from those assets in the meantime. One more example: Let’s say you transfer $1 million in stock into a charitable lead trust. The charity of your choice receives a $50,000 annuity payment from the trust over a period of 20 years. At the end of those 20 years, it’s designated that the assets then get passed on to your three children. With the help of your accountant, you determine the present value of the gift is $900,000, with the taxable gift of the remainder interest $100,000. Assuming the trust assets increase in value, you can pass almost the entire amount of those assets to your children and pay very little in gift taxes. Note that if a sizeable income tax deduction is of more interest than an estate tax deduction, charitable lead trusts can be structured as grantor trusts. A qualified charity gets a regular payment over a period of years, with the remaining assets passing back to the original donor. However, the



trust is not deemed to be tax exempt, and the original donor pays the annual income tax. The result is a current income tax charitable deduction equal to the present value of the charitable gift. If the growth in the trust exceeds the payout rate to the charity, the donor may even get back more than was originally donated!

First Business Bank’s Private Wealth team can help you think through these complex scenarios. In partnership with your tax and legal advisors, we will walk through the options with you to design and administer a customized plan that makes the most sense for you, your family, and the charities you care about the most. v

The First Business Bank: Stronger Together Under One Name We’re proud to announce the First Business brands and entities, including First Business Trust & Investments, First Business Capital Corp, First Business Growth Funding, First Business Equipment Finance, LLC, and First Business Bank Consulting are aligning under one single brand - First Business Bank. This alignment removes barriers and allows our experts to work together collectively helping you reach the success you envision. As an existing client, expect the same great service and expertise you’ve come to expect. And if any point you want to expand your relationship, know that experience will be consistent across First Business Bank’s full suite of services it offers. BUSINESS BANKING


Commercial Banking Commercial Lending Treasury Management Company Retirement Plans SBA Lending

Financial Planning Investment Management Trust & Estate Administration Private Banking Brokerage Services

Specialty Finance Equipment Finance Asset-Based Lending Accounts Receivable Financing Floorplan Financing

BANK CONSULTING Investment Portfolio Services Asset Liability Management ALM Process Validation




Small businesses are the backbone of America. According to the U.S. Small Business Administration1, in 2019, small businesses employed 47.3% of the entire country’s workforce. Our country’s small businesses often represent the fulfillment of a personal dream for business owners, who frequently build their companies from the ground up. These very close and emotional ties can make it difficult to discuss or plan for succession to a new future ownership and management structure. By some estimates, of the 30 million small businesses in the United States, more than half have no business succession plan in place.

While the backdrop of economic turmoil and recovery perhaps only increases the need for formal business succession plans, the risks to these businesses and their continuity is ever-present and very real. I’m reminded of a Benjamin Franklin quote, “By failing to prepare, you are preparing to fail.” Of course, no one believes their business, grown with such devotion, care, and hard work, will become another statistic. Yes, the succession planning process requires a bit of time and expense. It involves difficult conversations and imagining and planning for a time when business owners are no longer in control. Correctly done, the succession

The hurdles to business succession planning are often very personal, but there are some common themes we often hear, including: 1. It will cost way too much 2. It will drive my relatives (or employees) apart 3. I’m too busy 4. I’m not ready 5. My family knows my wishes

planning process can identify the most beneficial exit strategies for business owners and their heirs, address tax and estate planning issues, and potentially provide for a more flexible transition timeline than the outright sale of a business. For more than 20 years, advisors at First Business Bank have guided business owners through the challenges of starting, building, and running successful businesses. Our professionals have provided countless businesses with valuable advice and funding, helped business owners and their employees plan and save for retirement, and helped owners and their families build wealth and plan for the future. We can also be a valuable and knowledgeable partner in the process of helping to navigate the right future path, and the most advantageous tax and estate planning strategies for business owners and their heirs. At First Business Bank, we think all companies deserve a shot at a longlasting legacy, so let our team help you and your company bridge the gap into the future and strengthen its financial outlook for generations to come. v

1. https://cdn.advocacy.sba.gov/wp-content/ uploads/2019/04/23142719/2019-Small-BusinessProfiles-US.pdf




Buy-sell agreements are important because they can be used as a business succession tool, a legal contract, and they establish a buyer or potential buyer of your business — and the condition under which that sale will occur. Buy-sell agreements especially make sense when the buyer isn’t a member of your family. When selling your business to a family member, your objective might be to make it as seamless as possible for that family member to buy the company and keep it running. While a smooth transition may still be an objective with a non-family purchase, your primary goal selling outside your family might be to get the highest possible price. A buy-sell agreement can help with that and a variety of other objectives:

Providing Security

The most compelling reason to draft a buysell agreement with a nonfamily buyer is the layer of security it provides. Because a buy-

sell agreement is a legal contract, the buyer is bound by contract to purchase your business. Conversely, your buyer knows that you can’t sell to someone else. If either party wants to back out of the agreement for any reason, the other party can elect to have the contract enforced by the court system.

Establishing Buyer & Sale Conditions

A buy-sell agreement gives you peace of mind as it ensures you have all the important pieces in place, such as who is purchasing your business, and what the conditions are for the sale — specifically, what the trigger is that would prompt the sale. This is especially important in the case of an unplanned trigger event, such as death, longterm disability, a sudden retirement, or a divorce.



Improving Creditworthiness

Fitting Every Type & Size of Business

For family business owners, there can be concern that the business may not continue successfully in its new era of ownership. A buy-sell agreement might help with that — it can increase the probability that the business is successful even after an owner passes away or retires. After all, the continued existence of the business means loan payments will still be made, and that helps creditors view the business more favorably. It contributes to your perception as responsible

Because there’s a wide variety of buy-sell agreements, there’s bound to be one that works for the specific situation and terms of your family business. Aspects such as number of owners and size of company may prevent you from having one type of agreement over the other, or may affect the way you set up your agreement, but generally, you’re not prohibited from using a buy-sell agreement.

owners, and the business will be seen as stable. All of that is in the company’s advantage when it comes to acquiring a loan or other future credit opportunities.

The biggest difference in buy-sell agreements usually has to do with the buyer. The buyer can be a current co-owner or co-owners, an outside third-party, or the company itself.

However, make sure that you understand all the restrictions of your particular buy-sell agreement. Depending on the agreement, the restrictions might bar you from pledging your own interest in the business as collateral, or they could require permission from your co-owners, if you have them. If you can’t pledge your business interest, it might make it even harder for the business to get a future loan.

Avoiding A “Fire Sale”

No business owner wants to be in the position of needing to sell a business quickly for much less than it’s worth. This is especially true of family businesses in which there are no family members who want to purchase. Having an agreement in writing with the nonfamily owner detailing the conditions of the sale, pricing, and financing means a smoother situation for your family if you get sick, become disabled, or pass away. The agreement ensures your family won’t have to launch a lightning-fast search for a buyer or be at a negotiating advantage when they find one — because there’s already assurance that the business will be transferred for a fair price.

The experts at First Business Bank have helped many clients navigate selling their business outside their family circle. We can help you get started on the financial side and connect you with a foundation of trusted professionals to help you preserve the most value in your business as you complete this transaction. v



CAPTURE FAMILY BUSINESS STORIES TO IMPROVE LONG-TERM SUCCESS Family businesses owners worry a lot. On top of routine worries, they also wonder if the next generation will be prepared to come into the business. Will they even be interested? Will the company’s values be lost over the generations? These owners worry for good reason. Statistics regarding family business succession are disheartening — only 33% of businesses survive the second generation; only 12% survive the third, according to research by Northwest Trust published in May 2019. Those numbers were substantially the same over a decade ago and show there’s progress to be made on getting family business succession right. Experts’ advice on succession typically emphasizes key principles: Start early — at least seven years. Listen to outside advisors. Get a realistic valuation early on and keep it up to date. Make sure the next generation gets three to five years of experience outside the business. An additional principle can be equally important: Tell your stories. Researchers Marshall Duke and Robyn Fivush at Emory University have studied the role of family history in children’s resilience and emotional well-being. They discovered that the most helpful stories in developing these traits are a specific kind of story — not the simple ascending story of “we started with nothing, worked hard,

and became successful,” and not the descending story of “we used to be successful, but then we lost it all.” They describe the oscillating family narrative, which describes ups and downs, that build resiliency and best equip children for life’s disruptions. In this type of story, family businesses have ups and downs, but hold together and find a way forward. Children who grow up hearing oscillating narratives develop a strong sense of belonging to something larger than themselves — an intergenerational family. Their research should reassure family business owners who hope to successfully pass their business on to their heirs. Personal historian Anita Hecht has helped dozens of families preserve their legacies in audio, video, print, and multimedia formats since 1997. “The origin of my business is the belief that these stories are meaningful and valuable for the next

generations in developing their own sense of self, with roots to grow from,” she says. “When there is a business in the family, there is a powerful opportunity to capture a rich history of our relationships to work, our loved ones, money, technology, historical events, taking risks, giving back, and so many other compelling topics.”

The Deadman Family’s Chocolate Shoppe Ice Cream Dave Deadman is a second-generation leader of Chocolate Shoppe Ice Cream, a Madison, Wisconsin, ice cream company founded in 1962 by his parents, Chuck and Nancy Deadman. At his suggestion, the Deadman family captured their business’s story with Hecht’s help. While succession planning wasn’t his driving motivation — the family began planning decades earlier — he wanted to ensure the family and business history were not forgotten.

Groundbreaking for The Chocolate Shoppe Ice Cream’s new ice cream mix plant. From left: Charlie Deadman, Chuck Deadman Jr., Chuck Deadman Sr., Nancy Deadman, Sarah Deadman, Dave Deadman.



Deadman and his brother, Chuck Jr., grew up scooping ice cream at the family’s shops and at Madison festivals. Chuck Deadman Jr. was the first of the second generation to enter the business. Dave joined Chocolate Shoppe Ice Cream’s leadership team in the mid-90s after a career in finance took him to New York City and Chicago. The two sons and their parents are now equal partners in the business. “Our parents started guiding us to learn to make our own decisions early on,” said Dave Deadman. “They were in a good position to step back” about two decades ago. Both still have roles in the business. “It’s good to have their knowledge available,” he says.

“They helped us understand the roundedness of it — that there can be great things and hard things in a business,” Deadman says. “We try to show them that some days are great and sometimes business is boring. Sometimes we disagree on a decision. But when we go to a family function, we put that aside — we don’t let it come between us. Our family members are going to show up for work tomorrow and we’re going to work things out.” Through conversations and the recorded family business history, the Deadman family is preserving the legacy of their oscillating family narrative.

how a tower crane gets put together,” he says. “He said, ‘We have one going up on Saturday. Let’s drive to the job site.’”

Five Generations of Construction at JP Cullen

The next leadership transition for Chocolate Shoppe Ice Cream is still 15 or 20 years away. Deadman and his wife, Sarah, (who also works in the business) prepare their children the same way they were by his parents — with a daily diet of stories from the business, often around the dinner table.

George Cullen, Co-President, is a fifth-generation family member within JP Cullen took an early interest in the business while he was raised on an oscillating family narrative. Born into a family construction company with locations in Janesville, Milwaukee, and Madison, Cullen joined his father at job sites. “One day I asked my grandfather

While the Deadman family’s history is intended solely for the family, the Cullen’s is presented an elegant coffee table book to each existing and new employee as well as business partners and clients to celebrate the past and see themselves as key members of the future. No matter which form a family business history takes, it should excite the owners and family members and encourage them to buy into the process of succession planning.

The Cullen family gathered in front of historic timeline display in their Janesville headquarters. From left: Sean Cullen, Jeannie Cullen Schultz, David Cullen, Mark Cullen, Richard Cullen, Laura Cullen, George Cullen.

The Cullen family story was intentionally preserved for family and employees in a book commissioned by Cullen’s father and uncles to celebrate the firm’s centennial in 1992. “My grandfather took a major interest in the genealogy of our family,” Cullen says. “He was one of the only people with knowledge going all the way back to the founder.” The book was updated in 2017 for the firm’s 125th anniversary.

Dean Stewart, Executive Director of the Center for Exceptional Leadership in the Donald J. Schneider School of Business and Economics at St. Norbert College, and a founder of its Family Business Forum, emphasizes the importance of being intentional about the intergenerational transfer. “When they put in place the framework for successful transition and they execute on that strategy, they’re more likely to be successful,” he says. Solid groundwork for family business succession happens when young family members work within the business during summers and hear family stories told regularly.


To Capture a Legacy, Tell These Kinds of Stories To capture that oscillating narrative that prepares generations to carry on the family’s legacy, tell stories that highlight values, connect generations, and convey beliefs.


uncommon in family businesses; it is important to include stories that show how the family navigated situations involving differences of opinion.


VALUES Some stories connect one generation Some stories show how values like hard work, ambition, and discipline contributed to the success of the family business. Growing up, Cullen often heard stories about how the family kept the business going during the Great Depression. “My great-great-grandfather, JP Cullen, rode his bike from Janesville to Mount Horeb to inspect work because that was the only way he could get there. That story shows how committed he was to seeing us complete our work and stay in good standing with our client,” he says. Other stories Cullen grew up hearing conveyed the values of putting quality first and tolerating risk. “My family emphasized that construction is such risky business, it’s important to live within your means, so that when times are difficult, you can keep the business strong.” When Dave Deadman returned to the family business in the mid-1990s, his experience outside the family business contributed fresh perspective. “We didn’t have a brand,” he says. “I said we absolutely have to get a logo designed. There was heated debate about it. My brother and parents said no. I spent my own money on it. Any other employer would have fired me.” Conflict is not

to the next, and to employees who make the business successful. Cullen says his grandfather told him, “The most important person in our company is the person swinging the hammer.” This stayed with him. “He meant that everything we do should support the effort of our tradespeople,” he says. When family generational stories are preserved, the longevity perspective is valuable to the oscillating narrative. “That continuity can have a powerful influence,” Stewart says. “Stories convey that we didn’t get here without a lot of help from others.”


Founder’s beliefs and intentions are important in a multi-generational family business legacy. For instance, many family businesses believe that younger family members must work outside the company before taking on a management role. The JP Cullen family employment policy

mirrors that best practice and requires family members eligible to join the company to apply for an open position and go through an interview process. Chocolate Shoppe Ice Cream has a similar policy. “I’m adamant that you should not be working in the family business if you don’t love it,” Deadman says. Stewart agrees. “Sometimes family members aren’t the right individuals for the business,” he says. “You have to ask, ‘Do the children want to be part of the business? If so, what’s the right role for them?’ If they do come into the business, ensure they earn credibility with employees by working alongside them before moving into leadership.” Philanthropy often is another multigenerational intention. The Deadman family emphasizes the importance of education and giving back to the community. “The Madison community supports us, choosing to buy our ice cream, and we feel it’s extremely important to put money back into the community,” Deadman says. “We want to ensure it continues to thrive.” Concerts on the Square and local music festivals receive support from Chocolate Shoppe Ice Cream. And, Deadman said, “To any school that calls, we will donate ice cream or coupons.” Through its Employee Scholars program, Chocolate Shoppe Ice Cream has funded higher education in accounting and finance and technical training in industrial maintenance. The JP Cullen Foundation, established by three fourth-generation brothers in honor of their father, has given over $4.26 million in gifts and grants in the Janesville, Milwaukee, and Madison communities. The business supports area universities through internships


and co-ops, scholarships to students studying Engineering or Construction at two or four year degree schools, participating in career fairs, and guest lectures. The family foundation also matches employees’ personal charitable donations. Stewart, who grew up in a family business, advises younger generations in family businesses to get involved in community stewardship, serving on boards of nonprofits. Alignment with founders’ values is “about setting an example by word and deed,” he says. Sharing stories of all kinds helps to increase the well-being of young family members, but stories about values, connections, and beliefs directly contribute to successful business transitions.


What to Include in a Family Business History Remember to highlight stories that reveal the founders’ values, connections, and beliefs. •

• •

Build a Culture Around Forthright Storytelling The oscillating family narrative results in a more cohesive family with aligned goals for their business, finances, and philanthropy. Create a culture where stories aren’t just told but used as conversation-starters. “The leader has to share the legacy, but also ask for feedback, new ideas,” observes Stewart. “If the family leaders say, ‘We are in this together,’ then they need to listen to the younger family members. The only way the younger generation will have a voice is for the older generation to listen and act on what they hear. It’s what we call adaptive leadership.” Are there obstacles to using family history to encourage more successful intergenerational business succession? Yes. “Sometimes when I’m working with a family business, they just want to tell that ascending family narrative,” Hecht says. “But there’s no depth to that, no lessons being learned.”

• •

often compete with the need for confidentiality or anonymity. Representing hidden agendas, unspoken hostilities, and interfamily rivalries are challenging. With appropriate context and its power. “It’s very helpful for people to have a historical sense

of the company they work for,” Hecht says. “You have to have a story. If you have a clear understanding of where you come from, it informs your ideas, your decisions, and your values.”

To meet the challenges of succession in a family business, don’t let the obstacles stop you from deploying the power of the oscillating family narrative. It doesn’t matter whether you choose an informal collection of documents or an intentionally impressive coffee table book, telling the stories is an important part of a lasting family business legacy.

over time. Include stories that teach fiscal responsibility through examples. Key components: Future generations and employees will appreciate a family genealogical chart and timeline of key business milestones.

How to Capture, Preserve, and Share a Family Business History

Honest, oscillating stories about companies’ ups and downs

compassion, these stories can give the oscillating family narrative

Origin stories: Show family traits that led to the business venture. Were your relatives more likely to “seize the day” than to avoid risk? Turning points: Explore how choices were made about leadership, ownership, and succession. “How” stories: Record policies and the reasons they were implemented; for example, how family members’ careers were managed, how disagreements resolved, and how important decisions are made. “Why” stories: Investigate founders’ decisions and what happened as a result. Show the effect of those decisions

Decide who leads the project: A family business member, a professional writer, or a videographer? Detail the scope: A family or business history requires research, interviewing, writing, recording, and publishing in some format. Decide on a format: Printed books, video documentaries, audio oral histories, multimedia online sites, and even wall-sized displays are options. Determine what to include: A history could be the story of the immediate family or expand to include key employees and customers. Will it be purely factual, or include opinions? Will it be illustrated with photos, trophies, or plaques? If the company does not already have an archive, it’s time to start. Figure out a timeline: The succession planning stage of a company’s evolution is an ideal a time of reminiscence, and to look forward. If a milestone anniversary is approaching, start well in advance (at least a year). Plan a budget: Turn to your company’s marketing professionals to help determine the costs of creative services and decide on a vendor. It is not uncommon to encounter “scope creep” as the family discovers new insights from the process; be prepared to revisit the budget over the course of the project. v

This article was written for First Business Bank by Sarah White, a freelance writer and personal historian in Madison, Wisconsin.



Sharing stories of all kinds helps to increase the well-being of young family members, but stories about values, connections, and beliefs directly contribute to successful business transitions.



BUY-SELL AGREEMENTS: AN IMPORTANT PART OF BUSINESS SUCCESSION PLANNING BY PAUL JANSEN, WEALTH ADVISOR, NMLS# 1975292 | pjansen@firstbusiness.bank A recent survey of more than 3,100 business owners, conducted by the Small Business Trends Alliance, shows baby boomers born between 1946 and 1964 make up 41% of small business or franchise owners, second only to Gen X at 44%. As there are currently around 30.7 million small businesses in the United States, according to the Small Business Administration (SBA), we’re talking a fair amount of baby boomers with business interests! Now, this is not to say that only baby boomer owners need to be thinking about business succession planning. But, as this generation continues to retire in waves with each passing year, it begs an important question: if something happened to you — an unexpected disability, an unplanned retirement, or even a loss of a license — what would happen to your business, or your part of the business? What would you want to have happen? If you haven’t thought much about either question, it might be time to start thinking about business succession planning. Designing a proper buy-sell agreement is a great way to get started. In this article, I’ll take you through a general overview of buy-sell agreements, reasons for having a buysell agreement in place, and a brief description of buy-sell agreement types.

What is a Buy-Sell agreement? A buy-sell agreement is a legal contract that can provide for an orderly transition of ownership and business management either during one’s lifetime or at death. It’s an agreement that you enter into now that allows for the future sale of your business interest, and it is also referred to as a business continuation agreement, a stock purchase agreement, a buyout agreement, business will, or business prenup.

How Does a Buy-Sell Agreement Assist with Business Succession? One of the biggest ways a buy-sell agreement helps with business succession planning is by identifying a buyer or potential buyer of your business interest — whether that’s

an individual, an entity, or more than one buyer. Typically, once you’re bound by a buy-sell agreement, the only person you can sell your business interest to is the buyer named in the agreement. In addition, a buy-sell agreement frequently involves rights of first refusal, so there’s a potential to sell to a third party. Under the terms of a buy-sell agreement, the buyer is legally obligated to purchase your interest in the business from you or your estate — and you are legally obligated to sell it — when a specific triggering event occurs. This event is decided on by you, your advisors, and other parties to the agreement, and it’s something that’s most appropriate for your specific business situation. Some of the more common triggering events include: • Death • Long-term disability • Retirement • Divorce Other possible triggers might be: • Personal insolvency or bankruptcy • Conviction of a crime • Loss of a professional license • Withdrawal prior to retirement • Termination of employment

Why Would You Want a Buy-Sell Agreement? There are several benefits of having a buy-sell agreement in place — for you, your family, and your estate as well as the business itself. When an owner of a closely held business passes away, and there’s no plan for how the business will continue, the seller is at a disadvantage and may be forced to accept a lower-than-ideal price for the business interest if a buyer can be found. The agreement can also protect your family by eliminating the possibility of a forced sale, or the need for them to rely on the business for income, as the buyer and sale price are prearranged under the agreement.


Personal Advantages of Buy-Sell Agreements There are several personal advantages of a properly executed buy-sell agreement for you, your family, and your estate:

PROVIDES A GUARANTEED BUYER FOR YOUR BUSINESS INTEREST If something happens to you, your family and estate don’t have to go out and search for someone who’s interested in buying your share of the business. When the specific triggering event occurs, you have a ready buyer, the price they’ll pay, and the circumstances of the sale. For this to be the case, however, you will need to fund the buy-sell agreement.

PROVIDES LIQUIDITY FOR ESTATE TAXES AND OTHER SETTLEMENT PAYMENTS If you were to pass away, any estate tax owed is due to the federal government nine months after you die — and in some states, they’re due even sooner. The buy-sell agreement not only provides a buyer for your business interest, but also specifies the valuation or valuation method, whether the payment will be a lump sum or in installments, and the timing of the payment(s). If you have a large estate and it’s subject to state taxes, your family will need the appropriate amount of cash to pay them, so you’ll want to make sure they can convert your part of the business to cash quickly, easily, and at a fair price. A buy-sell agreement ensures the sale happens quickly, and your family can be spared the panic and stress of figuring out how they’ll pay those taxes and expenses. If the buyer doesn’t have cash — or access to cash — when the buyout happens, the agreement won’t serve its intended purpose. Make sure the agreement has a specific plan for how the agreement gets funded and, more importantly, when that funding takes place.

AVOIDS POTENTIAL CONFLICTS OF INTEREST BETWEEN SURVIVING OWNERS AND/OR HEIRS In the event of your death, there’s bound to be a natural conflict of interest between your surviving co-owners (if you have them) and your heirs. Your heirs will want to receive the most


money possible from the business, while it’ll be most important to your co-owners to keep the business running smoothly without interruptions and keep liquidation costs low. If there’s no prearrangement, the needs and desires of your heirs and co-owners may create a dispute. A buy-sell agreement ensures your plans for your business — and your heirs — are carried out as you wish, and issues are mitigated.

CAN ESTABLISH THE VALUE OF THE BUSINESS FOR ESTATE TAX PURPOSES Under the right circumstances, the buy-sell agreement may set the fair market value of a business interest when the agreement is executed. If set up properly, the IRS will accept the fair market value as taxable if certain conditions are met. Please note: if the buy-sell agreement is between family members or related parties, the IRS might give these agreements more scrutiny so a thorough and accurate valuation is important.

Business Advantages of a Buy-Sell Agreement MAINTAINS STABILITY OF BUSINESS OPERATIONS As the buy-sell agreement details who will continue as the business owners, the agreement can be used to make sure the those currently running the business continue to do so. It can also be used to make sure the surviving co-owners won’t be forced to accept outside partners into the business.

IMPROVES BUSINESS CREDITWORTHINESS When you’ve identified a buyer for your business interests and have a plan in place, there’s a better chance the business will continue to operate after an owner’s death, retirement, or withdrawal. If a business continues to exist, that means it’s also able to continue to meet its loan payments and other responsibilities. Creditors may view the business as more stable, and the business owners more responsible — and that might mean they’re more willing to extend credit in the future.

MAINTAINS LEGAL STATUS OF YOUR BUSINESS FORM Depending on the type of business you have, a buy-sell


agreement can protect your status. It can protect your S-corporation’s status by preventing ineligible shareholders from purchasing shares, preventing ownership by more than the maximum allowable number of shareholders, and complying with one class of stock requirements. If you’re a partnership, it can protect that status by avoiding liquidation if you were to pass away. In most states, nonprofessionals aren’t allowed to be stockholders in a professional corporation — and using a buy-sell agreement can make sure that doesn’t happen, and your business doesn’t break the law.


Agreement Type Wait-and-see agreement

Overview of Common Buy-Sell Agreement Forms The table to the right illustrates the various types of common buy-sell agreements. Within the basic forms of each agreement, you can customize to fit with

A wait-and-see agreement is when the business owners delay the selection of an entity plan or crosspurchase buy-sell plan until the death, disability, or retirement of a business owner. If one of these three events occur, the company and the business owners

Typical Buyer

Works Well With

Doesn’t Work For

Business entity, co-owner, or both

A business with two or more owners

Sole proprietors and single shareholder corporations

agree to purchase the remaining business interest at a predetermined price based on the valuation of the company. Cross-purchase (crisscross) agreement

A cross-purchase Business coagreement is one that owners allows a company’s partners or shareholders to purchase the interest or shares of a partner who dies, becomes disabled, or retires. This agreement often relies on both sides purchasing a life insurance policy on the other owner(s).

A business with two or more owners

Sole proprietor and single shareholder corporation (a large # of owners (four or more) might become complicated)

Trusteed cross purchase

In a trusteed cross purchase, a third-party — acting as a trustee — takes care of the buy-sell agreement. Each owner transfers their share of the business to the trust, and the trustee purchases a single life insurance policy on each owner. The trust is the owner and beneficiary of the policies, and when one of the owners passes away, the life insurance benefit goes to the trustee, who pays. the deceased owner’s estate for their business interest.

A business with two or more owners, and it simplifies the plan when there’s a large number of owners

Sole proprietor and single shareholder corporation

Does the Size of My Business Prohibit Me from Using a Buy-Sell Agreement? The size of your company might affect your choices when it comes to the type of agreement you select as one type may be more appropriate than another — but it won’t prohibit you from having a buy-sell agreement. The distinguishing feature of buy-sell agreements is typically the buyer, which could be the current co-owner or co-owners, an outside third-party, or the company itself.


Co-owner transaction, overseen by trustee


Agreement Type



Typical Buyer

Works Well With

Doesn’t Work For

Entity purchase stock redemption

In an entity purchase stock redemption, the business entity itself will enter into an agreement with each owner to purchase an owner’s business interest in the event of death, disability, or retirement.

Business entity

Business with two or more owners

Sole proprietor and single shareholder corporation

One-way buysell

A special version of a buy-sell agreement for sole owners, where only one party — the non-owner the sole business owner has identified — is obligated to buy in the event of the owner’s death, disability, or retirement.

Business entity, co-owner, or any eligible third party

Business with any number of owners including sole proprietorship and single shareholder corporation

Sole proprietor with no willing buyer

your particular business through the use of clauses, options, and requirements.

Are There Any Compromises or Tradeoffs I Need to Consider? In exchange for having a stable plan for the next era of your business — a guaranteed buyer and formalized terms — there might be a few restrictions related to transferring your business interest. However, if you coordinate your buy-sell agreement with your personal estate and tax planning goals, you might be able to minimize, and even eliminate, the following tradeoffs.

Personal estate planning restrictions For many owners of closely held businesses, especially family businesses, gifting strategies are important estate planning tools. A common estate-planning strategy is the concept of lifetime gifts, where you can pass your business interest onto your heirs and reduce the total value of your estate. Restrictions in the buy-sell agreement might prevent you and your co-workers from passing all or part of your interests as a gift, so many sure all parties to the agreement consider whether to restrict gift transfers. If your ownership group does agree to permit gift transfers, it’s a good idea to define the

group of people who are able to receive those gifts — and those recipients should most likely be subject to the terms of the buy-sell agreement.

Access to outside credit restrictions There might be restrictions within a buy-sell agreement that could stop you from pledging your own interest in the business for outside credit — or you might have to get permission from the other owners. Without the ability to pledge your business interest, the lender might reject your loan application. If the buysell agreement is set up to include a right of first refusal, that means you’d be able to pledge your business interest as loan collateral.

Restrictions unenforceable under state law State property laws favor the right of business owners to transfer their business interest to whomever they want, whenever they want, at whatever terms they want. So, when you’re thinking through restrictions, it’s good to keep in mind that those seen as extremely prohibitive may be seen as unreasonable — and hard to enforce. A good rule of thumb is this: if the terms of the restrictions were reasonable when the agreement was executed, the restrictions would be seen as enforceable. If an agreement’s terms of the restrictions are ambiguous, they’ll be harder for the courts to uphold. The key when it comes to restrictions is “reasonable.” If those are clearly outlined in a carefully drafted buysell agreement, you’ll have a greater probability of avoiding issues with state law.

What Are the Steps You Should Take to Set Up a Buy-Sell Agreement? •

Decide what you want to happen with your share of the business if anything happens to you. Consider all of your goals — financial, tax, and estate planning.

Get help with the details. Setting up a buysell agreement can be



complex as there are legal and tax considerations, and it’s not a good idea to go it alone. Consulting a attorney, tax advisor, or financial planner on both sides ensures that everyone feels good about the terms.

and a triggering event happens, it could create a situation where a sale takes place, the IRS says the price of the business interest is too low, and the result is a larger-thanexpected tax bill for the seller.

Review the agreement regularly. When the agreement is drafted, don’t stick it in a drawer and forget about it. It’s a good idea to review it each year to make sure the agreement still meets your objectives. You may need to revisit it anyway if you need to conduct an annual valuation of the business.

Not including enough triggering events

Common Buy-Sell Agreement Errors There are a few common errors, mostly related to trying to treat all owners equally, or a mistake made by accident. Here are some things to watch out for:

Giving equal weight to rights and restrictions To make things fair and equal, a buy-sell agreement might be drafted with all owners sharing the same rights and restrictions. However, this approach doesn’t work when ownership isn’t equal. A balanced approach to rights and restrictions may unfairly restrict a majority shareholder and decrease their control and flexibility, and conversely, it could put extra pressure on a minority shareholder who suddenly has to come up with a large sum of money to fund the obligation. Fight the urge to treat all shareholders as equals, and instead structure the rights and restrictions portion of your agreement to cover different ownership ratios and scenarios.

Using inappropriate valuations As the buy-sell agreement is a legal contract, it’s very important to value the business at the right amount from the beginning. The agreement acts as a “lock in” for the price that the IRS will accept as the fair market value — or at the very least, how the price gets determined. The IRS isn’t obligated to accept the sale price as the fair market value for taxation purposes, which means if the business value in the agreement is less than fair market value, it could mean additional tax payments, as the selling estate might be taxed on the difference between the selling price in the agreement and the actual fair market value.

Not conducting a valuation update Buy-sell agreements are typically written in a way that provides for periodic (usually yearly) updates of a businesses’ value to reflect changes in the business. If that doesn’t occur,

Earlier I gave some examples of triggering events that would prompt a sale. When working through the details of your agreement, it’s good to think about all of the different scenarios that would be potentially disruptive — not just one or two. For instance, some agreements will limit triggering events to death — and that doesn’t count if there’s a divorce and a court awards part of a business interest to a spouse.

Failure to provide funding A triggering event might seem like it’s far off in the future — when your company is successful and not experiencing any cash flow issues, funding your buy-sell agreement might seem like something that can wait. Unfortunately, sometimes events that seem far away happen sooner than expected — and this may take a company by surprise and leave them scrambling to find the funds to meet the agreement. When you’re drafting the agreement, it’s important to establish how the buyout will be funded at the same time. Funding options are specific to the individual circumstances, but the most common solutions include life insurance, traditional financing, a cash sinking fund or installment payments.

Choosing the Right agreement for Your Business A buy-sell agreement can be a powerful tool in a business continuation plan, and, when aligned with estate and tax planning, it can provide a smooth transfer of ownership. For the agreement to truly serve you, it’s good to take stock of the factors specific to your business before you decide on a type of agreement. For instance, there are certain agreements that will work better than others depending on the number of owners you have, or the form of your business organization. If you’re uncertain with what agreement type is best, speak with your attorney or start with your First Business Bank representative. Our Private Wealth team is experienced in helping business owners navigate buy-sell agreements and, along with your other trusted advisors, can help you draft an agreement that meets your goals, covers the necessary bases, and works in tandem with your estate and tax plans. v



A buy-sell agreement can be a powerful tool in a business continuation plan, and, when aligned with estate and tax planning, it can provide a smooth transfer of ownership.

EXPERIENCE. THE ADVANTAGE. Smart financial decision-making just got easier. Fuel business growth. Improve personal wealth gains. Elevate your banking expectations with a financial partner that delivers comprehensive business banking services — built on experience.

BUSINESS BANKING Manage cash flow, mitigate risk, and strategically invest with business banking solutions tailored to the unique needs of your organization.

PRIVATE WEALTH Achieve your financial planning, investment management, and trust & estate administration goals.

BANK CONSULTING Identify solutions that align to your financial institution and long-term strategy – for today and the future.

firstbusiness.bank Member FDIC