According to a survey released today (Feb. 7, 2017), only two in five small business owners have a business succession plan in place.
60% | Percentage of small businesses without a succession plan in place
Nationwide Small Business Owner Study
Conducted by Harris Poll, February 7, 2017
“Business owners spend so much time and energy building a successful business, they need wise counsel to prepare for transferring a business, establishing a true value for the business and identifying how the seller should be paid for his or her interest,” Kirt Walker, president and COO of Nationwide Financial, told SmallBusiness.com. “The time to do succession planning is not in the middle of a crisis when you have zero leverage,” he said.
Why business owners neglect succession planning
According to Nationwide’s survey, here are the leading reasons why business owners neglect succession planning
47% | Don’t believe it is necessary
14% | Don’t want to give up one’s life work
11% | Don’t know when to create a plan
11% | Don’t know who to work with on succession planning
11% | Don’t have time to develop a plan
8% | Overwhelmed with government regulations
“Business owners function at such a rapid pace to remain competitive, it’s no wonder that developing their exit plan and replacement doesn’t seem like today’s priority,” said Walker, “Yet, there isn’t a more critical component of an operational plan than a solid business succession plan for providing seamless continuity in a time of crisis or transition.”
Younger business owners are more likely than older owners to have a succession plan
Here is a survey finding you might find surprising. One might think owners who are older would be more likely to focus on succession planning, but the opposite is true. “According to our research, Baby Boomers believe they’ll work in their current position, driving the company’s success until they retire, while Millennials hope to run multiple companies and show how they’ve successfully positioned the company before they leave,” Walker told SmallBusiness.com.
What age span of business ownership is more likely to have a succession plan?
32% | Generation-X business owners (born 1965-1981)
61% | Millennial business owners (born 1982-2004)
32% | Baby Boomer business owners (born 1945-1964)
Now is the time to put together a succession team
Walker recommends that business owners put together a team of advisors to develop a succession plan. At a minimum, the team should include your attorney, your accountant, and your financial advisor. Key employees and family members, both those who work in the business and those who don’t, should have a seat at the table at different points in the process.
48% | Percentage of business owners who have discussed succession plan with a lawyer
40% | Percentage of business owners who have discussed succession plan with a financial advisor
48% | Of those who have not discussed a plan with advisors, the percentage whose reason is, “because they do not think it is necessary”
According to Walker, your advisory team can help you create a plan that can potentially:
- Solidify a market for the business
- Create certainty about the price, terms, and financing
- Identify triggering events and potential leaders for succession
- Establish retirement income for the business owner
- Provide a sense of security for surviving family members
- Facilitate a smooth and controlled transition
- Establish funds for the purchase of the businessReduce the potential for future litigation