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One-Third Of Business Owners Don’t Prioritize Succession Plans

Business owners consider succession an emotional and challenging process, according to Edward Jones research.

Business owners consider succession an emotional and challenging process, according to Edward Jones research.

The average age when business owners plan to pass on their business is 63 years old. With a majority (51%) of small business owners currently over the age of 55,1 the U.S. is facing an impending business succession boom. While owners may be thinking about retirement, many are not fully prepared for the emotional and challenging process of selling their business.

Edward Jones, in partnership with Morning Consult and NEXT360 Partners, conducted a survey and found that while nearly two-thirds of business owners (64%) have prepared a business succession plan, 16% feel unprepared.

“For many business owners, short-term priorities associated with running a business might feel more urgent than planning for future succession. However, business owners should consider what will happen once they leave the business, whether by selling, retiring or becoming unable to manage the business due to health or age,” said Katherine Roy, Principal, Retirement Products at Edward Jones. “A well-conceived succession plan allows the owner to identify what their ideal exit strategy looks like and address tax, business, estate and liquidity considerations that reflect both business goals and family dynamics.”

(Photo: Adobe Stock / cirquedesprit)

According to the survey, 38% of business owners who have yet to create a succession plan feel their business is not yet at a stage where succession planning is a priority. Top reasons business owners cited for not creating a succession plan include uncertainty of the business’ future (32%), feeling unsure of where to start (32%), and the inability to identify a successor (26%). The research also revealed generational differences in the adoption of succession plans among business owners, with more Millennial business owners (68%) having plans than Gen X business owners (61%).

Although many business owners referenced uncertainty about the future of their businesses as a reason for not creating a succession plan, the data points to a majority (88%) still holding the belief that their businesses will experience growth in the next decade.

Continuity, Financial Aspects Are Significant Hurdles

Ensuring continuity (41%) and addressing financial aspects (38%) are significant hurdles during business transitions, the research revealed. The challenges encountered by business owners in succession planning can vary according to the size of the business. In particular, larger enterprises tend to face more concerns related to financial and legal aspects (40%). Despite the emotional and challenging process of running and transitioning a business, only 37% of business owners are using a financial advisor as a resource.

Edward Jones and NEXT360 Partners uncovered four key factors that typically spark the need for a business succession plan:

  • Legacy: When the legacy of the business and the future of the employees and stakeholders of the business are primary motivations for how the business will be transitioned from owner(s) to successors.
  • Market: When an exit or a sale is necessary to continue operations and the subsequent proceeds are a key gateway for the owner or owners to be able to afford retirement.
  • Mission: The exit or sale must make business sense, but sometimes the organizational mission to maintain the integrity of the enterprise and the business owner’s vision are equal priorities.
  • Cause: A health event or other circumstance of the owner or owner’s family causes a sale or transition. Other examples include when the owner’s family wants time to do activities delayed by running the business.
Business Owners Prioritize Transformation Over Legacy

Of those business owners who have created a succession plan, 69% have already designated a successor for their business and are actively taking measures to train and prepare their successor. Among those who have identified a successor, 73% mention that the chosen individual had prior involvement with the business before their appointment and roughly half of appointed successors (47%) are family members.

Despite these family ties, business growth opportunities and new strategic directions (91%) were more common topics in succession conversations than preserving family legacy (81%).

The survey also revealed that 31% of business owners are waiting until only one to two years before the transition to begin having discussions with their appointed successor.

“For business owners, there is an emotional element at play when determining the succession or sale of their business,” said Dr. Joe Coughlin, PhD, Senior Advisor to NEXT360 Partners. “Our research found that there are a multitude of reasons why a business owner might choose to move on, and social values like personal plans, existing employee job security, community value and personal legacy are not exempt from those considerations.”

1 U.S. Census Bureau

Read more about business resilience and continuity at Continuity Insights.

Business Owners, Business Succession, Edward Jones, Morning Consult, NEXT360 Partners, Professional Development, Survey

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