The Akron Legal News

Survey shows most small businesses lack succession plans

ELISSA COLLOPY
Special to the Legal News
Published: February 21, 2017

Three in five small businesses do not have a business succession plan in place, according to Nationwide's latest Small Business Survey.

"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 Kirt Walker, president and COO of Nationwide Financial. "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."

The online Harris Poll survey among 502 U.S. business owners with fewer than 300 employees revealed that 47 percent don't have a succession plan mostly because business owners say it's unnecessary.

Other reasons include not wanting to give up one's life work (14 percent), not knowing when to create a plan or who to work with (11 percent), not having time to develop a plan (11 percent), and being overwhelmed with government regulations (8 percent).

Trends have shown in recent years that many business owners work later in life, and as a result postpone succession planning until closer to their retirement.

However, according to Walker, that delay doesn't allow the business to be prepared for the unexpected.

"There is great urgency to create a plan prior to any changes, not only to keep the business functioning and profitable, but also out of respect for the other leaders, employees and customers who depend on it," he added.

On the opposite end of the spectrum, younger business owners appear to understand the importance of succession planning.

According to the survey, millennial business owners are most likely to have a business succession plan in place at 61 percent, compared to baby boomers and genX leaders both at 32 percent.

"My assumption is that 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," said Walker.

However, less than half of those who do have a business succession plan have discussed their plan with a lawyer or a financial advisor.

When asked for a reason, business owners who have not discussed their succession plan with a lawyer or advisor say they found it unnecessary.

Nationwide suggests otherwise.

"Business owners spend so much time and energy building a successful business and 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," said Walker. "This time to do all of this is not in the middle of a crisis, when you have zero leverage."

According to Walker, financial advisors can help clients create a plan that can potentially: solidify a market; create certainty about the price, terms and financing; establish retirement income for the owner; provide a sense of security for surviving family members; establish funds for the purchase of the business; and reduce the potential for future litigation.

The survey was conducted in June of last year and included 190 millennials, 152 genXers and 106 baby boomers.

[Back]