Three in five small businesses do not have a business succession plan in place, according to Nationwide’s latest Small Business Survey.
The online survey, conducted by Harris Poll and reaching some 500 U.S. business owners with fewer than 300 employees, revealed that at almost half of those businesses without a succession plan, business owners simply believe it is not necessary (47%).
“Other reasons business owners neglect succession planning include not wanting to give up one’s life work (14%), not knowing when to create a plan (11%) or who to work with (11%), not having time to develop a plan (11%) and being overwhelmed with government regulations (8%),” the poll results show.
Kirt Walker, president and chief operations officer of Nationwide Financial, suggests 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.” It’s an area where advisers skilled in wealth transitions can play a big role, he adds, especially at a time when many older business owners continuing to work later in life.
“As a result they postpone succession planning until closer to their retirement,” Walker observes. “However, this delay in planning doesn’t enable the business to be adequately prepared for the unexpected, such as disability or loss of a leader. 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.”
NEXT: Younger owners show better planning
In a counterintuitive finding, Nationwide says younger business owners actually appear to have a better grasp on the importance of succession planning compared with older peers. According to the survey, Millennial business owners are most likely to currently have a business succession plan in place (61%), performing much better than Baby Boomer (32%) and Gen X (32%) leaders on this metric.
“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,” Walker speculates.
Important to note, of business owners who have a business succession plan in place, less than half have discussed their plan with a lawyer (48%) or a financial adviser (40%), again underscoring opportunity for providers in this space. Critically, many small business owners who have not discussed their succession plan with a lawyer or financial adviser say they have not done so because they do not think it is necessary (48%). Nationwide strongly 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,” Walker concludes. “The time to do all of this is not in the middle of a crisis, when you have zero leverage.”
The research concludes that financial advisers can serve clients without an established plan by helping clients create one 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 business; and reduce the potential for future litigation, just to name a few of the many opportunities.
More information is available at www.nationwide.com.