Since 2014, the Bureau of Business and Economic Research has partnered with the University of Minnesota Extension Center for Community Vitality on numerous business retention and expansion (BRE) projects throughout the state. Through our research, it has become clear that succession/transition planning— an owner's efforts to plan for the time when they will no longer lead and own their business—is an area of weakness for most communities. In fact, it is estimated that a majority of businesses–between 60 and 80 percent–do not have a documented transition plan (Cooper, 2013). Owners without such a plan are vulnerable to the pitfalls of an unplanned exit, negatively affecting the owners’ financial goals and the local economy.
“Succession planning is vital for the longevity and long-term financial success of the buyer, said John Bennett, University of Minnesota Extension community educator. “Replacing executive-level talent is not as simple as hiring new employees. In many cases, the businesses’ owners and executives hold extensive knowledge and, without proper succession planning and its careful execution, the businesses may ultimately fail.”
Considering that more than half of all business owners in the U.S. are over 55 and that small businesses are responsible 60% of all private jobs in Greater Minnesota, not having a succession plan could present a serious problem for businesses and the communities that depend on them–especially in rural parts of the state.
“100% of business owners will go through a business transition at some point,” said Bennett. “Half of owner exit transitions are unplanned and happen because of unexpected circumstances. Business owners of all ages and experience levels should have a transition plan.
“Business owners who intentionally identify and align a value growth strategy with their strategic planning processes, from inception to exit, will likely realize greater performance and returns for their businesses than those owners who don’t.
“Beyond economic contribution, small businesses also play a crucial role in the civic and philanthropic life of rural communities,” said Bennett. “For small business owners in rural areas, the community is not just where they conduct business — it is also their home. The economic and civic structure of the community benefits from the success of businesses success.”
Helping to guide owners in with writing a plan, Bennett suggests the use of “The Five Ds,” which are some trigger issues to consider.
- Death of any key employee or a close loved one
- Disease or illness of any key employee or a close loved one
- Disability of any key employee or a close loved one
- Disaster: Any unexpected occurrence, whether a financial downturn or natural disaster, can impact a business owner’s timeline
- Divorce of any key employee or a close loved one
“Business owners should ask themselves who in their own business can take over for someone who may suddenly exit temporarily or permanently,” said Bennett.
Owners needing assistance in writing a personal succession plan geared toward their own unique business can attend the U of M Extension’s five-week online course. Live weekly sessions along with materials and activities will guide owners through the plan-writing process.
Registrations are now being accepted through February 24 for the class to be held March 3 through April 14.