Succession Planning Struggles for Small

Small Business Owners Facing Succession Hurdles

Keith Samolomon

Succession planning is a critical yet often overlooked aspect of securing the future of small businesses. Despite its importance, many owners delay addressing it. Recently, a Senate hearing shed light on the difficulties business owners face when preparing to transition their companies.

Inside the Senate Discussion

On January 24th, the Senate Committee on Small Business and Entrepreneurship brought together business owners and succession specialists to address the issues surrounding business transitions. Among the key concerns were the steep costs of estate planning and the widespread lack of preparation for succession.

As Senator Jeanne Shaheen (D-N.H.) pointed out, small business owners are often so engrossed in building their companies that planning for what comes next takes a backseat.

Retirement Looms for Millions of Business Owners

The conversation around succession planning is especially relevant as many business owners approach retirement. Nearly 3 million businesses in the U.S. are run by individuals aged 55 or older, according to data from Project Equity, a nonprofit advocating for economic resilience. These businesses employ millions of workers and contribute $1.3 trillion in payroll, making succession planning vital to safeguarding jobs and economic stability.

Key Figures to Consider:

70% of businesses on the market fail to find a buyer.
50% of businesses face unexpected closures due to external factors.

Scott Snider, co-owner of the Exit Planning Institute, emphasized that inadequate preparation can lead to involuntary closures or forced sales, highlighting the need for early exit planning.

Solutions on the Horizon: Education and Employee Ownership

One proposed solution from the hearing is improving access to education and resources for small business owners. By increasing awareness of the need for early exit strategies, owners can plan more effectively for the future.

Employee Stock Ownership Plans (ESOPs) were also suggested as an alternative to third-party sales. ESOPs give employees a stake in the company, helping to keep the business rooted in the community. Attorney Tabitha Croscut noted, "It’s not about saying private equity or third-party sales are 'bad,' but for family-owned or community-focused businesses, ESOPs might be the better choice."

Contact us