20 Apr Business Owner Transfer Crisis
Closely held businesses are the economic engine of just about every community in America, and without them, our lives would be collectively poorer. It is concerning to look at the average age of business owners and realize that many of them have ten years or less left in their careers. Recently, I attended a course sponsored by the Exit Planning Institute and earned the designation of a Certified Exit Planner (CEPA). The Exit Planning Institute trains professionals how to exit their businesses successfully, ensuring the future viability and success of those businesses even after their owners’ departure.
Several years ago, I had a conversation with my current partner, Chuck Farmer, that opened my eyes. We both recognized, from our experiences working with clients, that small business owners are a community’s economic engine. Locally owned businesses provide a large majority of the jobs, but because of the size of their employee base they are often overlooked. Small business owners generally tend to give the most to charities and non-profit organizations when compared to any other group of donors. Attending a board meeting of any charity in your community will undoubtedly confirm this reality. In my experience it seems that local entrepreneurs are the largest contributors to the tax base in the towns in which they live. Property taxes are often assessed at a much higher rate on business property than on residential property. I have come to find that businesses are the primary customers of local banks providing the primary capital to the bank and representing the most profitable loans. Our lives are made richer and our communities thrive because of the support provided by locally owned businesses.
Many of the owners of locally owned businesses are approaching the twilight of their careers and looking forward to their next “chapter.” What will their landscape look like in fifteen years? Their enterprises started small and were simple to run at first, but over time these industries became larger and more complex. Fortunately, owners learned and grew alongside the business, accumulating a wealth of irreplaceable knowledge from years of experience. Over the course of many years and arduous days, successful business owners pulled people together, offered valuable knowledge, accumulated capital, and marketed a brand in the community that resulted in their profitable enterprise. The process of growing and developing a thriving business allows for no short cuts. The successful business that provides so much benefit to the community is not something that can be easily replicated in short order.
An entire community will the feel the impact of how well its businesses “pass the baton” to the next generation. The work required to prepare these enterprises for transfer necessitates a sound business strategy that will strive to build robust, more resilient companies, but it will also require an investment of time, one of the most limited resources within any company. Craig Arnoff, Stephen McClure, and John Ward, authors of Family Business Succession: The Final Test of Greatness, summed it up best, “…Managing succession is the task most critical to securing the future of private enterprise in America.”