Owners cite focus on running business, lack of time as principal barriers to planning
Business Owner Survey Infographic
The research, titled “The Power of Planning,” surveyed more than 200 owners of privately-held companies about their plans and goals for transitioning their business.
According to the research, the top reason for business owners delaying transition planning was their passion for the day-to-day logistics involved in running their companies. Seventy-eight percent of business owners who did not have a transition plan said they enjoy managing their company too much to start thinking about a future transition.
Further, 42 percent responded they were too busy to start planning, while 44 percent felt that a transition was too far in the future to establish a plan.
“Business owners love what they do, so it can be difficult for them to imagine a day when they need to give it up,” said Matt Panarese, president of Wilmington Trust’s Mid-Atlantic region and leader of the firm’s National Business Owner Practice Group.
“The reality is that planning effectively and running a business are not mutually exclusive. Owners don’t need to walk away from the business they’ve spent their lives building to start thinking long-term. In fact, early planning can provide more flexibility and allow owners to continue to work in whatever capacity they choose—before and after a transition.
“What business owners need to realize is the sooner they start planning, the better their odds of achieving their goals—both financial and personal. While some owners may be closer to a transition point than others, it’s not too late to create a meaningful plan.”
Surprisingly, 47 percent of respondents age 65 or older still do not have a transition plan in place. Yet 67 percent of all respondents said getting older is the top reason for creating a plan, followed by providing security for their family (55%). Rounding out the top five reasons to have a plan are:
- Meeting the valuation goal – 36%
- Reducing tax – 35%
- Receiving an offer from a potential buyer – 22%
- Have broad outlines, but nothing specific – 27%
- Have considered, but haven’t start planning – 20%
- Have not thought about transition at all – 11%
- Have a specific plan and have begun executing – 21%
- Have a specific plan, but have not begun executing – 21%
“Business owners have a singular focus on ensuring their companies continue to thrive, so allocating time to build a transition plan can be perceived as a distraction from important work. The truth is planning is important work.”
The survey results show that business owners have both a professional and emotional connection to their companies, and a sense of personal responsibility that extends beyond the company to employees and customers. The two most important transition goals cited by survey respondents were “ensuring the company remains viable in the long-run” and “taking care of employees,” both cited by 87 percent of respondents.
Coming in a close second was “ensure your customers are taken care of” at 85 percent. In third place, at 83 percent, was “financial security for you and family.” Concern for family, employees, and the company continue to round out transition goals, with respondents citing the following motivators:
- Ensure your company retains value – 78%
- Maintain family harmony – 58%
- Keep the business within the family – 39%
- Pass control to employees – 28%
“To avoid regrets and ensure post-transition wealth is directed toward meeting their important goals, owners need to embrace long-term planning and work with a highly capable team of transition experts that see and deal with these issues every day.”
The survey also explored perceptions of business owners about selecting transition advisors. More than 80 percent of owners listed tax expert (84%), lawyer (83%) and accountant (83%) as the top three most important advisors. Other top advisors include:
- Legal Trust Expert – 65%
- Banker – 45%
- Investment Advisor – 40%
- Family Business Consultants – 14%
- Executive Coach – 14%
Within the circle of advisors, business valuation experts play a critical role for owners. While two-thirds of survey respondents say they have a very good sense of their company’s worth, the same percentage (67%) want to speak with valuation experts.
Valuation is clearly a top concern for business owners, but they have competing goals of taking care of employees and customers. They also care about the intertwined legacy for themselves and their companies.
“Many privately-held companies we work with bear the name of the owner on the building, letterhead, and even products, so business transition becomes a very personal experience,” said Smith. “There are times when we recommend a seller consider a buyer who is not necessarily offering the most money, but shares the same values. Often a buyer who can help the business owner satisfy multiple goals related to family, employees and clients is better choice than the one with the highest financial offer.”
ABOUT THE SURVEY
Researchers surveyed more than 200 business owners in North America, of which:
- 89% owned privately-held companies without private equity investors
- 66% had a family-owned business
- 73% had been in business for more than 20 years
- 81% had annual sales revenue over $10 million
- 52% had more than 50 full-time employees
ABOUT THE ACADEMIC ADVISORS
Matt Allen, PhD, is associate professor at Babson College, and faculty director for the college’s Institute for Family Entrepreneurship.
Francesco Barbera, PhD, is senior lecturer and co-director of the Family Business Education and Research Group at the University of Adelaide.
Thomas Schwarz, PhD, is founder and senior counsel at Black Forest Business Solutions, and former dean of Stetson University’s School of Business Administration. He was also a visiting scholar at Babson College.