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WILMINGTON, Del., Nov. 7, 2019 /PRNewswire/ -- A new survey from Wilmington Trust, in collaboration with experts from its parent company M&T Bank, finds that a clear majority (69%) of owners of privately held businesses are unprepared to transition or sell their business, even as Baby Boomers retire and hundreds of thousands of businesses come to market over the next decade. The quarterly survey, Wilmington Trust Business Owners Outlook: Is Now the Time to Sell?, also shows that business owners feel invulnerable to looming risks such as political change in Washington, an economic downturn and intense competition for buyers and investors.
"Silver Tsunami" – Baby boomer generation set to retire and shift the business landscape
Baby Boomers own nearly half of privately held businesses with employees, representing millions of companies. As these business owners enter retirement age, a "silver tsunami" of business sales is likely. Still given this landscape, 69% of owners are not ready to sell their businesses, with 51% citing market conditions as a reason and 61% indicating it is because they derive satisfaction from running the company.
Most business owners are unprepared
Moreover, although 89% of owners believe their business will survive without them because they have a business transition plan, only 55% have actually developed a formal business succession plan and just 49% have performed a business valuation, while only 48% are training or preparing successors to take over. The survey reveals that many business owners feel invulnerable to or are unaware of risks such as intense competition among buyers and investors, slowing economic growth or political change as a result of the 2020 election.
"It's troubling that so many business owners have not taken steps to protect themselves and their businesses, and underestimate how their business will impact their personal and family wealth over the long term," says Stuart A. Smith III, Managing Director, Strategic Family Business Advisory Services, Emerald Advisory Services Division, Wilmington Trust. "Owners who do not begin planning years in advance of a transition risk suffering 'the unplanned discount' of lower proceeds from a liquidity event. A positive business transition requires ample time and foundational work. This survey shows that for too many business owners that foundational work is not taking place."
Majority of owners are confident in the economy and feel invulnerable to political risks
The survey also looked closely at owners' attitudes toward the U.S. economic climate and politics. Despite the potential of political change in Washington, a large majority of owners remain confident that the current pro-business environment in Washington will continue. Seventy percent expressed confidence that tax reductions and pass-through benefits will remain in place, 68% say that personal income tax rates will stay the same, and 67% saying that lower corporate taxes will persist beyond the election.
"A change in power next year in Washington could have major implications for policy in areas such as taxes and business regulation," said Rhea Thomas, Economist at Wilmington Trust. "Trade conditions and the outcome of trade negotiations could further weigh on business investment and spill over to reduced hiring by businesses. All of these external factors have the potential to impact businesses, their values and the pool of available buyers and investors."
Confidence among business owners is a common thread throughout the survey. A large majority of owners – 85% – are optimistic about the outlook for their business over the next year. But this confidence is not always translating into action. For example, even though 89% of owners are confident that their personal and business assets will be well managed if they were to die, only 33% have retained outside counsel to prepare for succession, and only 48% have a relationship with an investment banker. When owners are asked why they are not planning for transition, their most common answer is they enjoy running their business.
"Most entrepreneurs cannot imagine not going to work," said Rob White, Managing Director and Group Head, Mergers & Acquisitions/Corporate Finance, M&T Bank Investment Banking Group. "This suggests they don't know all their options, many of which include still operating their business after a transaction. And they may not realize most buyers and investors will want them to continue working after a transaction, which makes planning ahead and working with the right experts even more important."
The survey was conducted online in September and October 2019. Wilmington Trust surveyed 1,007 owners of privately held businesses with at least $5 million in revenue throughout the United States, across industries.
ABOUT WILMINGTON TRUST
Wilmington Trust is a registered service mark, used in connection with various fiduciary and non-fiduciary services, including trustee, custodial, agency, investment management, and other services, offered to trust, individual, and institutional clients by certain subsidiaries and affiliates of Wilmington Trust Corporation. Such subsidiaries and affiliates include, but are not limited to, Manufacturers & Traders Trust Company (M&T Bank), Wilmington Trust Company (operating in Delaware only), Wilmington Trust, N.A., Wilmington Trust Investment Advisors, Inc., Wilmington Funds Management Corporation, and Wilmington Trust Investment Management, LLC. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation. International corporate and institutional services are offered through Wilmington Trust Corporation's international affiliates. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank, member FDIC.
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SOURCE Wilmington Trust