financial health

Understanding How Small Business Owners Plan Succession

The Problem

Succession planning helps a small business thrive before, during, and after ownership has changed, all of which benefits the owner, the employees, and the community. And yet approximately 60% of small businesses — nearly 20 million in the United States — lack a clear succession plan.

Our Solution

To learn more about the behaviors that may hold business owners back from considering their options and developing a succession plan, we surveyed 300 small business owners, and held in-depth interviews with a smaller group. Taken together, their responses illuminated the factors that prompt owners to plan (or avoid planning), whom owners turn to for information or advice, and how owners might make stronger succession planning decisions to support their businesses, employees, and communities.

The Results

We found that small business owners do not view exit planning as urgent, or can’t prioritize planning for the future when the business needs their attention today; instead, many are waiting until they “feel ready” to move on, or until their business reaches a “sufficient” level of success.

63%

Proportion of business owners who say it’s “too early” to start planning.
80%

Proportion of business owners who think the right time to make a plan is “when I feel ready.”

FINDING 1

Unfortunately, waiting for ambiguous signals like these can lead owners to defer planning indefinitely. This means many owners risk missing out on the benefits of considered, long-term succession planning. Common statements we heard from business owners include:

“We could create a plan right now, but as far as implementing it, I feel there’s no rush.”
“When I’m ready, I’ll just call a broker and sell the business.”

How organizations or financial institutions can help:

Highlight that “it’s never too early to start planning” in messaging.
Bundle succession planning with other things owners do in advance, like business planning.
Tailor planning support to owners based on their exit timeline to get them started earlier.

FINDING 2

Owners gravitate toward exit options that are most familiar, and might not consider other options that could fit their needs better. For instance, people who themselves inherited the business were the most likely to think they’d pass it on to their family, and owners who bought the business were the most likely to think they’d sell it in turn.

In reality, businesses often are passed along in ways owners don’t anticipate.

19%

Proportion of business owners who plan to involve a broker in the future.
67%

Proportion of sellers who actually involved a broker.

“In a perfect world, my two sons would take over, but that’s probably not going to happen.... They’re in their twenties, so they want to do their own thing, but I’m hoping they’ll come around.”
—Small business owner

How organizations or financial institutions can help:

Introduce owners to the full range of options available, including lesser known options like employee ownership and entrepreneurship through acquisition, and walk through the benefits and risks of each.
Provide case studies of “business owners like you” who pursued a wide variety of exit options.