Small Business Succession Planning Means Success in Small Towns

Many small rural towns in Missouri has a large population of aging Baby Boomers. They are retiring at the rate of 10,000 day or over 4 million annually according to the Washington Post. But what are they doing with their business assets when they retire?

This high rate of potential small business closings has sparked a lively conversation in rural America about business succession planning. By doing succession planning, the current retiring owner can sell the business and it remain open and serving the community. This activity is a big win for the current owner, future owner and the community. So why don’t more retiring business owners do succession planning?

Research from University of Minnesota Extension indicates there are three barriers to rural succession planning. The first one is a lack of a discussion on the importance of succession planning. The second one deals with barriers to the actual process related to finances, time and confidentiality. The final one having other available resources to assist in the planning and actual transfer of the ownership.

With the Small Business Administration saying small businesses create over 64% of all new jobs in the United States, they are the real lifeblood in any community but of particular importance to small rural Missouri communities. Besides jobs in small towns, they also provide a broader support base for a town by being active in civic functions, social events. The concept that the place where these businesses exist is also the home for the business owners creates a very strong tie. That tie helps make the local small community stronger which creates the case for the business to stay in business when retirement happens. It can be said that the smaller the town the bigger the impact the business has on the town.

Before a community can work on the first barrier, they need to realize that there are actually two transfers happening simultaneously when a business is sold. The first one is “transfer of ownership” which is the sides of legal, taxes, and finances and is pretty cut and dried. The second is the “transfer of leadership” and deals with knowledge, management capacity and the social capital to the new owner. The first one is very important to the retiring owner while the second one is very important to the community. To address this lack of conversation, an effort to educate the current business owners on succession planning needs to be conducted.

 The second obstacle is often times in the workings of the current owner and a lack of knowledge on succession planning. It can range from overestimating the business’s worth to not telling others their business is for sale to inadequate records. Surprisingly, though, sometimes the selling owner wants to stay involved in the business after it has been sold which can hamper the new owner’s ability to operate. Sometimes it is the owner taking the easier approach and just closing the business. Again, education appears to be the best solution to remedy this situation.

The final obstacle is the actual sale.  Many rural communities do not have access to business brokers to help make the sale smoother between the seller and the buyer. Finding financing to buy the business is another big factor. An interesting finding in the research by Minnesota Extension indicates that older business owners do not want to sell to older citizens. At a time when the baby boomers are retiring and have more available capital to use, they are seeing the door closed to them by their own kind. A lack of community resources is another reason for a difficulty sale. If a community has no local bank, accountant, attorney or a pro-business local government, then the potential owner has no-where to turn for advice.

Research suggests that if rural businesses can be kept open instead of closing that business retention is created but even more, business expansion happens. Minnesota Extension found that new owners reported hiring more people, growing their customer base and increased sales. That is another success story that would not have happened if the business just closed.

So Missouri small towns are at a point where retiring baby boomers want to do something locally but may not have the resources. The same is true for existing business owners who want to sell their business but do not know how. The answer appears to be the meeting of the minds and having conversations about succession planning.

Any questions on this article please call, Richard Proffer at the local MU Extension office at 573-243-3581 or email him at profferrd@missouri.edu.