Rural communities get ready — a wave of retirements is happening
A silver tsunami of baby boomer retirements is sweeping the nation. Baby boomers are commonly defined as those born between 1946 and 1964. By 2030, all of them will have reached the typical retirement age of 65 — and likely either retired or considering when to take that step.
Rural communities are especially concerned about retiring baby boomers who plan to sell their businesses. The health of small businesses is critical to rural economies. They not only provide jobs but also important goods and services needed for rural quality of life.
Beyond economic contribution, small businesses also play a crucial role in the civic and philanthropic life of rural communities. For small business owners in rural areas, the community is not just where they conduct business — it is also their home. The economic and civic structure of the community benefits from their success.
Communities can offer critical support to businesses
In 2016, Extension studied how small rural communities will keep businesses as a massive generational transfer of ownership and leadership occurs. We conducted our research to help communities understand what they can do to help business transfer succeed.
Our research indicates communities can offer critical support to businesses before and after a transition.
How can communities help?
- Identify a local champion team (two or more people) to initiate business succession efforts. These champions could include paid staff of the city or chamber, local bankers, accountants, attorneys or other volunteers. To ensure the success of champion teams, it is important members' contact information is databased and their participation is annually confirmed. It is also critical the team becomes the funnel through which all local area information passes. Regular communication regarding resources, activities and successes can sustain commitment.
- Conduct an inventory of existing businesses to identify owners nearing retirement. Data about local businesses can provide the necessary context for community action.
- Create awareness of the importance of succession planning. Research shows a lack of this awareness is a significant barrier for owners.
- Reframe the conversation. It’s not just selling the business. It is a contingency plan for illness, disability or death of the owner.
- Build community awareness through:
- Stories in the local media
- Speakers at existing business gatherings, such as a chamber of commerce meeting
- Workshops for future sellers and prospective buyers, including information about the variety of ownership options available
- Make a list of all resources available to sellers and buyers in your community, and make this information available through:
- An online or printed resource directory
- One-on-one visits with business owners at their business
- Informed community contacts (e.g., city administrator or clerk, community development director and economic developer, chamber of commerce staff, bank business loan officers, accountants, attorneys, business brokers and intermediaries, and real estate agents).
- Identify strategies to reduce the four main reasons sellers do not plan for succession — cost, time, confidentiality concerns, and lack of awareness of the benefits of succession planning.
- Cost: Find funding to reduce the cost of professional services for accounting, legal, valuation, or business marketing plans.
- Time: Offer one-on-one advising at a time and location that is workable for the owner.
- Confidentiality: Encourage owners to explore services available for selling their business through professional business brokers or intermediaries who provide regional and nationwide marketing services (such as industry trade associations).
- Lack of awareness of the benefits of succession planning: Consider hosting an event for businesses highlighting the importance of business succession planning and where businesses can begin. In addition, consider promoting succession planning through the media and one-on-one meetings.
- Promote business planning resources:
- Small Business Development Centers (SBDC) include support for business planning and counseling on operations, marketing, and finance. Some offices also provide specific advising on developing ownership and leadership transition plans. Additionally, they may be able to help owners or potential buyers consider alternative ownership structures to support transition (e.g., employee stock ownership plan (ESOP) or cooperative).
- Senior Corps of Retired Executives (SCORE) services include business management coaching.
- Exit Planning Institute’s Minnesota Chapter members are professional advisers for business succession.
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Encourage businesses to keep accurate financial records:
- Work with owners, financial institutions and accountants to reinforce the importance of maintaining accurate financial records. Accurate financial records are a prerequisite for buyers to obtain financing.
- Identify intermediaries to help market businesses for sale, including regional business brokers, trade associations and economic development professionals.
- Promote economic development services to both interested entrepreneurs and current businesses — well before they are available for sale.
Transfer of ownership refers to the legal, tax and financial aspects of business succession. To support successful ownership transition, communities can:
- Encourage owners to obtain a professional business valuation before listing the business for sale. Communities can offer incentives to subsidize the cost of a professional valuation.
- Criteria for determining the value of a business is outlined in a worksheetfrom the Small Business Development Center in Tampa Bay, Florida.
- Members of the International Business Brokers Association can prepare a business valuation report giving the likely sale price, based on the market, and likely sale structures and difficulties that may hinder a successful sale.
- The Minnesota Business Appraisers Association can assist in locating an appraiser. Note that financial institutions will have their own appraisal done on a business and will not use a previously completed appraisal.
- Wealth managers can use the business valuation information to develop a retirement financial plan for sellers. This can help the owner understand when they can afford to sell the business and retire.
- Connect buyers to financing and assist them in completing complex applications. Financing resources include:
- Contract for deed: Encourage sellers to examine both the risks and tax implications of offering seller financing.
- City and county economic development authorities: Services could include gap financing tools and other business incentives.
- Regional Development Commissions: Services could include gap financing tools and business planning support.
- Minnesota Initiative Foundations or local community foundations: Services could include gap financing tools.
- Bankers services can include packaging Small Business Administration (SBA) loans.
- Explore local banks’ Community Reinvestment Act ratings by working with bank officials to identify ways of increasing their rating through the funding of local business options.
- Check which Community Development Financial Institutions (CDFIs) that serve the area and whether they offer small business planning services or financing. (Locate area CDFIs using Find a CDFI.)
- Community Supported Enterprises: These collect contributions or donations from community residents with no expectation of financial remuneration.
- Crowdfunding: Online services market small businesses to collect funding to create or expand the business. Caution buyers to examine pricing before choosing an online platform. Several crowdfunding platforms’ fees, advantages and disadvantages are reviewed on pages 22-32 of the Emergence and Growth of Community Supported Enterprises report.
- Identify a local expert who can advise businesses on seller financing (e.g., contract for deed) mechanisms. This is an often used tool for financing business succession.
Transfer of leadership refers to the transfer of knowledge, management capacity and social capital to the new owner. To support successful leadership transition, the community can:
- Connect new owners to resources that help with business operations.
- Minnesota Workforce Centers have resources to help businesses find employees, information about local wage rates, and some programs for employee training.
- The Minnesota Department of Employment and Economic Development may provide state or local grants or loans to assist with delayed building repairs or property concerns.
- Community Development Financial Institutions (CDFIs) provide small business planning and training services.
- Small Business Development Centers (SBDC) have counselors available throughout the state to advise owners and entrepreneurs on a variety of business issues.
- Local attorneys, local accountants, and city and county inspection offices.
- Create a community climate that welcomes new people and businesses.
- Encourage economic development staff, economic development authority board members, chamber of commerce staff and others to reach out to new owners to:
- Welcome them to the community.
- Inform them of local business resources.
- Link them to potential local markets.
- Connect them to the social fabric of the community.
- Explore Extension’s Making It Home program to develop strategies in your community for welcoming newcomers. Contact your regional Extension educator in community economics.
- Encourage economic development staff, economic development authority board members, chamber of commerce staff and others to reach out to new owners to:
- Develop or obtain a leadership succession guide template that could be completed by retiring owners for buyers. Include topics critical to business success, including:
- Information about key relationships with clients, suppliers and employees.
- Tips for transferring the connections, relationships and trust from the seller to the new owner (i.e., social capital).
- Tips for coaching the new owner as the seller gradually moves out of day-to-day management.
- Strengthening financial position for eventual sale.
- Encourage buyers to consider an after sale advising agreement for 6-12 months with the seller as part of the conditions of the sale. Continued presence of the retiring owner persona continues in advertising, media and sale promotions while introducing the new owner to customers and suppliers.
- Encourage sellers to mentor the buyer. In addition, create other purposeful connections between new owners, business mentors and other resources.
Learn from Extension
Online course
Virtual workshop for community leaders
Take Extension's virtual workshop to learn how your community can support business succession planning. When done, you'll better understand business succession, what business owners need to know, and actions community leaders can take. Find materials — such as videos, slides and worksheets — to help you create a community business transition plan.
We offer this workshop free of charge. Choose to take it all at once or over time. Before accessing it we request you complete and submit a short form.
About Extension's study
To examine rural business transfers, compile lessons learned, and hear what businesses recommend to communities that want to support them, Extension identified 690 Greater Minnesota cities with a population under 7,500. Then, the study team identified 358 businesses in those cities that had transitioned to new owners between 2008 and 2012.
A total of 176 businesses (49 percent) responded to a survey that was designed to learn about the business transfer experience – the struggles, the most helpful resources and the current status of the business in rural communities. Seven businesses were selected for in-depth interviews.
The team also conducted a literature review and interviewed the leaders of rural business succession initiatives in four rural Minnesota and two North Dakota communities.
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Extension educators work in communities with partners throughout Minnesota. Contact us for consultation, guidance and conversation about your community.