Breaking down the data
Who do business owners turn to when it’s time to plan their business transition? What resources do they use? What activities are they doing to prepare for transferring ownership and leadership to others? How ready are they — both in personal and business terms?
These are key issues for owners to handle during their succession and transition planning. They are also considerations that Extension addressed during its Minnesota business succession and transition study. Our study, conducted between 2023 and 2024, received 286 responses from business owners.
Where owners get information and advice
Our research explored how business owners learn about business succession and transition planning. We asked about the following:
- Information sources by category
- Specific types of advisers
- Whether they used an advisory team
We found that owners used a variety of sources to learn about, or guide them with, succession and transition planning. However, some sources are used much more than others.
“At the risk of increasing the hat sizes of CPAs and accountants, we learned accountants were the most sought out professional advisers when owners want guidance in transition planning.”
– Michael Darger, Extension program lead, business retention and expansion
Among the categorical choices, there were two “go-to” sources: “trusted advisers” (e.g., accountant, attorney, banker), with 71% of respondents using them, and 59% asking “other business owners.” A distant third source was “other” (16%). This category included:
- Nineteen respondents tapping their lived experience, such as previously selling or buying a business, or being professional advisers themselves
- Seven who were self-taught
- Seven asking friends or family
- Five using their formal education
When asked about specific sources, such as different professional advisers, key people in their lives, educators, etc., there was a clear pecking order. Accountants (59%), other business owners (55%), and attorneys (48%) were the most used sources. Spouses/partners (31%) and personal financial planners (30%) were in the second tier.
Sources of advice or resources for succession and transition planning?
- Accountant: 59.3%
- Other business owner: 54.5%
- Attorney: 48.1%
- Spouse/partner: 31.3%
- Personal financial planner: 30.2%
Owners also turned to other advisers; however, out of a list of 13 sources, only five were used by 25% or more of respondents.
Using multiple sources increases business readiness
It’s interesting to note this cluster of advisers, all of whom are essential for different reasons. However, none of these people can provide all the advice an owner needs.
Three of these sources (spouses/partners, attorneys, and accountants, respectively) were statistically significant in terms of correlating with an increase in a business’s readiness for transition. In fact, for owners who used all three advisers, their business readiness was 4.6 on a 6-point scale (1=Not at all, 6=To a great extent) compared to 3.2 for owners who did not use these advisers (see the chart below).
Some owners (16%) had a formal committee or team of advisers to help with their planning. The vast majority of these teams included the attorney (72%) and accountant (72%). Four other types of advisers comprised about a quarter of the advisory groups: bankers and personal financial planners (28%), spouses/partners (26%), and other business owners (24%).
A 2017 University of Minnesota Extension study on business succession and transition found that it took an average of 3.8 advisers (who were designated “very” or “moderately” important) for new owners to successfully transition a business from the previous owner. (Note: the 2017 study included rural businesses that had survived at least four years after the transfer.) In that study, the accountant was the second-most important adviser, with bankers as the top adviser.
Preparing for a business transition
While expert advice is essential, there is much more involved in getting a business ready for transition than receiving and acting on professional counsel.
Several activities are valuable to prepare the business, such as creating a written succession and transition plan, obtaining formal business valuations, training successor(s), having discussions with family members, documenting policies and procedures, and more.
Having personal plans after leaving a business aids readiness
Personal readiness is equally important as preparing the business. How can business owners and leaders adequately prepare for this major life change?
Aside from the obvious implications for personal finances, other important considerations exist as well. For example, is a plan in place for what to do after leaving? Many owners view their business as part of their identity, so what will fill that void after leaving?
In our current survey, we found that having plans for after departing the business seemed to make a difference. For instance, results showed a statistically significant relationship between a business owner/leader’s self-assessed personal readiness for transition (on a 6-point scale) and plans for working part-time or full-time after stepping away from the business.
However, there was no increase in personal readiness when a respondent indicated they would fully retire.
Find the complete survey results here.
Implications for Minnesota
More than 50,000 Minnesota businesses are led by aging owners/leaders (i.e., people over 55). The U.S. Census 2021 Annual Business Survey estimates over 20% of owners here are 65+ and 32.5% are 55+.
Not all businesses are destined to transfer to new ownership. Regardless, retaining businesses is an important economic opportunity for Minnesota to keep locally-owned firms and provide entrepreneurial opportunities for the next generation, including young people, BIPOC folks, and immigrants.
What can business owners do? Aside from obtaining great business accounting, financial planning, and tax advice, here’s a couple ideas:
- Start transition planning now. Watch this short video clip to get started. Check out the full playlist on transition planning on YouTube.
- Take a course. Extension offers an online course for learning with other owners, Is Your Business Ready for Success(ion)?