A gathering of small business owners and succession planning experts convened before the Senate Committee on Small Business and Entrepreneurship on January 24, 2024, to discuss the significant hurdles they face as they consider the future of their businesses. Spearheaded by Senator Jeanne Shaheen, D-NH, the meeting sought to bring to light the complex landscape of succession planning, a crucial but often overlooked aspect of entrepreneurship.
The Predicament of Business Succession
The discussion underscored the reality that most business founders dedicate their efforts to scaling their ventures, frequently missing out on planning for the business's continuity after their tenure. "They've invested most of their time in business to building a successful company, and they don't have the information or resources to think about next steps," Senator Shaheen remarked, pointing towards an alarming trend of unpreparedness among business owners for their company's future.
This issue is particularly pressing given the aging demographic of business owners. Statistics from Project Equity, an Oakland, California-based nonprofit focusing on economic resilience, highlight nearly three million U.S. businesses are operated by individuals aged 55 or older. These businesses employ about 32.1 million workers and account for $1.3 trillion in payroll, making the need for solid succession plans even more critical to ensure the continuity of these jobs.
The Harsh Reality of Business Transition
Scott Snider, the co-owner of the Exit Planning Institute in Westlake, Ohio, outlined the daunting statistics businesses face when entering the market for sale. Seventy percent of companies that go to market fail to find a buyer, and half are forced to close due to unforeseen circumstances. These figures indicate a dire need for more educational programming and coaching to prepare small business owners well ahead of time, improving the odds of a successful business transition.
Exploring Employee Stock Ownership as a Solution
The hearings also delved into the potential of Employee Stock Ownership Plans (ESOPs) as a succession strategy. Tabitha Crosscut, an attorney at Devine, Millimet & Branch in Manchester, New Hampshire, voiced her support for ESOPs, which have shown promise in New Hampshire with a collective retirement asset value of $800 million for employees. However, challenges such as a lack of understanding about ESOPs among business owners and insufficient capital to establish such plans remain barriers to widespread adoption.
Legislative Efforts to Ease Succession Planning
The dialogue before Congress is not without a legislative counterpart to mitigate some of these difficulties. House Bill 5939, introduced in the 118th Congress, offers small businesses the tools and resources needed for effective succession planning. With a focus on enhancing access to information and financial resources, the bill underscores a bipartisan recognition of the value of succession planning in safeguarding the continuity of small businesses.
The discourse before the Senate Committee on Small Business and Entrepreneurship underscores the urgent need for action in business succession planning. As the dialogue between industry leaders, policymakers, and entrepreneurs continues to evolve, the collective goal remains clear: ensuring the sustainable transition of businesses across generations, thereby securing the future of millions of jobs and the continuity of entrepreneurship.
