Navigating Future Strategies: Guiding Businesses Through Succession and Changes Ahead
Every business, big or small, must plan ahead for a change in leadership. Key leaders leaving, either through retirement, attrition, or other factors, can significantly impact a business, especially small ones in rural communities. By being prepared, businesses can navigate these challenges smoothly.
Transition planning is crucial for businesses due to several reasons. First, it ensures that key positions are filled or transitioned smoothly, preventing unexpected disruptions. Second, it helps maintain the business's stability, providing continuity for employees, customers, and the community.
Small businesses play a vital role in the U.S. economy, but unfortunately, many of them lack a succession plan. According to research, only about a third of U.S. small businesses have a transition plan, and up to 30% of small business closures are a result of a failed succession (Templin et al., 2017).
Business owners commonly cite retirement as their primary reason for succession planning, but more than one-third of owners do not plan to retire, and another 29% see retirement as over a decade away (Tran, 2023). For larger businesses, an estimated 10-15% of companies hire a new CEO annually (Gjerstad et al., 2019).
Whether you're running a small business or a large corporation, planning for the future is essential. This involves thinking about succession for key positions, leadership or management capacity, and the potential need for training or development. Consideration should also be given to whether applicants will be found internally or externally.
Transition planning is an ongoing concern that requires careful consideration of several factors. For example, switching social capital—the networks of relationships among businesspeople, customers, partners, and suppliers—requires careful thought. This extends beyond just passing the keys to the facility, requiring careful consideration of sharing strategic priorities, technical competence, and other challenges unique to the business.
Transition planning takes time, and owners should start the process as early as possible. Planning for a business sale may take 1-3 years, while internal transitions can take as long as 5-7 years. Ignoring the need for planning can lead to difficulties down the road.
The plan should cover key areas such as timelines for transition, positions to be filled, candidate availability and qualifications, standard operating procedures, and financial records, among others. A business valuation may also be necessary, and external professional help can be essential in navigating the complexities of financial planning, tax accounting, legal matters, and real estate.
In rural markets, finding professionals with expertise in business valuation or exit planning can be challenging, but local economic development teams or small business development centers can be valuable resources. These teams can assist with various aspects of exit planning, including identifying potential buyers or funding options.
Planning a transition requires a mindset shift. As Rothwell & Prescott (Ed., 2023) noted, the biggest obstacle to succession planning is the business owner's mindset. Preparing for a transition takes honest conversations, a willingness to engage the right advisors, and a willingness to let go of the reins.
The types of transitions may vary, but the goal is to find a solution that benefits the business owner, employees, customers, and the community. Options may include a private sale, a transfer to family or employees, a worker cooperative, or a liquidation.
Proper leadership selection and management are critical to the success of a transition. Identify those whose "loss would be devastating to the business" and develop them for future leadership roles (Rothwell & Prescott, 2023).
Transitioning agriculture-based businesses can pose unique challenges but also requires careful planning. Resources are available through the Ohio State University Extension Farm Office to help with estate and transition planning, profit analysis, transfer of assets, and more.
In conclusion, effective succession planning is crucial for the longevity and success of businesses, particularly in rural communities. With the impending retirement of the baby boomer generation, who own the majority of privately held businesses, now is the time for business owners to start planning for their exit strategy. By starting the conversation early, educating themselves on various transition options, and seeking professional guidance when needed, business owners can ensure the best possible future for their businesses.
- For rural communities, small businesses are integral to their overall economy, yet many lack a succession plan, with only a third having one, according to research.
- Effective leadership is crucial in ensuring the smooth transition of any business, and planning for key positions' succession is essential, whether running a small business or a large corporation.
- Business owners must consider factors such as finding the right candidates internally or externally, maintaining business continuity, and addressing challenges like sharing strategic priorities and technical competence.
- One of the obstacles to succession planning is the business owner's mindset, requiring honest conversations, engagement with the right advisors, and a willingness to let go of control.
- In rural markets, finding professionals with expertise in business valuation or exit planning can be difficult, but local economic development teams or small business development centers can be valuable resources.
- Agriculture-based businesses have unique challenges in transitioning, but resources like the Ohio State University Extension Farm Office can provide help with estate and transition planning, profit analysis, transfer of assets, and more.
