C O U N S E L O R ’ S C O R N E R YOUR BUSINESS NEEDS A SUCCESSION PLAN START TODAY! BY CLARK YOUNGMAN & NATE PATTERSON, KOLEY JESSEN SMALL BUSINESSES ARE THE LIFEBLOOD OF THE AMERICAN economy. The U.S. Small Business Administration estimates that small to medium-sized businesses account for nearly 43.5% of the total GDP of the United States and create about two-thirds of new jobs each year. Small businesses drive American innovation and creativity. These organizations and their owners provide vital services and products not only to individuals but also to other businesses, keeping the U.S. economy functioning and viable. As has become apparent from the COVID-19 pandemic, disruptions to small businesses can have devastating impacts on local communities and the economy as a whole. With the Baby Boomer generation owning approximately 40% of small businesses and nearly 10,000 Baby Boomers retiring every day, one of the major concerns over the next 10 years is what will happen to these organizations when their owners exit. According to a national survey conducted by Business Enterprise Institute Inc., nearly 75% of small businesses will go through an ownership transition in the next 10 years, yet only 20% of organizations have a written succession and exit plan for their owners. Despite this fact, 100% of business owners will eventually exit their businesses, whether planned or otherwise. Succession planning should be an integral part of every small business in order to reduce the risk of failure or major disruption that may result from the transition. As professional advisors, we can guide business owners through the process to help ensure a successful transition. What Is Business Succession Planning? Business succession planning is the comprehensive and holistic approach to designing a successful exit strategy for one or more owners that provides the highest possible value for their business and, optimally, will allow the owner and the business to function well following the transition. When a business succession plan is properly designed and implemented, not only will the owner have the financial resources necessary to live out the next chapter of his/ her life as desired, but the business also will continue providing stability to employees, the community, and other stakeholders after the owner’s exit. Successful business succession plans require an understanding of the owner’s personal and financial objectives, as well as a team of experienced advisers to design and implement the succession plan, along with a written and comprehensive roadmap of the owner’s exit path. As with most client engagements, the first step in designing a business succession plan is understanding the owner’s personal and financial objectives. When would the owner like to exit? To whom do they envision passing the business: a key employee, a child, a third party? Has the owner thought about what his/her post-exit life will look like and what financial resources that will require? If the owner exited tomorrow, would the current business value and cashf low support his/her post-exit life? I S S U E 5 , 2 0 2 2 16 nebraska cpas
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