Business Succession Planning

By: Eric Giltner, Senior Area Manager
Grand Forks Area Office
North Dakota District Office

In the next 10 to 15 years approximately 70% of privately owned businesses —worth an estimated $10 trillion— will exchange hands. This exchange will represent the largest intergenerational transfer of wealth in U.S. history. The question now is how these transactions will occur. The answer? It varies. Some businesses will be sold at a premium because of smart business owners who took it upon themselves to plan the process of a smooth and valued transfer of assets. On the contrary, some businesses will be sold for a loss due to other factors like an untimely illness or death. Still others will simply close their doors and sell the equipment and inventory at bargain basement prices. Where will your business fall during this transitory period?

Financial health check
Business succession planning is not an event, but a long-term process that begins with a financial health check for your business. Taking this first step is important because a business with a history of profitability is not only much easier to sell, but it also makes it much easier for the buyer to obtain outside financing. The financial health check is always an eye opener for a business owner who maintained the status quo for years. One business owner was shocked to learn how many dollars were being wasted on cost factors that were no longer needed by the business, such as the six unneeded land-lines for a phone system that had essentially been replaced by cell phones.

New ownership
Who is going to buy your business?  Do you have a family member or trusted employee in a position to assume ownership?  Are they bankable?  Maybe they’re not right now, but by following a personal financial plan, they could qualify for financing five years from now. However, even if they are bankable, you may be required to finance part of the purchase.  Does your retirement plan have that in consideration?  Another point to consider is that it may be difficult to find an individual who is qualified to assume ownership. Consider a dentist who is contemplating retirement. They can only sell to other dentists, thus significantly lowering the field of potential buyers.

Resources
Remember that business succession planning is a process and not an event.  You will need to turn to key partners for help when crafting your plan.  These partners include your banker, attorney, accountant, and also a business consultant with experience in business succession.  SCORE, an SBA resource partner, is an excellent source for finding a business mentor.  There are many SCORE mentors who have successfully made the transition from owner to seller in their own businesses.  Also, there are Small Business Development Center (SBDC) counselors that are available to help you perform the financial health check.  Both SCORE and the SBDC provide free and confidential services with a great track record of helping small businesses.  For more information on SBA and its resource partners, visit www.sba.gov.


Eric GiltnerEric Giltner has been a Business Development Specialist and the Grand Forks area manager for the U.S. Small Business Administration since 1998, having formerly been assistant to the dean of the UND College of Business and Public Administration.  He received his B.S. Degree in Geological Engineering and his Master's Degree in Business Administration from the University of North Dakota. Eric can be reached at eric.giltner@sba.gov.