As clock ticks on succession boom, a third of business owners don’t have a plan

Edward Jones survey casts a spotlight on challenges, generation gaps, and catalytic factors in business succession planning.

While two-thirds (64 percent) of business owners have a succession plan in place, a new study by Edward Jones highlights the complexities and emotional challenges entrepreneurs face in preparing for succession.

The survey, conducted with Morning Consult and NEXT360 Partners, found that 16 percent of business owners feel unprepared for their succession plan, grappling with unexpected hurdles and emotional decisions.

Despite these challenges, only 37 percent of business owners said they have a financial advisor to help prepare for succession. Among the business owners yet to develop a succession plan, 38 percent feel their business hasn’t reached a point where succession planning is a priority.

Digging into why business owners don’t draft a plan, the survey found the top reasons were uncertainty about the business’s future (32 percent), lack of knowledge on where to start (32 percent), and difficulty in identifying a suitable successor (26 percent).

There were also clear differences between generations of business owners, with 68 percent of millennial business owners having succession plans compared to 61 percent of Gen X business owners.

For two-fifths of the survey participants, ensuring business continuity (41 percent) and managing financial aspects (38 percent) were significant challenges during business transitions. Larger enterprises, in particular, face heightened concerns related to financial and legal issues (40 percent).

Edward Jones and NEXT360 Partners identified four key factors that typically drive the need for a business succession plan: the need to protect the legacy of the business; when market conditions support the case for an exit to support the owner’s retirement; when the integrity of the enterprise and the owner’s vision are at risk; and causes that are specific to the family’s circumstances, such as a health event or the desire to make time for other activities.

“Owners invest years, or even decades, of their lives and often their own money into growing their businesses, which can make it emotional and difficult to determine what they want the future of the business to look like without them,” Katherine Roy, principal of retirement products at Edward Jones, said in a statement.

Among business owners with a succession plan, 69 percent have designated a successor and are actively preparing them, with nearly half (47 percent) of these successors being family members. Interestingly, business growth opportunities and new strategic directions (91 percent) dominate succession conversations more than preserving family legacy (81 percent).

Worryingly, the study also revealed 31 percent of business owners delay succession discussions with their appointed successor until one to two years before the transition.

“Our research found that there are a multitude of reasons why a business owner might choose to move on, and social values like personal plans, existing employee job security, community value, and personal legacy are not exempt from those considerations,” Dr. Joe Coughlin, senior advisor to NEXT360 Partners.