Lessons Learned from the Trenches: Strategies for Business Succession Planning

According to the State of Small Business survey, 54% of U.S. business owners are over the age of 50. In rural areas, this is a concerning statistic. In communities where there are numerous restaurants and hardware stores, losing one to an owner retiring is not a significant challenge. If they happen to own the only hardware store, it’s a different story.

Roger Hrabe, Director of Rooks County Economic Development, is diligently working to ensure his community doesn’t lose any more businesses to retirement. He shared stories of businesses that have suddenly closed due to owners' health issues or other outside factors that make closing quickly necessary. Business closure is difficult for a community that depends on that particular service, store, etc. Closing quickly also creates a financial loss since owners can lose out on the business equity they have established, leaving them with a commercial building as the only tangible asset.

Roger hosted a Succession Planning Workshop and invited local business owners to attend. “I am trying to get people to start thinking about their succession plan well ahead of time,” he said. “We lost businesses we never would have lost if they had been thinking about it a year or two in advance and planned for it. That’s the frustrating part.”

For the workshop, he invited a business professor and financial planner to speak. “As an economic developer, I have extensive relationships and can connect business owners with the professionals who can guide them through the process. One of the first things I recommend is that they get a valuation to know what their business is actually worth.” With this in hand, Roger helps to market businesses and find new buyers.

Roger is hoping that more business owners will take care of this support. “I put out information through newsletters offering help. One of the challenges I see is that business owners want to keep their retirement plans a secret because they are worried that customers and employees may leave if they knew,” he said. “This is a barrier to planning. Another one is that succession planning is overwhelming for people, and they don’t know where to start, so they put it off.” By continually reaching out to offer support, he’s hoping to mitigate that.

Economic developers looking to help local business owners can learn from his experience. Recommendations include hosting workshops and seminars on succession planning, bringing in the experts, and speaking with business owners about their plans in a confidential environment. Bringing it up with employees around, for example, is unlikely to result in a frank discussion. “Discretion is key,” said Roger. 

Roger also suggests securing financing options and partnerships early on. “The banks can fund the building and some of the equipment but typically can’t fund business equity and working capital because there isn’t enough collateral. Gap financing and revolving loan funds can make up the difference. We work with Network Kansas, but there may be something similar in each state.” With resources in hand, economic developers have a stronger case to make for why business owners should involve them in the planning process.