Wilmington Trust and a team of academic advisors found that 58 per cent of business owners haven’t planned for a transition, even though the financial risks of not being prepared are increasingly a focus for debate.

The research, titled The Power of Planning, surveyed more than 200 owners of privately-held companies. The top reason for delaying transition planning was owners’ passion for the day-to-day logistics involved in running their companies. Some 78 per cent of owners who did not have a transition plan said they enjoy managing their company too much to start thinking about a future transition.

Business transition is an increasingly important issue at a time when the Baby Boom generation is looking to step down from work and pass on business and wealth. Throughout the world, private banks and advisors are scrambling to work with business chiefs to manage the process, as transitions are important liquidity events. This publication recently spoke to US Trust and Key Private Banking about similar issues

Too busy
In other findings, some 42 per cent of owners said they were too busy to start planning, while 44 per cent felt that a transition was too far in the future to establish a plan.
 
“Business owners love what they do, so it can be difficult for them to imagine a day when they need to give it up,” Matt Panarese, president of Wilmington Trust’s Mid-Atlantic region and leader of the firm’s National Business Owner Practice Group.

“The reality is that planning effectively and running a business are not mutually exclusive. Owners don’t need to walk away from the business they’ve spent their lives building to start thinking long-term. In fact, early planning can provide more flexibility and allow owners to continue to work in whatever capacity they choose - before and after a transition,” he said.

In a result that surprised Wilmington Trust, some 47 per cent of respondents aged 65 or older still do not have a transition plan in place. Yet 67 per cent of all respondents said getting older is the top reason for creating a plan, followed by providing security for their family .

Rounding out the top five reasons to have a plan are: Meeting the valuation goal – 36 per cent; reducing tax – 35 per cent, and receiving an offer from a potential buyer – 22 per cent.

When asked to describe the status of their future plans, business owners without an existing transition plan said: They have broad outlines, but nothing specific – ; have considered, but haven’t start planning – 20 per cent, and have not thought about transition at all – .

 “There are many good reasons for business owners to start long-term planning,” said Stuart Smith, managing director of the M&T Investment Banking Group, which, along with Wilmington Trust, is part of the M&T Bank family of companies.

The survey found that the two most important transition goals cited by survey respondents were “ensuring the company remains viable in the long-run” and “taking care of employees,” both cited by 87 per cent of respondents.
 
Coming in a close second was “ensure your customers are taken care of” at 85 per cent. In third place, at 83 per cent, was “financial security for you and family.” Concern for family, employees, and the company continue to round out transition goals, with respondents citing the following motivators: Ensure your company retains value – 78 per cent; maintain family harmony – 58 per cent; keep the business within the family – 39 per cent, pass control to employees – 28 per cent.

The survey also explored perceptions of business owners about selecting transition advisors. More than 80 percent of owners listed tax expert , lawyer and accountant as the top three most important advisors. Other top advisors include: Legal trust expert – ; banker ; investment advisor ; family business consultants , and executive coach .

Within the circle of advisors, business valuation experts play a critical role for owners. While two-thirds of survey respondents say they have a very good sense of their company’s worth, the same percentage want to speak with valuation experts.
 
Of the sample of more than 200 business owners in North America, some 89 per cent owned privately-held companies without private equity investors; 66 per cent had a family-owned business; 73 per cent had been in business for more than 20 years;   81 per cent had annual sales revenue over $10 million, and 52 per cent had more than 50 full-time employees.

The academic advisors on the survey: Matt Allen, PhD, is associate professor at Babson College, and faculty director for the college’s Institute for Family Entrepreneurship; Francesco Barbera, PhD, is senior lecturer and co-director of the Family Business Education and Research Group at the University of Adelaide, and Thomas Schwarz, PhD, is founder and senior counsel at Black Forest Business Solutions, and former dean of Stetson University’s School of Business Administration. He was also a visiting scholar at Babson College.