A Business Succession Boom is Coming, and One-third of Business Owners Don't View a Plan as a Priority, Edward Jones Research Finds

Succession cited as emotional and challenging process according to business owners

ST. LOUIS, June 11, 2024 /PRNewswire/ --  The more than 33 million business owners in America face unique challenges in today's world, including navigating high healthcare costs and keeping up with technological advances, while employing nearly 50% of the American workforce. The average age of when business owners plan to pass on their business is 63 years old and, with a majority (51%) of small business owners over the age of 55,¹ the U.S. is facing an impending business succession boom. While many of these owners may be thinking about retirement, many of them are not fully prepared for the emotional and challenging process of selling their business.

In partnership with Morning Consult and NEXT360 Partners, Edward Jones found that while nearly two-thirds of business owners (64%) have prepared a business succession plan, 16% feel unprepared for their succession plan, with many facing a slew of unexpected challenges and emotional decisions that the guidance and support of an Edward Jones financial advisor may help alleviate. Many of those financial advisors have attained advanced designations to support business owners such as the Certified Exit Planning Advisor (CEPA®).

"For many business owners, short-term priorities associated with running a business might feel more urgent than planning for future succession. However, business owners should consider what will happen once they leave the business, whether by selling, retiring or becoming unable to manage the business due to health or age," said Katherine Roy, Principal, Retirement Products at Edward Jones. "A well-conceived succession plan allows the owner to identify what their ideal exit strategy looks like and address tax, business, estate and liquidity considerations that reflect both business goals and family dynamics."

Business owners who have yet to create a succession plan do not view it as a priority

According to the survey, 38% of business owners who have yet to create a succession plan feel their business is not yet at a stage where succession planning is a priority. Top reasons business owners cited for not creating a succession plan include uncertainty of the business' future (32%), feeling unsure of where to start (32%) and the inability to identify a successor (26%). The research also revealed generational differences in the adoption of succession plans among business owners, with more Millennial business owners (68%) having plans than Gen X business owners (61%).

Although many business owners referenced uncertainty about the future of their businesses as a reason for not creating a succession plan, the data points to a majority (88%) still holding the belief that their businesses will experience growth in the next decade.

Continuity and financial aspects are significant hurdles

The research revealed that ensuring continuity (41%) and addressing financial aspects (38%) are significant hurdles during business transitions.  The challenges encountered by business owners in succession planning can vary according to the size of the business. In particular, larger enterprises tend to face more concerns related to financial and legal aspects (40%). Despite the emotional and challenging process of running and transitioning a business, only 37% of business owners are using a financial advisor as a resource.

"Working with a financial advisor, especially one with an advanced designation such as the CERTIFIED FINANCIAL PLANNER^TM (CFP®), Chartered Financial Consultant® (ChFC®), Certified Private Wealth Advisor® (CPWA®), or the Certified Exit Planning Advisor® (CEPA®) can help business owners feel more prepared. More than 10,400 Edward Jones financial advisors hold one or more professional designations for advanced learning," said Zachary Gildehaus, Business Owner Strategist, Client Needs Research at Edward Jones. "Even if a business owner already knows the succession plan that they want put in place, a financial advisor can guide them through all of the complexities and challenges owners face when determining and implementing the future of their business."

Both business and personal dynamics drive transition decisions

Edward Jones and NEXT360 Partners uncovered four key factors that typically spark the need for a business succession plan:

• Legacy: When the legacy of the business and the future of the employees and stakeholders of the business are primary motivations for how the business will be transitioned from owner(s) to successors.
• Market: When an exit or a sale is necessary to continue operations and the subsequent proceeds are a key gateway for the owner or owners to be able to afford retirement.
• Mission: The exit or sale must make business sense, but sometimes the organizational mission to maintain the integrity of the enterprise and the business owner's vision are equal priorities.
• Cause: A health event or other circumstance of the owner or owner's family causes a sale or transition. Other examples include when the owner's family wants time to do activities delayed by running the business.

"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," said Roy. "As entrepreneurs ourselves, Edward Jones is proud to serve about 750,000 business owner clients, and our financial advisors work to understand the value, mission and meaning of their businesses to help them create holistic plans around succession planning, helping ensure there are no surprises when the time comes to step away."

Business owners are prioritizing transformation over legacy

Of those business owners who have created a succession plan, roughly seven-in-ten (69%) have already designated a successor for their business and are actively taking measures to train and prepare their successor. Among those who have identified a successor, three-fourths (73%) mention that the chosen individual had prior involvement with the business before their appointment and roughly half of appointed successors (47%) are family members.

Despite these family ties, business growth opportunities and new strategic directions (91%) were more common topics in succession conversations than preserving family legacy (81%).

The survey also revealed that 31% of business owners are waiting until only one to two years before the transition to begin having discussions with their appointed successor.

"For business owners, there is an emotional element at play when determining the succession or sale of their business," said Dr. Joe Coughlin, PhD, Senior Advisor to NEXT360 Partners. "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."

To learn more about this research, visit: www.edwardjones.com/NextInLine.

Survey Methodology

Edward Jones, in partnership with Morning Consult and NEXT360 Partners, LLC, conducted a mixed-methods study combining a nationwide online survey executed by Morning Consult from April 8, 2024 – April 9, 2024 (among a U.S. national sample of 400 business owners) combined with unstructured interviews conducted by NEXT360 Partners with business owners in Arlington, TX, Atlanta, GA, Charlotte, NC, Cleveland, OH, Dallas/Ft. Worth, TX, Denver, CO, Los Angeles, CA, Troutman, NC, New Jersey, Phoenix, AZ and Raleigh-Durham, NC.

About Edward Jones

Edward Jones is a leading financial services firm in the U.S. and through its affiliate in Canada. The firm's nearly 19,500 financial advisors serve more than 8 million clients with a total of $2 trillion in client assets under care at the end of March 2024. Edward Jones' purpose is to partner for positive impact to improve the lives of its clients and colleagues, and together, better our communities and society. Through the dedication of the firm's approximately 54,000 associates and our branch presence in 68% of U.S. counties and most Canadian provinces and territories, the firm is committed to helping more people achieve financially what is most important to them. The Edward Jones website is at www.edwardjones.com, and its recruiting website is www.careers.edwardjones.com. Member SIPC.

About NEXT360 Partners

NEXT360 Partners, LLC is a global action research and strategy consultancy delivering expert perspective on demographic, cultural, policy, and technological change. In partnership with its clients, NEXT360 conducts custom research empowering leaders in business and government to discover new market opportunities, develop winning strategies, and to deliver results. Learn more about what's your NEXT at https://next360partners.com.

About Morning Consult

Morning Consult is a global decision intelligence company changing how modern leaders make smarter, faster, better decisions. The company pairs its proprietary high-frequency data with applied artificial intelligence to better inform decisions on what people think and how they will act. Learn more at morningconsult.com.

¹ U.S. Census Bureau

SOURCE Edward Jones