Ellen Huber: Succession planning important to retaining businesses
Planning for retirement and the succession or sale of a business is vital to keeping important retail stores and services in many North Dakota communities. Mandan is no exception.
I recently attended an economic development roundtable discussion where Mary Beth Votava, regional director of the Small Business Development Center in Minot, shared some statistics on business transitions. Votava reported that 90 percent of businesses are family-owned, 65 percent don’t survive beyond the first generation, and only 1 percent make it to the third generation.
Planning for the sale or transition of a business should begin three to 10 years in advance of the target transfer date. Votava suggests business owners envision their companies without them in it. Evaluate the skills of current employees. Recommend or provide additional opportunities for training, if needed. Seek input from employees. Communicate your plan, evaluate and revise it as necessary. “Your replacement must be able to engage existing customers and employees,” she explains.
The transfer of business assets such as a building, equipment and inventory is a physical exchange, notes Votava. Transferring control of a business is psychological and equally important. Transition planning can help ease both financial and personal burdens.
In seeking to secure the highest price for a business, Votava ranked these potential buyers and methods of selling from first to last: 1) investment banker, 2) key employee, 3) an identified, unsolicited buyer, 4) an identified, solicited buyer, 5) a business broker, 6) a realtor, and 7) selling to a family member.
Keith Olson, regional director of the Small Business Development Center in Williston, advises that if business owners don’t have an obvious buyer amidst their family and employee circles that they start a whisper campaign, quietly seeking options among contacts who have the characteristics to successfully lead the business.
Votova recommends that business owners secure and rely on a team of professional advisors: an attorney, certified public accountant and a financial or estate planner. At least three years of solid financial records are needed to determine the market value of a business. New banking regulations will increasingly require business appraisals if the buyer needs a loan.
They advise businesses to declare income on tax returns if they want to get the most value out of their business. “You’ll have to reduce the selling price if you take money out of the till,” Olson said. Three years of good tax returns are required for bank appraisals.
How a business owner chooses to bring his or her role in a store or company to closure is a personal decision. From a City perspective, we strongly encourage business owners to plan ahead so that the community can retain jobs and access to goods and services.
Small Business Development Centers across North Dakota can assist businesses with succession planning. Our regional center has a Bismarck office at the Bank of North Dakota. Call 328-5865 for more information.