Podcast Summary: "Succession Planning for Small Businesses: Special Topic" on The Unshakeables
Episode Details:
- Title: Succession Planning for Small Businesses: Special Topic
- Release Date: April 24, 2025
- Host: Ben Walter, CEO of Chase for Business
- Guest: Adam Frank, Head of Wealth Planning and Advice at JPMorgan Chase
Introduction: The Critical Need for Succession Planning
In this special episode of The Unshakeables, host Ben Walter delves into the often-overlooked yet crucial aspect of succession planning for small businesses. Recognizing that many small business owners focus intensely on daily operations and growth, Walter highlights the tendency to neglect long-term legacy planning until it's too late. To shed light on this subject, he invites Adam Frank, an expert in wealth planning, to discuss strategies and challenges associated with transitioning business ownership.
Notable Quote:
“Legacy planning is something most people don't consider until it's too late, and by then, it can be a tough situation to navigate.”
— Ben Walter [00:07]
Understanding the Current Landscape
Ben Walter presents alarming statistics to underscore the urgency of succession planning:
- 75% of small business owners aim to exit their business within the next decade, whether through sale, retirement, or other means.
- A survey of 300 business owners reveals that while most have a general idea about succession, only 50% possess a specific and detailed plan.
This gap between intent and action represents a significant risk not only to the businesses themselves but also to the broader economy and American society.
Notable Quote:
“Why is it harder with small businesses? ... Why is it harder with small businesses? What is it about making a plan for succession in your business that makes it harder?”
— Ben Walter [02:03]
Barriers to Succession Planning
Adam Frank identifies several reasons why small business owners struggle with succession planning:
- Emotional Attachment: Owners often view their business as a child, making the idea of stepping back emotionally challenging.
- Avoidance: Similar to delaying estate planning, owners may consciously avoid thinking about succession.
- Time Constraints: The daily demands of running a business leave little room for strategic personal financial planning.
Notable Quote:
“People think of their business in many ways as one of their children ... It's very Difficult, I think, for business owners ... to really think about what that looks like.”
— Adam Frank [02:03]
Succession Options: Family vs. Sale
Ben and Adam outline the primary options for business succession:
-
Passing the Business to Family:
- Advantages: Continuity and preservation of legacy.
- Challenges: Ensuring family members have the necessary skills and interest; potential for internal conflicts.
-
Selling the Business:
- Sub-options:
- Employee Stock Ownership Plans (ESOPs): Selling to employees to retain talent.
- Strategic Buyers: Selling to competitors or businesses seeking growth through acquisition.
- Financial Sponsors: Selling to investors looking for profitable ventures.
- Entrepreneurial Buyers: Individuals aspiring to own a business without starting from scratch.
- Sub-options:
Notable Quote:
“Those are their stories. Join Ben Walter ... to speak with small business owners across America who’ve gone through some of the most unexpected situations.”
— Ben Walter [00:07]
Passing the Business to Family: Key Considerations
When transferring ownership to family, several factors must be addressed:
- Capability and Interest: Ensuring family members are willing and able to manage the business effectively.
- Role Definition: Clarifying roles to complement strengths and mitigate weaknesses.
- Gradual Transition: Implementing a phased approach where the current owner gradually reduces involvement while the successor increases theirs.
Notable Quote:
“It's like stepping back from one of your kids. ... they have to be capable and not everybody is capable.”
— Adam Frank [04:41]
Selling the Business: Enhancing Saleability
For a business to be attractive to buyers, certain preparations are essential:
- Normalized Earnings: Presenting accurate and standardized financial statements.
- Audited Financials: Ensuring transparency and adherence to accounting principles.
- Separation of Personal and Business Finances: Preventing personal expenses from clouding the business’s financial health.
- Engaging Professionals: Utilizing the expertise of bankers, attorneys, and brokers to streamline the sale process.
Notable Quote:
“If your spouse is working in the business, if your kids are working in the business, you can take tax deductions. People will run personal expenses through the business.”
— Adam Frank [12:08]
Timing and Planning for Succession
Adam emphasizes that succession planning should commence early, well before any unexpected events occur. He introduces the "Five Ds"—Death, Disability, Divorce, Disagreement, Distress—as critical scenarios that necessitate a solid succession plan. Proactive planning ensures that the business can withstand unforeseen challenges without faltering.
Notable Quote:
“The five Ds are the things that usually come into play when somebody doesn't have a plan... you need to do it in advance of any of those things in order for it to be effective.”
— Adam Frank [09:21]
Emotional and Practical Challenges of Selling
Ben and Adam discuss the emotional toll of selling a business, likening it to a parent witnessing their child reject them. Owners must reconcile with the idea of relinquishing control and potentially seeing someone else manage what they've built for decades. Additionally, they must prepare for their new role post-sale, ensuring they have alternative pursuits to maintain personal fulfillment.
Notable Quote:
“It's a very emotional thing for a business owner because... it's like your kid rejecting you.”
— Adam Frank [14:27]
Statistics Highlighting the Importance of Planning
The episode concludes with sobering statistics:
- Only 30% of businesses successfully transition to the next generation.
- A mere 20% of businesses are sold successfully.
These figures highlight the critical need for explicit and well-structured succession plans to ensure business longevity and the preservation of the owner's legacy.
Notable Quote:
“Only 30% of businesses successfully pass on to the next generation, and only 20% actually sell.”
— Ben Walter [15:03]
Conclusion: The Imperative of Early and Thoughtful Succession Planning
Ben Walter and Adam Frank underscore the necessity for small business owners to prioritize succession planning as a fundamental aspect of their business strategy. By engaging with financial advisors, assembling a team of trusted professionals, and initiating the planning process early, owners can secure a prosperous future for their business and safeguard their personal and familial legacy.
Final Takeaway:
“The sooner you start, the better off you'll be... It's the legacy they're leaving to their kids and their grandkids.”
— Adam Frank [15:24]
Actionable Advice:
- Engage with wealth planners and financial advisors early.
- Separate personal and business finances meticulously.
- Develop a clear, written succession plan.
- Communicate transparently with potential successors or buyers.
- Prepare emotionally and practically for the transition.
For more information on succession planning, listeners are encouraged to visit chase.com/succession.
Closing Remarks: Ben Walter thanks Adam Frank for his invaluable insights and urges all business owners to take proactive steps in succession planning. Emphasizing that regardless of business size, the principles discussed are universally applicable, Walter reinforces the episode's message: securing the future of your business begins with thoughtful, deliberate planning today.
Notable Quote:
“If you own a business, please go out and make a plan.”
— Ben Walter [16:13]
This summary encapsulates the key discussions and insights from the episode, providing listeners and non-listeners alike with a comprehensive understanding of the importance and strategies of succession planning for small businesses.