The Greater Des Moines Partnership wants to help the small businesses that account for 80 percent or more of its 6,100 members plan for the next chapter in their corporate history.

It’s called succession planning, and many of us are behind on it. Or not thinking about it at all.

There has been a wave of activity in the agricultural arena as organizations move to help families with century farms who may be facing the prospect — for the first time — that no one in the family wants to take over the farm. 

The Partnership has created a Succession Planning and Advisory Network to help members maneuver through questions that come up as businesses move to new hands, in the family or out. 

Meg Schneider, the Partnership’s senior vice president of business resources and community development, has been thinking about succession in a broader sense for a while. “It’s been on the horizon for a year or two,” she said.

“If you look at our population, there is a good percentage of business owners that are reaching retirement age,” Schneider said. “That could really change the fabric of our small-business population in Iowa.”

Partnership members have brought up the need for this help. “A good percentage of owners are approaching retirement age,” Schneider said. The Iowa Small Business Development Center reports that 40.3 percent of owners plan to retire soon, and 47 percent have no buyer arranged, she said. 

“If you think of our Main Streets — a Valley Junction or an East Village — does a business have someone picked out to take over in 10 years?”

We all have a stake in that because small businesses add jobs much more quickly than large ones, Schneider said. “They are such a key part of the economic engine in Central Iowa we want to make sure those businesses are still around.

“That’s a significant number of businesses,” she added. “This is a great opportunity for someone to own something with an existing client base.”

“It’s critical that small businesses take the time to step back and think about what they want for their businesses. It’s like a will for your business. What if something happened? Is there a written plan?”

The Partnership is meeting with key managers. The idea is to take stock of the number of Central Iowa businesses that need better succession planning. 

“Our first step is validating the data for Central Iowa, Schneider said. “As we sit today, what would happen to your business? What is your plan for when you turn 65? If something were to happen, what do you think would happen to your business? Do you have a written plan?

“We want to identify some pain points in selling and buying. Is it finding someone? Is it the valuation? Are there tax, insurance, legal considerations?”

Sometimes it’s a matter of starting to hand off duties to help a transition.

The Partnership is assembling a team to consult with members about those issues. People with legal and human resources backgrounds. Schneider noted that many small businesses don’t have a board of directors to offer advice. 

The SBDC is helping, as are local experts in insurance, marketing, law, banking and family-owned businesses.

This is the Partnership’s first concentrated effort in the area, Schneider said. 

The Partnership is running a survey — it should take less than three minutes to do  — at https://www.surveymonkey.com/r/GDMPSPAN.

Outreach will include seminars and personal, confidential consulting.

It’s a hot topic. Many private firms and groups such as the Association of Business and Industry have offered information about succession, too. ABI plans in the next month or two to add a succession planning resources section to its website, said communications coordinator David Hildahl. The pages will offer a mixture of information from ABI Advisory Council members and third-party content.

Help and Tips Offered
The following resources have appeared in ABI publications and elsewhere and are shown here with permission.

Advance Iowa, a comprehensive consulting program for midsized companies, began monthly webinars on the topic Feb. 22. The company estimates 85 percent of businesses have no succession plans in place, though a majority will change hands as baby boomers leave the workforce. “We have found that business owners need information and resources about all aspects of succession planning,” said Dan Beenken, director of Advance Iowa, which is based at the University of Northern Iowa. Details are online at www.AdvanceIowa.com.  

Brian Crotty, managing director, HDH Advisors LLC:
Research shows only approximately 30 percent of all family-owned businesses survive into the second generation, and only 12 percent will survive into the third generation. Surprisingly, only 3 percent of all family businesses operate at the fourth generation and beyond. 

Of the 70 percent of businesses that fail to transition successfully, 60 percent fail due to problems with communication and trust. Twenty-five percent fail due to a lack of preparation from the next generation. Fifteen percent fail from all other issues (poor tax or financial planning, legal advice, etc.).

If a third-party sale is the strategy that’ll allow you to accomplish all of your established goals, you’ll need to prepare yourself and your company well in advance of the sale. If keeping the business in the family or with key employees is most important to you, prepare yourself, your company and your team for an insider transfer. You may want to investigate creative methods to finance a sale, make sure your chosen successor can run the business without you, and avoid conflicts among business-active and non-business-active children.

 Planning for your exit maximizes value, minimizes risk and keeps you in control until you’ve achieved financial security. 

Rowena Crosbie, President, Tero International Wealth Management:
Successful succession plans have three key components.
1. The first component is the development of a succession plan. This step involves the following elements:
– Succession pool criteria (competency model) are determined.
– Candidates for the succession pool are identified.
– Gap analysis is performed to determine development needs.
A development plan is designed to build a strong succession pool and address any competency gaps that may exist.
2. The second component is leadership development. This includes:
– Internal communication of the needs and expectations of the business.
– Training programs and executive coaching.
On-the-job development opportunities for candidates in the succession pool (i.e., cross-training, lateral job transfers to build breadth of business knowledge, specialized project responsibilities).
3. Finally, the third component is to make the process ongoing with frequent attention to the changing needs of the business and the associated implications to the succession pool. Measurement and analysis are critical elements of this component.

Chawn Honkomp, CPA, Principal Financial Group:
If you’re like most business owners, you’ve not given much thought to how, when and to whom you’ll transfer your business. Someday, you’ll leave your business, whether by a planned or unplanned event. Some transitions can be anticipated, like a planned retirement. Other events are less predictable, such as an untimely death or disability. Being prepared for both with a formal succession plan increases the next generation’s chance of success.

It’s important to make plans to exit your business on your terms. This planning can help protect you and your family under many contingencies: retirement, death, disability, personal bankruptcy or even a divorce. Key items to consider include: to whom will you sell or transfer the business; when do you want to transition; how much will you sell for; and  where will the funding come from and what will the payment terms be.

Reitrement income
Key items to consider include: how much will I net from the sale of my business; what retirement income sources will I have; will those sources be enough to meet my retirement income goals; and what is the tax impact to my retirement income from each source.

Legacy and estate planning
Key items to consider include: who do I want to leave my assets to; how do I protect my assets while I am alive; do I want to be fair or equal to my heirs; and do I have an estate tax liability, and if so, how will it be handled.

Team of advisers
It is up to you to create and develop your team. The proper team of advisers will help you with your transition planning so you can successfully leave the business on your terms and perpetuate your business through the next generation.