There is a business succession boom coming within the next few years, and a new study published by Edward Jones finds that a sizable number of business owners are not prepared for it. That could offer an opportunity for advisors to help.

The average age that business owners plan to retire is at around 63; however, according to the U.S. Census, a slight majority of those owners are already past the age of 55. This means that within a few years, they will be looking to sell.

With that pending succession boom, Edward Jones surveyed 400 business owners and found that 64% have prepared a business succession plan, although 16% said they feel unprepared for it. They are facing a series of unexpected and emotional decisions tied to the plan, the report found.

Those who have not put together a succession plan pointed to several problems: 32% cited uncertainty about their business’s future and said they felt unsure of where to start, while 26% said they had not put together a succession plan because they have not been able to identify a successor. 

“I think a lot of them have succession intentions, but not what you would call a succession plan,” said Zachary Gildehaus, a business owner strategist with Edward Jones. 

Succession intention in this case means that the business owner has thought about a succession plan but has not actually taken any steps to execute it. The situation represents a unique opportunity for an advisor to step in and help, according to Gildehaus.

“I think a financial advisor can really help start coming up with a sequence set of steps to turn that intention into a plan,” he said.

Deciding on a successor can be the most complicated aspect. The individual who steps into the owner’s shoes will need to know the goals the business owner has for the plan in the first place, Gildehaus said. 

For instance, if the owner wants to maximize their sales profits to fund their retirement, they may wish to sell the company to someone who can offer the most money for it. A family member may not be able to afford to purchase the business, meaning the owner may have to gift it to them, he explained.

In the survey, 69% of those business owners who have created a succession plan have already designated a successor for their business and are already in the process of training them to take over.

Not everyone is looking to install their family members as their successors. In fact, only 47% of those who say they have selected a successor said it is a family member. But 73% said their successor did have prior involvement with the business before their appointment. 

As for the advisors, they need to decide what their business owner client’s succession plans are as soon as possible. Gildehaus recommends having that conversation at the outset of the advisor/client relationship. At the latest, the talk should take place three to five years from when the owner wants to get out, he suggested.

It is also beneficial for the advisor to establish relationships with other professionals a business owner will require when putting together and executing a succession plan. Those professionals include certified public accountants, attorneys, and even merger and acquisition advisors. The financial advisor is the only person who will be with the business owner before, during and after they sell their business, Gildehaus pointed out.

“They’re in a position to really coordinate all those advisors, so I think it's going to be incumbent on the FA to get really good at working and collaborating with those folks,” he said. The advisor should “get really good at working with the existing professionals that the business owners are working with and helping everyone get to that same end point.”