What’s important for business transitions in Minnesota?
Breaking down the data
By Michael Darger
February 19, 2024
Who do business owners turn to when it’s time to plan their business transition? What resources do they use? What activities are they doing to prepare for transferring the ownership and the leadership to others? How ready are they — both in personal and business terms?
These are key issues for owners in their succession and transition planning. They are some of the things the University of Minnesota Extension is researching in the Minnesota Business Succession and Transition Study.
At the risk of increasing the hat sizes of CPAs and accountants, we learned accountants were the most sought out professional advisers when owners want guidance in transition planning.
A closer look at the data
There are other advisers that owners also turn to; however, out of a list of 13 sources, only five were used by 25% or more of the respondents. Accountants, other business owners, attorneys, spouses/partners and personal financial planners were the advisers most turned to for succession and transition planning (see Table 1).
Table 1. Sources of advice or resources for succession and transition planning?
MN Business Succession and Transition Study, N=286 business owners, 2023 |
| Accountant |
55.6% |
| Other business owner |
51.0% |
| Attorney |
45.1% |
| Spouse/partner |
29.4% |
| Personal financial planner |
28.3% |
It’s interesting to see this cluster of important advisers, all of whom are essential for different reasons. However, none of these people can provide all the advice an owner needs.
A previous University of Minnesota Extension study on business succession and transition done in 2017 found that it took an average of 3.8 advisers (who were designated “very” or “moderately” important) for new owners who successfully transitioned a business from the previous owner. Note that the 2017 study was with rural businesses that had survived at least four years after the transfer. In that study the accountant was the second most important adviser, with bankers were the top adviser.
Preparing for a business transition
As you would imagine, there is much more involved in getting a business ready for transition than receiving and acting on professional advice, although expert advice is essential.
There are several activities valuable to preparing the business, such as creating a written succession and transition plan, obtaining formal business valuations, training successor(s), having discussions with family members, documenting policies and procedures and more.
Personal readiness is equally important. How ready is the owner/leader for this major change in their life?
Besides the obvious impact on their personal financial situation, there are other important considerations. Do they have a plan for what they will do after leaving? If much of their identity, their relationships and their personal mission is involved in the business, what will fill that void?
In our current 2023 survey, we found that having plans for after they depart the business, seem to make a difference. For example, the survey found a statistically significant relationship between a business owner/leader’s self-assessed personal readiness for transition (on a 6-point scale) and plans for working part-time or full-time after stepping away from the business (p-value of 0.047).
However, there was no increase in personal readiness when a respondent indicated they would fully retire.
I will share more about this topic in future articles. Meanwhile, you can find the
complete survey results here.
Implications for Minnesota
Over 50,000 Minnesota businesses are led by aging owners/leaders (i.e. people over 55). The U.S. Census 2021 Annual Business Survey estimates over 20% of owners here are 65+ and 32.5% are 55+.
Not all businesses are destined to transfer to new ownership. Regardless, retaining businesses is an important economic opportunity for Minnesota for keeping locally owned firms and for providing entrepreneurial opportunities for the next generation, including young people, BIPOC folks and immigrants.
What can you do to help? Well besides great business accounting, financial planning and tax advice, here’s a couple ideas:
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Encourage your clients to start their transition planning. They need to start now. Here’s a useful short video clip to help them.
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If they’re the kind of person who could use a course, we have an online course for learning with other owners, Is Your Business Ready for Success(ion)? (registration deadline: Feb. 29)
Michael Darger is an Extension community economics specialist at the University of Minnesota. He is leading a research project on Minnesota business succession and transition and facilitates a diverse group of economic and business development professionals around the state who are concerned about this topic. He manages Extension’s business transition program resources including a business owner course, a YouTube channel with short videos and more. You can reach him at darger@umn.edu.
