Small business (SMB) ownership is preparing for a shakeup in the coming years as more entrepreneurs plan to exit and sell their companies between now and 2022.
New data released from Chase in its Business Leaders Outlook report, published Wednesday (Nov. 1), highlighted the upcoming changing-of-hands of small businesses in the U.S., with 29 percent of small businesses saying they plan to transition ownership of their companies sometime in the next five years — up from 20 percent only a year ago.
It’s not the first time experts have highlighted this trend.
According to news from Forbes published last month, small business owners are getting ready to hand down their businesses to millennial entrepreneurs. It’s not a transition that can happen without friction, however, according to COMSTOR Outdoor CEO Jason Duff, who spoke to the publication about the accelerating pace of change in small business ownership.
“We have a succession crisis,” Duff wrote in an article published in Forbes. “But it doesn’t have to be that way ... Instead of just letting businesses close down, we need more millennials who can identify these opportunities and buy into them and grow them.”
The Veteran Business Owner
Millennials may be able to play a significant role in the future of the small businesses that are sold, but according to Chase’s analysis, veteran business owners are playing a major role in the selling of those businesses.
There’s a stark contrast between veteran and non-veteran business owners when it comes to plans for their companies, with 42 percent of veteran business owners planning to exit or sell their SMB in the next five years, compared to just 27 percent of non-veteran business owners.
According to Chase, this isn’t the only area in which veteran and non-veteran business owners differ.
“We found that VOB [veteran owners of businesses] leaders differ from general small business leaders by expressing greater optimism, growth expectations, hiring plans and use of technology to grow their businesses,” Chase said in its report.
More veteran business owners say they expect to see an increase in profits — as well as an increase in credit needs — over the next year, researchers found. Three-quarters of veteran-owned businesses are considering financing in the next year, compared to 57 percent of non-veteran-owned businesses.
“In particular,” Chase said, “VOBs are considering financing for purchasing/development of IT or software systems, working capital, remodeling and expansion. They’re also more likely than non-VOBs to be planning financing for acquisition.”
Plans to access financing for IT and software is a particularly interesting area, as 38 percent of VOBs said technology is the area in which they need the most help, more than marketing and funding. But that doesn’t mean veteran business owners aren’t comfortable with technology: 42 percent told Chase they are investing in mobile advertising, more so than non-veteran entrepreneurs.
Overall SMB Outlook
VOB businesses aren’t the only ones concerned with technology, though, with technology also making the top of the list among non-veteran business owners as the area in which they need the most help.
Still, small businesses overall are optimistic, Chase said, with a 9 percent year-over-year increase in SMB outlook on the local economy and a 14 percent increase in optimism for the national and global economies as well.
Nearly 70 percent said they are optimistic about their own companies, and more than half said they feel the same about their own industries.
Chase recorded a slight decline in the percentage of SMB owners that plan to increase the number of full-time employees on their staff, from 30 percent earlier this year to 27 percent. Researchers also saw a 5 percent drop in the number of SMBs that plan to increase the number of part-time employees on their teams. More than a third said they plan to increase employee compensation in the next year, but Chase warned that this is “significantly lower” than the January 2017 reading of 41 percent.
The ability to grow sales and revenue is the most commonly cited challenge for small businesses today (39 percent), followed by economic uncertainty (31 percent), taxes (27 percent), cash flow management (23 percent) and healthcare costs (28 percent).