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Study by Columbia Business School and U.S. Trust Uncovers Financial and Emotional Challenges of Business Succession Planning

Paper Documents Eight Real-life Stories of Entrepreneurs Who Transitioned Their Businesses

Thursday, May 7, 2015 10:00 am EDT

Dateline:

New York
"Building a successful business can be wildly exciting, all-encompassing hard work that also has led to great personal and family wealth"

There has been significant sale activity seen in the private company space over the last few years as baby boomers head into retirement, yet many highly successful entrepreneurs are not well-prepared to give up ownership of their companies, or for what comes next, according to a new paper published today by Columbia Business School and U.S. Trust.

The Owner’s Journey,” co-authored by Barbara Roberts, entrepreneur-in-residence at Columbia Business School, and Murray Low, director of entrepreneurship education at the Eugene Lang Entrepreneurship Center at Columbia Business School, takes an in-depth look at the sale or transfer of closely held businesses. Commissioned by U.S. Trust, which contributed expertise in succession planning and exit strategies, the paper follows eight successful entrepreneurs who nurtured and grew their businesses and then grappled with the challenges of letting it go. It includes first-hand accounts of their experiences shared, lessons learned, and reflections on what they could have done differently.

The case studies bring to life the emotional, financial and sometimes psychological factors that go into planning for the sale or transfer of a closely held business. The paper also includes practical tips that explore several themes, including:

  • Business valuation.
  • The differences between estate planning and succession planning.
  • Realistic timetable for succession planning and transition.
  • Assessment of the next generation of preparedness, capabilities and interest.
  • Personal financial considerations and the alignment of financial goals with personal values and goals.

 

“Building a successful business can be wildly exciting, all-encompassing hard work that also has led to great personal and family wealth,” said Roberts. “We know that it’s passion for what they are doing that drives most people to business ownership. While much has been written about the start-up and growth phases of entrepreneurism, little attention has been given to the challenges business owners face creating financial value when preparing for the exit phase and beyond.”

Lack of insights about the transition process is at least one factor contributing to widespread lack of business succession planning. Insights on Wealth and Worth®, a survey conducted by U.S. Trust, has found that two-thirds of high net worth business owners have not established a formal plan for transferring ownership of their business, whether their intent is to sell the company or transfer it to family members.

“Eventually all entrepreneurs exit their business, by design or default, and the terms affect what’s next in their lives and those of their families, employees, business and community,” said Keith Banks, president of U.S. Trust. “The planless owner is often forced to exit on other people’s terms or under difficult circumstances without a meaningful transition or optimal pricing. Our intent in commissioning this paper is to help business owners learn from the experiences of others regarding the importance of the planning process.”

The eight business owners featured in the paper come from diverse industries and followed different paths to success. All have sold a business to a strategic or financial buyer or have transferred ownership to a family member for at least one generation.  Some of the entrepreneurs featured in the paper include:

  • The female CEO of a prominent East Coast industrial services firm who became the fourth generation to lead the company founded by her great-grandfather.
  • A young entrepreneur who followed his passion and grew a bootstrap company into a thriving business that connected millions of creative people around the world before being sold to a software company.
  • An orthodontist from a middle-class New Jersey suburb who, after buying the first specialty dentist practice outside Washington, D.C., spent the next 25 years building a thriving private practice and became a nationally recognized leader in his field. 
  • A small print-shop owner from Brooklyn who, after returning from World War II, invented an innovative process for color printing, and after 44 years made a family decision to sell the company to a strategic buyer despite three children employed in leadership positions. 
  • The son of Jewish immigrants from Germany, who while attending law school, inherited ownership of the family’s food import business after his father’s untimely death. The company, which grew to a successful, mid-sized company and international brand, was also a family legacy, making the decision to let go of its ownership particularly difficult for its owner.  

 

A complete copy of “The Owner’s Journey” is available for download here.

The study was prepared by Eugene Lang Entrepreneurship Center at Columbia Business School, in collaboration with U.S. Trust, Bank of America Private Wealth Management, and funded by a grant from Bank of America. The report does not necessarily reflect the views of the Eugene Lang Entrepreneurship Center, Columbia Business School, or any other persons or entities affiliated with the Center, or U.S. Trust or Bank of America or its affiliates. Case studies are intended for illustration only.


About Columbia Business School
Columbia Business School is the only world–class, Ivy League business school that delivers a learning experience where academic excellence meets with real–time exposure to the pulse of global business. Led by Dean Glenn Hubbard, the School’s transformative curriculum bridges academic theory with unparalleled exposure to real–world business practice, equipping students with an entrepreneurial mindset that allows them to recognize, capture, and create opportunity in any business environment. The thought leadership of the School’s faculty and staff, combined with the accomplishments of its distinguished alumni and position in the center of global business, means that the School’s efforts have an immediate, measurable impact on the forces shaping business every day. To learn more about Columbia Business School’s position at the very center of business, please visit www.gsb.columbia.edu.

U.S. Trust
U.S. Trust, Bank of America Private Wealth Management is a leading private wealth management organization providing vast resources and customized solutions to help meet clients' wealth structuring, investment management, banking and credit needs. Clients are served by teams of experienced advisors offering a range of financial services, including investment management, financial and succession planning, philanthropic and specialty asset management, family office services, custom credit solutions, financial administration and family trust stewardship.

U.S. Trust is part of the Global Wealth and Investment Management unit of Bank of America, N.A., which is a global leader in wealth management, private banking and retail brokerage. U.S. Trust employs more than 4,100 professionals and maintains 97 offices in 31 states.

As part of Bank of America, U.S. Trust can provide access to a broad range of banking solutions for individuals and businesses, and an extensive retail banking platform.

Bank of America
Bank of America is one of the world's largest financial institutions, serving individual consumers, small and middle-market businesses and large corporations with a broad range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 48 million consumer and small business relationships with approximately 4,800 retail financial centers and approximately 15,900 ATMs and award-winning online banking with 31 million active users and approximately 17 million mobile users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 3 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and more than 35 countries. Bank of America Corporation stock (NYSE: BAC) is listed on the New York Stock Exchange.

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Contact:
Christopher Cashman, Columbia Business School, 1.212.854.4338
christopher.cashman@columbia.edu

Julia Ehrenfeld, U.S. Trust, Bank of America, 1.646.855.3267
julia.ehrenfeld@bankofamerica.com