Survey: Small Business Owners Fuzzy About Future, Financials

DANVILLE, Pa. – While many small business owners spend countless hours and resources building their enterprises, most are not satisfied with the state of their financial planning. Further, many are giving little thought to planning the future, reports a recent survey of high net worth small business owners in four northeastern states.
 
Fully 38 percent of those polled say they "do not have a business succession plan or long-term exit strategy" in place for their organizations. When asked to characterize the master plan for their business, 30 percent agreed that their plan "is in my head only and has never been fully documented." Another 10 percent acknowledged that their plan "is not fully developed" and that they "should have a real plan."
 
"It's surprising and even a bit alarming to find so many small business owners taking such a casual, shortsighted approach to plotting their future," says Mark Papalia, president and founder of Papalia Financial, sponsors of the survey. "When you think about how much time and effort these entrepreneurs have invested in their enterprises, you would expect them to have a more structured, formalized plan to preserve these assets for the future."

The survey was conducted by Yankelovich affiliate AGI Research among nearly 200 small business owners in New York, New Jersey, Connecticut and Pennsylvania.

Papalia notes that a lack of business and succession planning were not the only areas in which small business owners came up short. The survey also uncovered a notable lack of expertise among owners about certain financial aspects of their business.

When asked which option best meets their needs for financing their business, 26 percent of small business owners prefer "home equity loans."
 
"Tapping into a home equity credit line to help build or sustain a small business is a relatively easy way to go, but that doesn't make it the wisest choice," Papalia explains. "Most small business owners should not be exposing their personal assets in this manner, as it creates unnecessary risk and liability concerns. Far better options would be to utilize a long-term corporate loan, based on expected capital expenditure needs over the next five years, along with a corporate line of credit to meet short-term fluctuations in cash flow."

In a similar vein, Papalia notes that the commonly accepted practice of passing along ownership of a small business to family members is not necessarily always the best move. Nearly one-quarter of those polled expect to pass their business along to a family member.

"A family business transfer or pass-along may be a comforting and expedient course of action for small business owners, but again it may not be in the best interest of either business owners, who may need to maximize the value of their business to retire comfortably or their children, who may lack the necessary experience to run the business successfully."

Respondents were asked a series of questions to gauge their know-how on a range of financial planning topics, such as how best to structure their business, the impact of estate planning on inheritance, tax and legal liability scenarios and investment strategies. As Papalia explains, small business owners again demonstrated a lack of knowledge in these areas.

"It's unreasonable to expect that small business owners would be experts in this arena, especially when they are focused on running and growing the business," adds Papalia. "Still, the fact remains that most respondents failed almost all of the questions on the financial scorecard, which underscores the need for more sophisticated financial planning assistance."

Papalia notes that while small business owners may have a lot to learn about financial planning, a strong 85 percent acknowledges that they are not content with their current financial planning.

"Only 15 percent of those surveyed told us they were truly satisfied with their present financial planning situation," he explains. "That leaves a fairly large group that recognizes the need for guidance in charting a business and personal plan for the future."