ISU Extension: The Importance of Business Succession for Rural Communities

An update last month from Iowa State University (ISU) Extension noted that, “It happens in small towns across Iowa and the country. A long-time business must close its doors because it has no successor, leaving a community with the empty storefront of a shop that once offered a product or service, jobs and philanthropic support.

The vitality of rural economies depends as much on maintaining these existing businesses as attracting new ones, said Iowa State University economic and small business experts. Even though resources are available to assist with business succession, several factors can complicate plans to sell or pass on the business to an heir. In rural communities, location and declining population are obstacles.”

The update explained that, “[Georgeanne Artz, an assistant professor of economics] has studied differences between rural and urban entrepreneurs to understand how location affects business creation, succession and income. There is a perception that urban areas are better for business, but Artz’s research shows that is not always the case. After controlling for factors such as education and cost of living, she found relatively little difference in pay and an advantage for rural entrepreneurs who have location-specific capital.”

Last month’s update also stated that, “Nearly 70 percent of family businesses do not have a succession plan, according to Iowa SBDC’s 2017 State of Small Business and Entrepreneurship. The average business owner in Iowa is 50 years old and more than 14,000 business owners are 70 or older. [Lisa Shimkat, state director for Iowa SBDC, which is part of ISU’s College of Business] says these numbers not only highlight the opportunity for young entrepreneurs, but the potential impact if a majority of these small businesses would close.”

The ISU update added that, “Succession is a difficult and emotional issue for many business owners to address. Shimkat says some owners feel that developing a plan in advance is too final. However, life circumstances can change unexpectedly, which is why Shimkat encourages business owners to start thinking about an exit strategy the day they open their doors. Doing so will benefit the business and the community.”

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