Sequels have proven to be a mixed bag for Hollywood. When “The Godfather” was released in 1972 it was a major box office hit, instantly gaining a cult following. When “The Godfather Part II” came out in 1974, the first of two sequels, critics deemed it to be superior to the original in terms of editing, cinematography, and storytelling. It was quite the opposite for the “Speed” franchise. When “Speed” was released in 1994, the film was so successful that it was one of the highest-grossing movies of the year. When “Speed 2: Cruise Control” came out in 1997, however, changes to the initial story’s plot were received so poorly that the film flopped, with ticket sales totaling less than one-third of the cost to make the film.There is no guarantee that something that initially resonates with people will remain popular following even the most minor modifications. So, as millions of small businesses prepare to change hands in the coming years, strong succession planning may be the difference between those that succeed and those that flop. It also creates an opportunity for community financial institutions (CFIs) to provide lending and advisory services to these businesses before, during, and after the ownership transition. Changing of the GuardAs the pace of baby boomers heading for retirement picks up, six million small- and medium-sized businesses (SMBs) in the US are expected to change hands by 2035, according to McKinsey & Co. Yet, roughly two-thirds of SMBs lack clear succession plans. Of the nearly 200K small businesses listed for sale each year, 70% never find buyers and are forced to close. Furthermore, most small businesses (more than 90%) are family owned, only 30% of which survive a change of ownership to the second generation. The odds of survival after a business passes to a third generation fall to 12% and plummet to 3% for the fourth generation and beyond. Failing to put clear succession plans in place increases the likelihood of failure for SMBs. If an SMB owner intends to pass a business to children or other family members, this is something that needs to be clearly outlined and discussed long before that individual nears retirement. This is especially crucial for cases where the intended business heirs may not want to take over the reins or may be unprepared to do so. Finding out early that an alternative succession plan is needed can help avoid last-minute scrambling to find a buyer or identify another qualified candidate within the business. Depending on the complexity of a business, training may be needed well in advance of an ownership change. Other risks that can change the trajectory of a business or lead to an unexpected sale include an owner’s death or an unexpected disability, the need to liquidate or split up assets due to divorce proceedings, or a disagreement between business owners. If succession plans are not in place prior to any of the above it often results in a business being shuttered, a reality that can have a particularly negative impact on rural communities where SMBs account for more than 56% of employment. A Growing Opportunity for CFIsAccording to data from BizBuySell, 37% of small business owners plan to sell their organizations within the next two years. However, a major hurdle for business owners seeking to sell is that the high costs associated with acquisitions make it prohibitively expensive for many potential buyers. With retirement spurring 55% of small business owners to sell, the massive wave of small businesses expected to change hands amidst an aging baby boomer population creates lending and advisory opportunities for CFIs. In fact, 72.8% of bank executives view advisory services as one of the best ways that CFIs believe they can differentiate themselves from their larger competitors, according to the 2026 Community Bank CEO Outlook. Advisory services tailored to SMBs — such as helping owners navigate things like business valuations or deciphering complicated sales or purchase agreements— are a good way for CFIs to differentiate themselves from larger banks by providing more personalized service. With 66% of baby boomers likely to seek new advisors when they begin inheritance planning, according to a recent survey from Natixis, CFIs that incorporate succession planning into wealth management services have a major opportunity to attract new customers. Of course, CFIs should still take note of the approach that major banks have taken to succession planning themselves, such as PNC, which assigns business strategists to business owners whose ages indicate that they are likely to retire in the near future. One CFI that has used advisory services to attract new business is First Financial Bank, whose Yellow Cardinal Advisory Group provides SMBs looking to sell their businesses with free and low-cost valuation services. Another way that CFIs can take advantage of impending SMB sales is through financing. For businesses unlikely to pass to the next generation within a family, employee stock ownership plans (ESOPs) are an increasingly popular exit route for SMB owners. In an ESOP, a trust is created to essentially purchase an owner’s shares of a business, which are then gradually awarded to employees of the organization through a pre-established compensation framework. In addition to advisory services for the structure and execution of ESOPs, the plans also provide an opportunity for CFIs to provide SMBs with the leveraged financing necessary to execute them. Transition financing is another way that CFIs can help facilitate SMB sales. In many cases, CFIs are taking advantage of SBA 7(a) and 504 loan programs — which offer long-term, fixed-rate financing for certain types of small businesses — to help buyers find the necessary financing to purchase SMBs at more affordable rates.
With millions of SMBs likely to change hands over the next decade, there are multiple ways that CFIs can take advantage of this trend to make themselves an integral part of succession planning and business transitions. Actively marketing advisory and financing services for succession planning is a good way for CFIs to cement relationships with both existing SMB owners and potential buyers or business heirs.
With millions of SMBs likely to change hands over the next decade, there are multiple ways that CFIs can take advantage of this trend to make themselves an integral part of succession planning and business transitions. Actively marketing advisory and financing services for succession planning is a good way for CFIs to cement relationships with both existing SMB owners and potential buyers or business heirs.
