By: Ella McBee McCullar
A recent Gallup study analyzing U.S. Census Bureau data shows that over 52% of “employer-businesses are owned by people who are at or near retirement age, those 55 and older.”[1] However, roughly two-thirds of family-owned businesses, the heart of our American economy, lack a clearly documented and well-communicated business succession plan.[2] This lack of planning means that when small business owners retire or pass away, the business almost always ends as well. Only 30% of family-owned businesses survive into the second generation, and just 3% make it to the fourth generation and beyond.[3]
In response to the growing awareness of the effects of poor business succession planning, U.S. Representative Jason Crow (D-CO) introduced the “Small Business Succession Planning Act.”[4] The Act proposed that the Administrator of the Small Business Administration create a program to aid small businesses in developing and implementing succession plans.[5] The Act also included a corresponding amendment to Section 45AA of the Internal Revenue Code that would provide a $250 tax credit for companies certified by the Administrator to have developed business succession plans.[6] The bill was referred to the Committee on Small Business and the Committee on Ways and Means on October 25, 2023. It has remained there, dead in the water, for over two years.[7]
While Congress has stalled its progress toward mandating or incentivizing small business succession planning, some localities have been hard at work. On February 12, 2025, New York State Senator Jamaal Bailey introduced Senate Bill S4755.[8] The bill proposes the creation of a Farm Ownership Succession Planning Program (“FOSPP”) wherein the Commissioner of Agriculture must provide a toolkit and forum for farm owners to receive information and guidance on developing business succession plans.[9] On June 1, 2026, the bill passed the Senate by unanimous vote.[10] It now sits with the Assembly Committee on Agriculture for further review and consideration.[11]
The City of Cambridge, Massachusetts, has also developed a Small Business Succession Planning Program that launched in spring 2024.[12] The program provides regular workshops and seminars on business planning,[13] employee ownership,[14] and transfer valuation.[15] It also offers any current or prospective owners free access to a succession planning toolkit[16] and workbook.[17] While companies doing business in Cambridge are not required to partake in the program, the close-knit community encourages its local businesses to plan for the future and ensure that the owners’ hard work persists for generations to come.
Neither the Tennessee Legislature nor any Tennessee localities have introduced bills or support programs concerning business succession planning. That said, Tennessee business owners should not wait to institute these critical procedures. In Tennessee, there are over 46,000 businesses owned by individuals over the age of 55.[18] These near-retirement businesses generate over $116 billion in annual revenue.[19] It is imperative that business owners make change today and implement business succession strategies that will build lasting legacies, preserve historical communities, and ensure the continued economic success of the Volunteer State.
So how does a business start planning its exit strategy? There are four main options for small business owners preparing to leave their organizations via retirement, death, or buy-out. The first—and perhaps most common-sense—is a third-party sale.[20] In this succession model, small business owners typically list their business with an investment banker or broker who manages the sale to an unrelated individual or entity.[21] This option offers two major advantages: (1) the third-party buyer typically has the cash to pay for the purchase, ensuring the most money in the seller’s pocket; and (2) sellers can typically exit the business much quicker than in other exit models.[22] However, this strategy is not a perfect fit for all businesses. It carries with it some serious disadvantages: (1) only around 20% of broker-listed businesses sell; (2) the culture of the company is likely to drastically change, and (3) the seller typically maintains no control of the business post-sale.[23]
The second option is a management buyout (MBO), where a company’s management team buys all or the majority of the company from its current owner(s).[24] An MBO often allows the original owner to maintain a degree of involvement and control in the company, easing the transition away from full ownership.[25] However, it is rare for the management team to have cash on hand to purchase the company.[26] MBO sales typically require financing, raising costs for the seller and limiting the cash payout.[27]
The third option available for small business owners looking to exit their company is employee ownership.[28] Employee ownership comes in a variety of forms, including cooperatives, employee stock option plans (ESOP), or employee ownership trusts.[29] In a cooperative model, individual employees who satisfy certain work tenure requirements directly own a majority of the voting shares.[30] An ESOP is an ERISA-regulated tax-qualified plan where the company sets up an employee stock ownership trust to purchase shares and hold the shares for employees.[31] Similarly, an employee ownership trust creates a trust for the benefit of employees, but instead of dispersing stock accounts, the company distributes company profits to employee 401(k) accounts.[32] Although employee ownership models vary, all permit the original owner to retain more control over the business, easing the transition to new ownership and preserving the existing culture.[33] Owners should consider, though, that the initial sale price in employee ownership models is often considerably lower than for MBOs and third-party sales.[34]
The fourth model available to exiting business owners is a family transfer.[35] In this succession model, the owner gifts, sells, or bequeaths the company to an heir.[36] The family transfer plan is often considered the gold standard for business succession.[37] It permits families to build economic legacies, preserve the culture of their companies, and maintain vendor/customer relationships.[38] However, mixing family and business carries its own unique challenges. Our children often don’t want to carry on the family tradition, which can make family transfers unsustainable. Additionally, seller financing is almost always necessary, reducing the cash received at the time of sale. Business owners must also carefully consider potential estate and gift tax consequences.
Because of the broad range of succession models available to companies, it is imperative that small business owners consult local business and estate planning attorneys to weigh the costs and benefits of each approach. Regardless of the approach and the associated costs, any succession plan is better than no plan at all. Retirement should be a joyous event, not an unmitigated risk.
[1] Jonathan Rothwell, Most Small Business Owners Lack a Succession Plan, Gallup (Mar. 24, 2025), https://news.gallup.com/poll/657362/small-business-owners-lack-succession-plan.aspx (on file with the Tennessee Law Review).
[2] Jonathan Flack, Stephanie Morrissey & Gregg Murasan, U.S. Family Business Survey 2025, PwC (Mar. 16, 2026), https://www.pwc.com/us/en/services/audit-assurance/private-company-services/library/family-business-survey.html (on file with the Tennessee Law Review).
[3] Kristin Taylor-Martin & Grant Thornton, Letting Go of the Reins, Fam. Bus. Ass’n (Mar. 3, 2022), https://familybusinessassociation.org/article/letting-go-of-the-reins (on file with the Tennessee Law Review).
[4] Small Business Succession Planning Act, H.R. 5939, 118th Cong. (2023).
[5] Id. § 2(a).
[6] Id. § 2(e).
[7] All Actions: H.R.5939 — 118th Congress (2023-2024), Libr. of Cong. (Oct. 25, 2023), https://www.congress.gov/bill/118th-congress/house-bill/5939/all-actions (on file with the Tennessee Law Review).
[8] S.B. S4755, 2025–2026 Reg. Sess. (N.Y. 2025).
[9] Id. §§ 1–3.
[10] Senate Bill S4755A, The N.Y. State Senate, https://www.nysenate.gov/legislation/bills/2025/S4755/amendment/A (on file with the Tennessee Law Review) (last visited Sep. 17, 2026).
[11] Id.
[12] See Small Business Succession Planning Program, Cambridge Cmty. Dev. Dep’t, https://www.cambridgema.gov/cdd/economicopportunityanddevelopment/smallbusinessassistance/smallbusinessprograms/successionplanningprogram (on file with the Tennessee Law Review) (last visited Sep. 17, 2026).
[13] Cmty. Dev. Dep’t, Succession Planning Workshop Series: How to Transfer Your Business (YouTube, Aug. 15, 2024), https://www.youtube.com/watch?v=QLlkjZvvjb0.
[14] Cmty. Dev. Dep’t, Employee Ownership Workshop (2025) (YouTube, Aug. 25, 2025), https://youtu.be/SAkX-6gMGjY?si=1pEfo8f8jV4hVVOb.
[15] Cmty. Dev. Dep’t, Succession Planning Workshop Series: How Much Is Your Business Worth? (YouTube, Aug. 15, 2024), https://youtu.be/LE8hoo2YxWQ?si=WD7x1XvXbY_kgGfA.
[16] Revby, LLC & City of Cambridge, Succession Planning Toolkit (Econ. Opportunity & Dev. Div. ed., 2026), https://www.cambridgema.gov/-/media/files/cdd/econdev/smallbusiness/successionplanning/cambridge_successionplanningtoolkit_digital_042025.pdf (on file with the Tennessee Law Review).
[17] ICA Grp., Succession Planning and Employee Ownership, https://www.cambridgema.gov/-/media/files/cdd/econdev/smallbusiness/successionplanning/successioneoworkbook_ica_group_city_of_cambridge_2025.pdf (on file with the Tennessee Law Review) (last visited Sep. 21, 2026).
[18] The Silver Tsunami of Retiring Business Owners, Project Equity, https://project-equity.org/impact/silver-tsunami/ (on file with the Tennessee Law Review) (last visited Sep. 25, 2026).
[19] Id.
[20] The Benefits and Challenges of a Third-Party Sale, PorteBrown, https://www.portebrown.com/newsblog-archive/the-benefits-and-challenges-of-a-third-party-sale (on file with the Tennessee Law Review) (last visited Sep. 21, 2026).
[21] Id.
[22] Id.
[23] ICA Grp., supra note 17, at 3.
[24] Mark Henricks & Arturo Conde, Pros and Cons of a Management Buyout for Business Owners, SmartAsset (Sep. 28, 2024), https://smartasset.com/small-business/pros-and-cons-of-management-buyout (on file with the Tennessee Law Review).
[25] Id.
[26] Id.
[27] ICA Grp., supra note 17, at 3.
[28] Id. at 4.
[29] Id.
[30] Aaron Juckett, ESOP vs. Cooperative: Why Your Employee Ownership Choice Matters, ESOP Partners (June 7, 2022), https://www.esoppartners.com/blog/esop-vs-cooperative (on file with the Tennessee Law Review).
[31] Aaron Juckett, ESOP vs. EOT, ESOP Partners (May 6, 2025), https://www.esoppartners.com/blog/what-is-esot (on file with the Tennessee Law Review).
[32] Id.
[33] ICA Grp., supra note 17, at 4.
[34] Id.
[35] Id.
[36] Id.
[37] Emma Suchland & Tim Armstrong, Once in a Lifetime: Successfully Handing the Reins to the Next Generation, PwC, https://www.pwc.co.uk/services/corporate-finance/insights/successfully-handing-reins-next-generation.html (on file with the Tennessee Law Review) (last visited Oct. 12, 2024) (reporting that the majority of small business owners surveyed desire to keep their business in the family).
[38] Family Business Succession Planning: Preserving Your Legacy for Generations, Exit Consulting Grp. (Feb. 3, 2026), https://exitconsultinggroup.com/blog/family-business-succession-transition-planning/ (on file with the Tennessee Law Review).
