As Hispanic small business owners grow, they must also consider succession planning

To better understand what's driving of one of the fastest-growing segments of the small business sector, Bank of America recently surveyed more than 300 Hispanic entrepreneurs across the nation. We asked about their motivations, aspirations, and concerns and were pleased to find a strong majority anticipate continued growth and increased revenue in 2019.

According to our third annual Bank of America Hispanic Small Business Owner Spotlight, 79 percent of Hispanic entrepreneurs plan to grow their business over the next five years, surpassing their non-Hispanic peers by 24 percentage points. Additionally, 74 percent expect their revenue to increase (17 percentage points higher than non-Hispanics) and 51 percent plan to hire (25 percentage points higher than non-Hispanics).

With this optimism, however, comes certain challenges. For example, many Hispanic business owners are ramping up recruitment efforts in an increasingly tight labor market. In March 2019, Illinois unemployment hovered around four percent, so there's no denying that competition for talent is fierce.

Succession planning is an often-overlooked step in safeguarding the future of a business - especially significant for family-owned companies and those that represent a primary source of income and family wealth. While every business and family situation is unique, these tips may help Hispanic business owners kick-start their succession planning efforts.

Tip #1: Customize your plan

There is no one right way to approach succession planning, and what may work for one family will be insufficient for another. When creating the plan, it's important for Hispanic business owners to weigh a number of variables, including family roles and dynamics, skills, personal goals, expectations, health and financial circumstances, and market conditions.

The transfer of ownership within a family can bring a number of personal and business challenges - especially when family members are also employees, partners or co-owners. It often requires the current owner be willing to cede some form of control, and to select the best person to assume that control.

Proactive business succession planning can encourage a business owner to thoughtfully consider the best long-term solution for all involved.

Tip #2: Consider the financials

Several key financial issues must be considered when transferring business ownership to family members, including the impact on the current business owners' wealth and cash flow. If the company is transferred by gift, be sure to fully understand the implications of any applicable gift taxes that might be incurred by the owner. Likewise, it is prudent to inquire about how the transfer of ownership may impact the business' ability to secure new capital.

When planning for the future, entrepreneurs should consider meeting with their local small business banker or similar expert to understand the local landscape as well as any potential red tape to ensure their business, assets and families are protected.

Tip #3: Create your own timeline

In succession planning, the best case scenario unfolds when business owners themselves determine the transfer parameters and timeline as opposed to allowing life events, liquidity needs or the tax code dictate their response. Planning ahead when things are going well enables entrepreneurs to make more strategic, less emotional decisions.

Then plan itself will take time to develop, but the upfront effort is important to ensure a transition that meets the needs of the business, current owner and his or her heirs.

Remember, all succession plans are living documents that should be regularly reviewed and revised to reflect the changing interests of the individuals while creating a meaningful next chapter for the enterprise.

• Dana Roppo is senior vice president, small business banker manager, for Bank of America in Chicago.