Succession Planning: Opportunities To Build Wealth And Keep Jobs In Local Communities
Summary
The printed record of S. Hrg. 118-382, a hearing of the U.S. Senate Committee on Small Business and Entrepreneurship on small business succession planning, on January 24, 2024 with Chair Jeanne Shaheen presiding. Chair Shaheen says more than half of private employer businesses are owned by individuals over the age of 55 and cites a 2023 survey finding about 80 percent of owners had no formal succession plan before selling. Ranking Member Joni Ernst discusses the estate tax exemption in the Tax Cuts and Jobs Act, which she says expires in 2025. The witnesses come from the Exit Planning Institute, the Calhoun County Economic Development Corporation, the law firm Devine, Millimet and Branch, P.A. and the Family Business Coalition. The record adds a Small Business Investor Alliance statement dated January 24, 2024.
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[Senate Hearing 118-382]
[From the U.S. Government Publishing Office]
S. Hrg. 118-382
SUCCESSION PLANNING:
OPPORTUNITIES TO BUILD WEALTH
AND KEEP JOBS IN LOCAL COMMUNITIES
HEARING
BEFORE THEW
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
OF THE
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
JANUARY 24, 2024
__________
Printed for the use of the Committee on Small Business and
Entrepreneurship
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
56-455 WASHINGTON : 2024
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED EIGHTEENTH CONGRESS
----------
JEANNE SHAHEEN, New Hampshire, Chair
JONI ERNST, Iowa, Ranking Member
MARIA CANTWELL, Washington MARCO RUBIO, Florida
BENJAMIN L. CARDIN, Maryland JAMES E. RISCH, Idaho
EDWARD J. MARKEY, Massachusetts RAND PAUL, Kentucky
CORY A. BOOKER, New Jersey TIM SCOTT, South Carolina
CHRISTOPHER A. COONS, Delaware TODD YOUNG, Indiana
MAZIE K. HIRONO, Hawaii JOHN KENNEDY, Louisiana
TAMMY DUCKWORTH, Illinois JOSH HAWLEY, Missouri
JOHN W. HICKENLOOPER, Colorado TED BUDD, North Carolina
Sean Moore, Democratic Staff Director
Meredith West, Republican Staff Director
C O N T E N T S
----------
OPENING STATEMENTS
Page
Jeanne Shaheen, U.S. Senator from New Hampshire.................. 1
Joni Ernst, U.S. Senator from Iowa............................... 2
WITNESSES
Mr. Scott Snider, President, Exit Planning Institute, Westlake,
OH............................................................. 4
Prepared Statement........................................... 7
Ms. Theresa Hildreth, Executive Director, Calhoun County Economic
Development Corporation, Rockwell City, IA..................... 9
Prepared Statement........................................... 11
Ms. Tabitha Croscut, Shareholder, Devine, Millimet and Branch,
P.A., Manchester, NH........................................... 16
Prepared Statement........................................... 18
Mr. Palmer Schoening, Chairman, Family Business Coalition,
Washington, D.C................................................ 26
Prepared Statement........................................... 28
ADDITIONAL LETTERS/STATEMENTS FOR THE RECORD
Small Business Investor Alliance
Statement dated January 24, 2024............................. 48
White, LaTanya
Statement dated January 24, 2024............................. 52
SUCCESSION PLANNING:
OPPORTUNITIES TO BUILD WEALTH
AND KEEP JOBS IN LOCAL COMMUNITIES
----------
WEDNESDAY, JANUARY 24, 2024
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The Committee met, pursuant to notice, at 2:15 p.m., in
Room SR-428A, Russell Senate Office Building, Hon. Jeanne
Shaheen, Chair of the Committee, presiding.
Present: Senators Shaheen [presiding], Cardin, Rosen,
Hickenlooper, Ernst, Young, and Hawley.
OPENING STATEMENT OF SENATOR SHAHEEN
Chair Shaheen. Well, good afternoon, and thank you all for
your patience. If it is Wednesday afternoon, we have got to be
in the middle of votes, so we have had one vote, and we will
have another one in probably the next 30 or 40 minutes. So I
assume at that point, we will take turns and try and go out and
vote but not disrupt the hearing. So again, thank you all.
The Senate Committee on Small Business and Entrepreneurship
will come to order.
It is really wonderful to have you all joining us today to
talk about something that is really a challenging issue for so
many small businesses. We will be introducing our witnesses,
but before we do that, we are going to have opening statements
by myself as Chair and the Ranking Member, Senator Ernst.
Every day, more than 10,000 baby boomers turn 65. In my
State of New Hampshire, our aging population outpaces the rest
of the country. We are in a phenomenon that is referred to as
the silver tsunami that is going to affect our country's small
business ecosystem and local economies. Nationwide, more than
half of all private employer businesses are owned by
individuals over the age of 55. They employ more than 32
million Americans and receive $6-and-a-half trillion in revenue
a year. Failing to properly transition these firms means that
local communities will lose businesses that have been in
neighborhoods for generations. It will put at risk countless
jobs and literally trillions of dollars in assets.
Unfortunately, most small business owners are ill-prepared
to exit their businesses. They have dedicated most of their
time in business to building a successful company, and they do
not have the information or resources to think about next
steps. It is something that I see in my own family, where we
have a number of family members who are looking at the next
generation of taking over, and, in some cases, there isn't
anybody to take over, so how to deal with that succession is a
real challenge.
According to a 2023 survey, about 80 percent of small
business owners did not have a formal succession plan before
putting their businesses on the market, and among those that
did, most engaged in planning for less than a year before
getting to a sale. This hearing is an opportunity to think
about how we help those small business owners transition their
businesses. How do we help them retain the legacy of those
family businesses? How do we help them save for retirement and
ensure that jobs remain in local communities?
So again, we are delighted to have you all join us today,
and I look forward to your statements. And I will now turn it
over to Senator Ernst.
STATEMENT OF SENATOR ERNST
Senator Ernst. Great. Thank you. Good afternoon, and thank
you, Chair Shaheen, and to all of our witnesses for being here
today. I also want to give a special thank you to my fellow
Iowan, Ms. Theresa Hildreth, who is the executive director of
the Calhoun County Economic Development Corporation, for coming
to Washington to share your insights with us. Thank you,
Theresa.
Small businesses are key drivers of local enterprise and
community life. These hardworking and dedicated small business
owners pour their lives into building their companies. For many
entrepreneurs, succession planning is a way to plan for
retirement and ensure their business and legacy continues to
thrive. According to Guidant Financial, nearly 40 percent of
small businesses are owned by older folks who may soon be
looking to retire and start their life's next chapter. So the
phrase that you used, Senator, ``the silver tsunami''--maybe in
Iowa it is the silver cyclone, I am thinking. [Laughter.]
Senator Ernst. For our family-owned businesses, especially
farms and other rural small businesses, succession planning is
deeply personal. It is more than a conversation about family
finances or selling a business to the highest bidder. It is a
process that must consider the business' role in their
community. According to the National Federation of Independent
Business, nearly one-third of business owners plan to pass
their business to a family member. Despite often being tent
poles of families and communities, small business owners can
face significant challenges in keeping their business'
operations going from one generation to the next. The complex,
burdensome process can require expensive attorneys,
accountants, and business advisors. Navigating the red tape
discourages folks. Making, selling off, or shutting down their
enterprise is less of a headache than keeping it open or
passing it on to their family.
The death tax is a major burden during succession planning,
especially for farmers. I was proud to support the Tax Cuts and
Jobs Act, which eased the burden on small businesses by nearly
doubling the death tax exemption and adjusting it for
inflation. Unfortunately, this provision expires in 2025. If we
let it lapse, it will heap even more burdens on hardworking
entrepreneurs, not to mention create a great deal of
uncertainty for small business owners who are looking to retire
in the coming years.
Meanwhile, Bidenomics continues to punish Main Street.
Rising prices, high interest rates, and skyrocketing operating
costs are pushing small business owners to delay succession
planning. However, my home State of Iowa continues to lead the
charge to even the playing field for small business owners. At
the State level, Governor Reynolds and the legislature phased
out the inheritance tax, another reason folks choose to move to
Iowa to live and work. On the Federal level, I have long
supported repealing the death tax altogether. I am proud of my
friend and colleague from Iowa, Congressman Randy Feenstra, who
is leading the charge in the House. It has long past time to
end the practice of death being a taxable event. Are Americans
not taxed enough while they are alive? Do we really need to
penalize family members who are grieving their loved ones?
Small business succession planning should be easy to
understand, easy to navigate, and easy to do. A locally-led
approach informed by the owner's priorities and vision must be
the standard. Ensuring small business owners are in control and
well informed is critical to the well-being of the communities
they serve. As we start to hear from our witnesses, I am
looking forward to learning how this Committee can better help
small business owners navigate business succession planning.
Thanks to all of our witnesses, and thank you, Chair Shaheen,
for delving into this important topic.
Chairwoman Shaheen. Well, thank you very much, Senator
Ernst, and, again, I want to welcome our witnesses. I will
begin by introducing Scott Snider, who is the president of the
Exit Planning Institute, EPI. EPI focuses on improving
succession planning outcomes for small to mid-sized companies,
including through certifying exit planning advisors. I
understand you also conduct surveys, and you are going to have
one that is coming out in March that will give us some very
interesting information, so we hope you will share that with
the Committee when it is finished. Mr. Snider is also
passionate about guiding small business owners in their
succession planning journey, having been an entrepreneur
himself with firsthand experience in transitioning from his own
business, so I am looking forward to hearing your testimony.
I am also delighted to welcome from Manchester, New
Hampshire, Tabitha Croscut, who is a shareholder and attorney
at Devine-Millimet & Branch in Manchester. Tabitha has a
national legal practice focused on utilizing employee stock
ownership plans, or ESOPs, as a succession plan. She has been
practicing in that area for more than 20 years. Ms. Croscut
also sits on the boards of numerous ESOP organizations and
frequently speaks out about those transactions at conferences
and seminars. So we are delighted to have your expertise from
New Hampshire, and I am also pleased to turn it over to the
Ranking Member to welcome the other two witnesses.
Senator Ernst. Great. Thank you very much, and welcome, Mr.
Snider and Ms. Croscut. Thank you for joining us as well.
I know--I now have the pleasure of introducing the rest of
our witnesses who are testifying today, including my fellow
Iowan, Ms. Theresa Hildreth. Ms. Hildreth is serving as the
executive director of the Calhoun County Economic Development
Corporation. She works with small business owners, community
groups, and local leaders to foster economic development in
rural Iowa. Ms. Hildreth is also the CFO of Martin Hildreth
Company, a 70-year-old family-owned and operated small
business. Ms. Hildreth has served on several local boards,
including as vice chair of the Stewart Memorial Community
Hospital board of directors. She earned a degree from Iowa
Central Community College. Ms. Hildreth is also a military mom
with children who have served in the Iowa Air National Guard
and U.S. Air Force. And, Sarah, we want to welcome you to the
Committee today with your mother as well, so thank you very
much.
And on a personal note, I have known Theresa for a number
of years. She works within our Iowa State legislature and the
Iowa Senate with the senators there, and I had also served in
the Iowa State Senate, so we have many friends in common.
Next, I want to introduce Mr. Palmer Schoening, and Mr.
Palmer Schoening is the chairman of the Family Business
Coalition, or FBC, so thank you, Palmer, for being here, which
is a collection of over 150 small business associations
dedicated to protecting America's family-owned businesses and
farms. Mr. Schoening earned degrees from George Mason
University and Hillsdale College. Thank you for making the time
to share with this Committee how we can better help small
businesses with succession planning in Iowa as well as across
the country. Thank you all so much to our witnesses. Thank you,
Chair.
Chair Shaheen. Thank you, Senator Ernst and Mr. Snider, we
will start with you.
STATEMENT OF SCOTT SNIDER, PRESIDENT,
EXIT PLANNING INSTITUTE, WESTLAKE, OHIO
Mr. Snider. Thank you, Chair Shaheen, Ranking Member Ernst,
and all members of this Committee. It is an incredible honor to
be here with you today. My name is Scott Snider, and I am the
president and co-owner of the Exit Planning Institute, an Ohio-
based, privately-held family business that supports
professional advisors who help business owners successfully
transition their companies. We provide advisors with a
professional network, regional and national conferences,
continuing education courses, and, most notably, a credential.
We began in 2005 and today serve over 5,000 certified exit
planning advisors and another 10,000 professionals throughout
the world.
As this Committee well knows, there are over 30 million
small businesses in the U.S. that employ nearly 62 percent of
Americans. For these business owners, nearly 90 percent of
their wealth is trapped inside of their largest asset--their
company--wealth that will be critical for them to harvest to
move into the next phase of their lives, and even more, wealth
that has a deep impact on social and economic elements that
make up our country today. According to the most recent
National State of Owner Readiness Survey, this wealth is
projected to total nearly $18 trillion, with $14 trillion alone
coming to market in the next 10 years as 73 percent of owners
report they want to exit from their companies within that time
frame.
Historically, there has been a low success rate of
privately-held company transitions, an indication to me that
business owners are ill-prepared for this eventual exit.
According to the same research, 60 percent of owners do not
understand their exit options, 80 percent do not have a formal
exit strategy, and 50 percent of owners have no plan at all.
Worse yet, 70 percent of the companies put on the market do not
sell, and 50 percent of the exits are involuntary due to
external elements that force business owners to close or sell.
These stats remind me of a fellow owner, a business owned
by three sisters in Pennsylvania. One of them, in tears,
approached me after a speaking engagement and she said she was
trying to figure out what was next in her life. One of her
sisters had just recently passed away from a cancer diagnosis.
She had been the visionary and heartbeat of the company, and
without her, the remaining two could not operate the business
and closed their doors only 2 months after their sister's
passing. Sadly, they became owners who fell to the involuntary
exit, something that I believe is preventable by appropriate
planning.
To understand the problem, we must understand the mindset
of the business owner. As owners, we are trained to grow a
successful company, one with great employees, great customers,
meaningful products and services, a strong balance sheet, and a
net profit, but when we go to transition those companies, we
are kind of slapped in the face with a harsh and unexpected
reality. Though we, in fact, grew something of success, we did
not build anything of significance. All our intellectual
capital is locked within us, never transferred to anyone else
or any one thing. What is a significant company? It is one
aligned to the business owner's business, personal, and
financial goals. It is ready and attractive with an owner who
is well prepared. Most importantly, a significant company is
highly valuable and transferrable at any time.
Being in the unique position of both teaching the pathway
to significant companies but also living it myself as a
business owner daily, I see three key opportunities for us to
better those who are transitioning their companies. First,
educational programming that brings exit strategy into the--
into the present. Incorporating it early and often makes a
company stronger at point of transition while making a better
company today. At EPI, we have worked with SCORE and the Small
Business Development Centers of America in educating both
advisors and owners.
Secondly, we need greater access to coaching and services.
Seventy-eight percent of owners have not formed a transition
advisory team that embraces those the three key elements for
significance: business, personal, and financial. And lastly,
data and research. Policymakers need to better understand
succession planning gaps that impact small businesses sales,
transitions, and closures. These simple actions, I believe,
help to change the owner's mindset, keep small businesses
active in our local communities, and put us on a pathway to
positively impact our economy, an important conversation, I
think, to be had given the number of owners that will
transition in the next 5 to 10 years.
I thank you for the privilege and honor of sharing my
testimony with you today and happy to answer questions as they
come. Thanks.
[The prepared statement of Mr. Snider follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chair Shaheen. Thank you very much. Ms. Hildreth.
STATEMENT OF THERESA HILDRETH, EXECUTIVE DIRECTOR, CALHOUN
COUNTY ECONOMIC DEVELOPMENT CORPORATION, ROCKWELL CITY, IOWA
Ms. Hildreth. Honorable Chair Shaheen, Honorable Ranking
Member Ernst, members of the Committee, and all the
distinguished guests that are here, thank you for the
opportunity to testify today on the critical topic of
succession planning and the challenges facing small business
owners, especially in my State of Iowa.
My succession planning assessment in rural Iowa is
multifaceted, shaped by my personal, my professional, and
policy perspectives. Addressing challenges related to
retirement and ensuring a smooth transition for our family
business is not a--not only a personal concern, but also has
broader implications for my local community. In economic
development, my role involves aiding sustainability and growth
of a rural economic area designated as an opportunity zone.
Succession planning on a broader scale becomes essential for
the economic well-being of the entire community. My policy
perspective shares great concern for the current State of the
Nation's economic future with succession planning involving
policy advocacy.
My family's business, Martin Hildreth Company, is a three-
generation, 70-year-old underground utility contracting
business. We are--we currently are facing the complexities in
transitioning now to our third generation. Due to our current
economic concern and uncertainties, we have decided to extend
our succession plan to 5 years rather than our original 3
years, unless we see big changes after the election in 2024. As
we compare today's challenges to the previous generation
transition in 2009, we find a much harsher economic landscape.
Concern with today's inflation, company valuation, and long-
term success adds to that complexity. My interactions with
other business leaders, particularly aging farmers, reveal that
these are common concerns and challenges and reflect--
reflective of a broader issue impacting rural economic
development.
As in our business, farmers often prioritize inheritance
over selling assets in succession planning to mitigate capital
gains tax. Iowa's recent inheritance tax initiatives is
reflective of a positive step towards supporting retirees and
succession plans. Many businesses struggle to access available
programs and grants for opportunities and growth. A 2023 study
by the Rural Policy Research Institute found that 42 percent of
rural businesses lack awareness of available government
programs. The agricultural sector and many rural small
businesses face a scarcity of qualified and available
employees. The USDA's 2021 Census of agriculture reports the
average age today of Iowa's farmer at 57 years. Four times as
many farmers are over the age of 65 than under the age of 35.
In 2022, the USDA National Institute of Food and Agriculture
reported sites--report sites of 30-percent decline in young
farmers since 2010.
Beyond capital gains tax, many small businesses struggle
with the rising cost of doing business, high interest rates,
supply chain issues, insurance, and that ever fluctuating fuel
cost. National Federation of Independent Businesses reports
that 82 percent of small businesses are concerned about
inflation impacting their operations. This point directly
relates to risk and the concern for entrepreneurs to assume
great risk in economic endeavors.
Specifically in Calhoun County, the economic landscape
bears the scars of a 17-year decline. Our once thriving county
is steadily shrinking, a startling 15 percent loss of
businesses. The lack of succession of business is a vital
component in this downward trend, casting a long shadow on tax
revenue, essential services, and the very spirit of our towns.
This is not merely a statistic. It is a human story unfolding
before our eyes. One example of the human story of economic
decline in Rockwell City, the county seat of Calhoun County, is
the loss of a second-generation plumber. The 52-year-old
plumbing professional suddenly passed away this past December.
Now his 73-year-old father has abandoned retirement to resume
leadership of the only plumbing business in the community.
These challenges, while impacting individual businesses,
resonates with the larger economic issues facing rural
communities. Engaging with political stakeholders and
advocating for supportive policies becomes crucial. We need
policy alignment. We need collaborative approach. Through
collaborative efforts and supportive policies, we can build a
more resilient and sustainable future for rural communities and
enhance business succession planning.
Thank you for allowing me to share my testimony with you. I
may not be a silver cyclone, but I am a silver Hawkeye.
[Laughter.]
[The prepared statement of Ms. Hildreth follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chair Shaheen. Thank you, Ms. Hildreth. Ms. Croscut.
STATEMENT OF TABITHA CROSCUT, SHAREHOLDER/ATTORNEY, DEVINE-
MILLIMET & BRANCH, MANCHESTER, NEW HAMPSHIRE
Ms. CROSCUT. Good afternoon, Chair Shaheen, Ranking Member
Ernst, and members of the committee. My name is Tabatha
Croscut, and I am a shareholder at the New Hampshire law firm
of Devine-Millimet & Branch. For over 20 years, I have helped
my clients who are business owners of both small and large
privately-held businesses to assess, consider, and navigate the
feasibility of implementing, employee stock ownership plans as
an ownership succession strategy. I would like to thank you for
the opportunity to appear before you to discuss the importance
of succession planning and for allowing me to share with you
how and why ESOPs can be a better option for many business
owners looking for a sustainable and impactful succession
strategy.
As a result of a lack of planning, each year many companies
in New Hampshire and across the U.S. bought up by third
parties, and some even close their doors when they are unable
to find a buyer. This is a challenge not only for the business
owners, but also for the many families and communities that
rely on their businesses. It is my position that ESOPs can be
and should be a powerful tool for solving succession planning
issues for such businesses.
In the Granite State, there are approximately 30 ESOPs and
privately-held companies. Of these ESOPs, approximately 27 are
headquartered in small towns in the Monadnock region or White
Mountains, cities like Manchester or Salem. These are companies
that are staying in New Hampshire and are heavily invested in
the success of their communities. Those 30 New Hampshire ESOP-
owned companies cover over 4,600 participants. Most are smaller
businesses. In fact, more than two-thirds have under 100
employees.
You might be wondering why are there only 30 ESOP-owned
companies in New Hampshire? I see two primary obstacles to the
utilization of ESOPs as a succession strategy, not only in New
Hampshire, but across the U.S. First, there is a low public and
professional awareness about ESOPs. Second, there is a shortage
and/or absence of lending capital for ESOP formations and the
related stock acquisitions from business owners. Before
discussing how we can address those obstacles, I would like to
take a minute to share with you an ESOP success story from New
Hampshire.
Based in rural Dublin, New Hampshire, Yankee Publishing is
an 88-year-old family business that publishes the ``Old
Farmer's Almanac,'' the oldest continuously published
periodical in North America. ``Yankee Magazine,'' ``New
Hampshire Magazine,'' and the ``New Hampshire Business
Review,'' to name a few others, are published by Yankee
Publishing. It employs approximately 75 people in a region of
New Hampshire where the town populations typically consist of
2,000 people or less. When it came time to start seriously
considering an ownership succession plan, Yankee Publishing had
11 third-generation shareholders, two of which worked in
management. The combined ownership was looking ahead to around
22 children, none of whom were particularly interested in
running the company.
The need for a viable ownership transition strategy became
pressing. Ownership considered all of the standard succession
options: a shareholder buyout, a management buyout, selling the
company to a third party. However, ownership felt that they had
a duty to continue to preserve not only the family legacy, but
also Yankee Publishing's commitment to the community. As such,
they spent some time researching and decided to go forward with
the sale of the company stock to an ESOP for the benefit of the
company's employees. Today, the company is a hundred percent
ESOP owned.
While Yankee Publishing is a great example of a successful
ownership transition utilizing an ESOP, we continue to struggle
with the challenges of access to capital for ESOP transactions
and a greater awareness of the ESOP succession strategy. Chair
Shaheen and others have supported several bipartisan policy
solutions to address these issues, including the Main Street
Ownership Act passed in 2019 and the Worker Ownership Readiness
and Knowledge Act in 2023, but more is needed.
The Mainstream Ownership Act passed in 2019, was championed
as a win for ESOPs, but it was, in fact, slow in providing
additional access to capital for ESOP transitions through SBA's
7(a) lending program, which, due to certain procedural
requirements, actually had minimal impact on ESOP loans funded
by the program. We must continue to streamline the SBA 7(a)
loan process to make it more appealing to small business
owners.
As previously mentioned, awareness of ESOPs is a primary
barrier to businesses utilizing the ESOP for their ownership
transitions. If a business owner and their professional
advisors are unaware of how ESOPs work or that ESOPs even
exists, they will lose out on the opportunity to transition
ownership to an ESOP, and, instead, many end up selling to a
third-party buyer or simply shut down the company. While the
recently passed Main Street Ownership Act directs the SBA to
promote such awareness, a step in the right direction, that
only helps when the SBA has adequate support, structure, and
resources to implement that directive. The numbers show that if
we can support the expansion of State centers throughout the
United States, while also empowering the SBA's promotion of
ESOPs through small business development centers, business
owners will have more access and be better educated on the ESOP
succession option, which will lead to stable jobs and stronger
communities.
In conclusion, there is a significant challenge for all
privately-held businesses across the U.S.: ownership
succession. I propose to you that ESOPs should be a great part
of that solution, which will keep good jobs intact and
strengthen local communities. With more awareness of the ESOP
option, we can ensure this once-in-a-lifetime decision for many
business owners to sell their companies is also a win-win for
employees and the communities in which they live and work. I
appreciate the opportunity to appear before the committee, and
I look forward to answering any questions you may have.
[The prepared statement of Ms. Croscut follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chair Shaheen. Thank you, Ms. Croscut, and thank you for
mentioning Yankee Publishing because it points to not just the
jobs and the assets that are involved in the community, but the
real cultural contributions that so many of our small
businesses make that sometimes get lost when they cannot do the
succession planning. So Mr. Schoening.
STATEMENT OF PALMER SCHOENING, CHAIRMAN,
FAMILY BUSINESS COALITION, WASHINGTON, D.C.
Mr. Schoening. Chair Shaheen, Ranking Member Ernst and
members of the U.S. Committee on Small Business and
Entrepreneurship, thank you for the opportunity to address the
important topic of small business succession here today. I
currently serve as chairman of the Family Business Coalition,
FBC. Our mission is to protect family-owned and operated
businesses across the country.
Family businesses are the lifeblood of the American
economy, providing good-paying jobs and enriching the lives of
those in their communities. When a family business closes its
doors, it is not only the employees who suffer. It is the
little league baseball team that the local family business
sponsors. It is the new wing of the Children's Hospital being
built with the local support of family businesses that now has
to be put on hold. It is the soul of Main Street that withers
away when family businesses are sold off to multinational
corporations or forced to close their doors for good.
Family businesses that we work with consider their
employees to be family as well. When times get tough, both
owners and employees tighten their belts to keep the business
running. When times are prosperous, the employees of family
businesses are the first to benefit. Most family business
owners specialize in running their businesses but not in legal
paperwork. Succession planning requires hiring expensive
accountants, lawyers, and estate planning attorneys. Even
business owners that plan effectively must remain on their toes
because of constantly changing tax laws and regulations. All
this diverted time, money, and energy could be better directed
towards growing their family business, upgrading equipment,
hiring more workers, or supporting their communities.
I show in Figure 1 of my testimony that fees can range
between $5,000 to $15,000 just to set up a simple trust, and
more sophisticated estate planning for larger family businesses
can cost hundreds of thousands of dollars. It is easy to see
how family farms or local mom-and-pop shops can be quickly
overwhelmed by both the cost and time required to plan for the
next generation.
The 2017 Tax Cuts and Jobs Act, TCJA, made important
improvements to the Tax Code for passthrough businesses,
including lowering marginal tax rates, creating a new small
business tax deduction, and doubling the estate tax exemption.
FBC supports making these changes permanent to provide
predictability for family-owned businesses that have been
forced to grapple with an ever-changing Tax Code over the past
25 years.
Congress is now quickly approaching another moment of
crisis as most individual side tax relief will expire at the
end of 2025. Another last-minute game of chicken between the
parties approaching this deadline is the last thing that family
businesses need. The Federal estate tax, commonly referred to
as the death tax, presents a potential succession challenge for
family businesses, especially inventory or land rich, but cash
poor businesses that tend to operate on low margins, like
family farms. When a family does not have the cash on hand to
pay the estate tax, they may be forced to fire workers, sell
off parts of the business, or, in the worst cases, close the
doors of their family business permanently. As family business
owners and farmers will tell you, annual expenses related to
estate planning are a constant drag on business. According to
the Tax Foundation, compliance costs related to estate and gift
taxes totaled $18.9 billion in 2023. According to IRS data,
collection from estate taxes totaled only $18.4 billion in
2021. These numbers show that the estate tax costs more to
comply with than the government collects annually in estate tax
revenue.
Given these massive compliance costs, the estate tax's
negative impact on job growth, and the tiny amount of revenue
that the tax collects, the Family Business Coalition stands in
strong support of Senator Thune and Senator Ernst's efforts to
eliminate the tax. Our FBC letter of support for the Death Tax
Repeal Act included 150 signers, including groups like the
Associated Billers and Contractors, Wine and Spirits
Wholesalers, National Association of Electrical Distributors,
and more. Ranking Member Ernst deserves credit for continuing
to build consensus on this important issue and move the
legislation forward in the Senate. FBC has also opposed a
number of tax proposals that would make succession more
difficult for family businesses, including eliminating step-up
in basis and creating a new tax on unrealized capital gains.
If Congress hopes to improve the chances for family
business succession, permanent tax relief for small businesses
should be an immediate priority. FBC looks forward to
continuing to work with both parties in Congress to help
America's family businesses and farms pass to the next
generation of ownership.
Thank you for calling this important hearing, and I look
forward to the discussion here today.
[The prepared statement of Mr. Schoening follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairwoman Shaheen. Thank you all very much for your
testimony. I want to ask each of you to tell us--each of you
provided a number of options for what we should think about as
we are looking at succession planning, but as each of you think
about what is the most important thing that this Committee
could do to promote more succession planning for families, what
is the one thing that you would say, Mr. Snider?
Mr. Snider. I would say educational programming. I think
that most owners, as you heard in my testimony, do grow
successful companies, but they are not relating that to the
overall value and an eventual transition. It is not necessarily
because they are bad owners. I think, generally, because, I
think as an owner myself, you are kind of just taught as an
entrepreneur to do kind of what you heard in my testimony, grow
something of success. So I think having educational programming
that is available, readily available, I think is a critical
first step in just generally changing the owner's mindset.
Chair Shaheen. Ms. Hildreth.
Ms. Hildreth. Thank you for that question. I would say,
based on what I see every day, we have to save our family
farms. We feed the world, and succession planning for our
farmers is critical. As I said in my testimony, we are old, and
we need these young, vibrant, willing, and able-to-work farmers
to step forward, and if they cannot--if they cannot own the
land, we have seen where some of these not so nice people from
other countries want to come in and buy up our land, and we
just cannot allow that to happen.
Chairwoman Shaheen. And how do we get more young people
interested in family farming?
Ms. Hildreth. The young--I think the young people are
there. It is all about risk. Will the banker take the risk of
the young kid who cannot buy the entire farm because half of it
has to go towards paying capital gains tax? So if we can fix
that--kids who grow up on the farm really do not want to leave
the farm, but they are forced to because land costs, equipment
costs. I will tell you what. If you talk to kids that grew up
on the farm where I am from, they all want to stay there, and
if they can, they do. They have to find a way, and we have to
help them to find the way to stay on the farm, own the land,
and continue to feed the world like Iowa does.
Chair Shaheen. Ms. Croscut.
Ms. Croscut. So I am going to go back to education. I do
think it is all about education, and not only providing it, but
helping other organizations to provide that education so that
it gets widespread, whether it is about ESOPs or estate tax, or
it is about different succession options, I think it is all
about making sure that the business owner knows what is out
there, right? They cannot plan around anything if they do not
understand what the options are. And so to me, I would agree. I
think the number one is the education aspects of everything we
are talking about and being able to spread the word.
Chair Shaheen. And do you see a role for--is that something
you see that the Small Business Administration should help do?
Ms. Croscut. Absolutely. Yeah.
Chair Shaheen. Mr. Schoening.
Mr. Schoening. My number one recommendation would be
permanent tax policy. If you look like--look at policies such
as the estate tax, over the past 25 years, the exemption and
rate has changed 20 times. It makes it incredibly difficult to
plan if family business owners cannot project forward at least
10 years with respect to tax policy.
Chair Shaheen. So, Mr. Snider, as you are talking about
educating people around estate planning, how does the estate
tax factor in your discussions with small business owners?
Mr. Snider. Certainly. So I think the estate tax is
obviously a critical conversation, but, for me, I just step all
the way back. If you look at small business owners, 70 percent
of them have no estate plan, and something like 76, I think it
is, they do--they do not have a will. So I think, obviously,
the estate tax conversation is a critical one, but I think we
got to go all the way back to say most of them do not even the
estate plan, so are they even considering the tax yet?
Chair Shaheen. And so what--how do you advise people when
you hear that from the small business owner?
Mr. Snider. From the standpoint of not having a--having an
estate plan?
Chair Shaheen. What do they tell you is the reason why,
number one----
Mr. Snider. Sure.
Chair Shaheen [continuing]. And then what--how do you
convince them that this is something that they really need to
do?
Mr. Snider. This goes back to education and the change of
the owner's mindset, right? So I think it first starts with a
conversation. I think, again, most owners are concentrated on
that daily, especially the small business owners and that
lifestyle company. What they are not thinking about is this
value creator mindset. Whether you are the big manufacturing
company or the dry cleaners or the auto mechanics shop on the
corner, they are in the day-to-day. They are not looking long
term. So when we sit down with a business owner, we try to look
at it across all three elements--business, personal, and
financial--and have a more of a long-term value type
conversation with them.
Chair Shaheen. Thank you. Senator Ernst.
Senator Ernst. Thank you very much. Ms. Hildreth, let us
start with you, and thanks again for being with us today and
sharing your work on behalf of Iowa's small businesses and your
personal experience with succession planning for your own
business. As the executive director of Calhoun County Economic
Development Corporation and a small business owner yourself,
you do have that firsthand knowledge on the taxes that small
business owners face. Can you explain in more detail the
concerns that small business owners and farmers have about
capital gains taxes during the succession process?
Ms. Hildreth. Thank you, Senator Ernst. From my own
experience, I grew up on the family farm, and when my parents
passed away--my mother passed away in 1992, my father, 15 years
later--I inherited, along with my brothers and sisters, the
family farm. What a glorious day, and my tax attorney--when I
got that check, the tax attorney said to me, now, take 25
percent of that and put it away because you are going to have
to pay your capital gains tax, and at that time, inheritance
tax at the same time. What a blow. And I questioned, my parents
worked for 50 years building this farm. Every dime went back
into the farm other than what we needed to live, and we did not
live an extravagant lifestyle.
Senator Ernst. Mm-hmm.
Ms. Hildreth. And my father paid taxes the entire time--
property taxes, income tax, profit tax--and it is unfair, in my
opinion, that when that passed along to his children, we were
taxed again. In Iowa right now, capital gains tax is 6 percent,
but at the Federal level, it is either zero percent, 15
percent, or 20 percent, based on your income level, so now
potentially 26 percent again for capital gains. It inhibits the
progression of the family farm for those landowners, and I just
do not want to see those family farms go away. I live in rural
Iowa by choice, and that is where I want to stay, and I want my
neighbors to do well. And as economic development director, I
see them everywhere, and everybody knows everybody in my
community, and if somebody is suffering, we all know about it,
and it is devastating to the environment. It is devastating to
the community.
My personal business, we are an underground utility
contractor. You got a sewage problem, who are you going to
call? You are going to call us, and that is devastating if you
are in the midst of it, and we want to make sure that my
company, as other essential service providers, are here to
handle those details, those messy details. A lot of times for
our future, it is all about our future.
Senator Ernst. Yeah. Thank you. Thank you, Ms. Hildreth,
and, Mr. Schoening, thanks again for joining us, and I am glad
that you are working to support our small family-owned
businesses. In 2017, we did pass the TCJA, a tax reform law
that helped Main Street and the American middle class. This
included doubling the death tax exemption and indexing it to
inflation. These provisions are set to expire at the end of
2025. What issues do you see small business owners facing if
Congress allows the reforms we made to the death tax in the
TCJA to expire?
Mr. Schoening. Well, if that relief expires, Senator, we
can count on more family farms and businesses being in the
crosshairs of the estate tax certainly, and as you know, it is
not only the estate tax exemption that expires. It is the 199A
small business deduction. It is marginal tax rates across the
board. It is even the standard deduction. And so this is
overwhelming to think about for our business owners, and that
is why we are pushing for a permanent extension of the current
policy.
Senator Ernst. Okay. Thank you, and I will yield back.
Thank you.
Chair Shaheen. Senator Cardin.
Senator Cardin. Thank you, Madam Chair, and let me thank
all of our witnesses, and thank you for this hearing. To me, it
is an extremely important aspect.
Small business owners, yes, education is important, but
when you are at the beginning stages of a small business, your
entire attention is towards making your business viable, doing
everything you need to keep the business going. You cannot
really take that much time to try to figure out what is going
to happen 20 years from now or 30 years from now. That is
understandable, and you do not have consultants on staff that
can help you deal with those types of challenges. So the
reality is that small business owners start a business, it
grows, and then at some point, they realize they have an issue
they have to deal with.
And secession planning is challenging for many different
reasons. Some of it is a family-owned small business, you can
have family dynamics that make succession a challenge, and as
you get to generation two or generation three, it gets more and
more complicated, particularly if you have large families, and
I am not against large families, but it does make it more
complicated. Add to that that you have principals in the
business that have now reached an age where they would like to
step back. Do they have retirement security? Do they have to
take the equity out of their company in order to deal with
their retirement needs, which affect the succession of their
small business? These are all challenges that we have to figure
out how do we deal with as we go forward? We try to deal with
some of this on Secure 2.0 by offering additional retirement
options for smaller companies so that they could participate
without the cost or burdens that larger--the requirements on
larger companies.
So, Mr. Snider, I would like to just have you dwell on that
a little bit. Is there more that we can do to deal with the
legitimate concerns of retirement security for small business
owners so that they can get engaged at an earlier stage,
recognizing years go by pretty quickly?
Mr. Snider. Yeah. Certainly, I think, going back to the
education topic, I do. I ran--I started my first business when
I was 16 out of the--out of my desk in the geometry class. I
probably should have been paying attention more in geometry
class----
[Laughter.]
Mr. Snider [continuing]. But nonetheless, I was certainly
starting that landscaping company. But I think what we could do
early and often, I think if you look at professional advisors,
that is in the area that EPI works, having them also understand
the exit planning process so you could have that conversation
early and often. What we say at EPI is that exit strategy is
business strategy. There is really nothing different, is that
if you think about the things that you are doing, whether you
are first starting or you have a more mature company, you are
doing things in your business every single day that eventually
will affect your exit from a business, personal, or financial
standpoint.
To your point, owners aren't thinking about that early
and--early and often, but I think that if--when they turn to
their board, they turn to their mentors, they turn to something
like the SBDC, the family enterprise center, if those folks
that surround those owners are also educated in the process,
they can begin that conversation early and often. My father is
sitting behind me, and I am lucky enough to have a dad that is
a certified exit planning advisor, so it becomes a lot more
natural for me to have, but it was a conversation that Dad had
with me early in my business career.
Senator Cardin. A suggestion in regards to the services
offered by resource partners is an area--that is an area, I
think, that could significantly improve their services to small
businesses, whether it is women's business centers or the small
business development centers. I think they could do a more
effective job, or it could have a higher priority on these type
of issues, our veterans outreach business centers.
There is one tool that I have found that can be
particularly helpful. There have been many companies in
Maryland that have converted to ESOPs as an effort to provide a
way in which the management owners can retire, have retirement
security, and can keep the company going with its current
workforce as co-owners. We have tried to make ESOPs more
available and transitions into ESOPs easier. There are some
times appraisal issues. We dealt with that in Secure 2.0 to
make that a little bit easier. Do you see ESOPs as being a
viable way that we could strengthen that tool to make it easier
for small companies to have succession plans that keep their
workforce intact, ownership intact, but allow their senior
management to be able to have retirement security?
Mr. Snider. I would certainly have our ESOP expert to
comment on that, too, but, yes, I think ESOPs, more so than
ever in our country, are a strong exit option for many
companies, something that Dad and I have even considered in our
own business.
Senator Cardin. Do you want to comment on that?
Ms. Croscut. Of course. [Laughter.]
Senator Cardin. You have been identified as our ESOP
expert.
Ms. Croscut. I absolutely agree with that. I would say
that, you know, an ESOP is not the right tool for every
company, right? Those of us who work in the ESOP space agree
with that, acknowledge that. There are other options out there
that are perhaps better depending on the company. But
absolutely, having everyone who is included in the business
owners' life and helping to advise them be aware of the
options, including an ESOP, is really important. And I do
believe there are many companies that are not aware of the ESOP
option and they should be, and they would probably select the
ESOP if they knew it.
Senator Cardin. Thank you. Thank you, Madam Chair.
Chair Shaheen. Thank you, Senator Cardin. I would just
point out that the second vote started at 2:59, and so Senator
Ernst has gone to vote. When she comes back, I will go, but for
others who have not voted, just be aware of that. I also want
to welcome Mr. Snider's dad to the hearing. Make sure he does a
good job.
Voice. [Inaudible.]
Chairwoman Shaheen. Yeah. Senator Hawley.
Senator Hawley. Thank you, Madam Chair. Thanks for having
this hearing, and thanks to all of the witnesses for being
here. Ms. Hildreth, I want to start with you, because I was
just so struck by your opening remarks, and then your back and
forth with Senator Ernst, particularly as it relates to farmers
and the challenges that they are facing.
Missouri, which is the State I represent, we have 95,000,
about, family farms in the State, and we are very proud of
that. That makes us the second most by number in the entire
United States, not by proportion, but by number, and, you know,
we are not one of the biggest States in the country, so we are
very proud of that. And I come from a farming background and so
does my wife, so it is something that is very near and dear to
my heart. And I just want to ask you a couple of things related
to that and some of the comments that you made.
Let us just start maybe, though, with the capital gains
issue and how that factors into succession planning that you
have seen, you know, just your own experience. I mean, what
does--you talked a little bit about your own experience with
this and the unfairness and surprise of being told that, you
know, here is--here is this farm that you have inherited but
that you are also now responsible for, and the first thing is
you have got a massive tax bill that you now have to pay. So
just in your own observation and from your own experience, what
is that like, and how do you think that affects farmers who are
saying, boy, I want to--I want to keep this farm in the family,
I want to give my son or daughter a shot at farming, but we
have got to get around this obstacle, and just talk to us about
that.
Ms. Hildreth. Thank you, Senator Hawley. I have a very good
friend. His name is State Senator Dan Zumbach, and he is in
this situation with his son right now, and he was explaining to
me the other day in the chamber, he says, we cannot succession
plan and sell our land to our son. It just cannot work. We have
to wait until I die, and then he and his three siblings will
inherit, and then he will have to deal with buying them out,
even though they have no interest in farming. And now the
burden is to him, and it is--it has really put them in a place
where they are frustrated, and as a State senator, I know he is
looking at what can we do at the State level. So that is my
experience as I talk to some of my colleagues.
Senator Hawley. Yeah.
Ms. Hildreth. And my role is executive director of Calhoun
County Economic Development. Well, I am 7 months into this job,
so education is really key for me as a leader, as a community
leader, and there is so much to learn. Everything that you are
all talking about today are things that I need to go home and I
need to learn more about. So I think it is from our leadership
as well, you as a--as a senator, our representatives, our
mayors, our county supervisors, to educate themselves and have
these conversations at the church coffee----
Senator Hawley. Mm-hmm.
Ms. Hildreth [continuing]. You know, at the fellowships, at
the Sweet Corn Day celebration, you know, whatever it is. But
I--it is really education----
Senator Hawley. Yeah.
Ms. Hildreth [continuing]. And knowing what is there and
finding, I am sorry, but back doors around things----
Senator Hawley. Mm-hmm.
Ms. Hildreth [continuing]. Because we know all those back
doors do exist. We just got to find them.
Senator Hawley. Mm-hmm. Let me ask you. Well, I just want
to say it should not be that farmers or any other small
business owner should have to go to a back door in order to
pass along their business to their family, and, particularly,
as you pointed out, with the land issue. I mean, you would
think in this country--I think people who do not know anything
about farming often think, oh, there is plenty of land. There
is no--there is no land problem. There are gobs of land out
there. Boy, you go tell that to a young farmer and trying to
find land, trying to buy land. Nobody can afford land. Nobody
can get a shot at it. I mean, so this is a huge, huge obstacle
that we have got to solve.
I want to ask you in my brief remaining time here one other
thing actually related to land that you brought up. You
mentioned foreign ownership of land.
Ms. Hildreth. Mm-hmm.
Senator Hawley. To me, this is such a huge issue. At a time
when our younger folks cannot afford to buy land, farmland in
our country, to have foreign nations and foreign corporations
coming in and buying up that land, it just seems unbelievable.
You mentioned it. I would just like to give you a chance to say
something more about that. What is your perspective on it?
Ms. Hildreth. It will kill the family farm. These foreign
adversaries, they are going to come in, and if given the
opportunity, they are going to suck up the good land, and who
knows what they are going to do with it? Our farmers, our Iowa
farmers, as I am sure our Missouri farmers, are stewards of the
land. They take care of the land. They reinvest in the land.
They are worried about water quality. They are worried about
cover crops. They are stewards of the land, and my fear is some
of these other companies that come in and buy land, they are
not going to be stewards of our land.
Senator Hawley. Thank you, Madam Chair.
Chairwoman Shaheen. Thank you, Senator Hawley. Senator
Rosen.
Senator Rosen. Well, thank you, Madam Chair, really, for
holding this hearing today, and thank you for the witnesses for
being here. I am going to thank the dad as well and, of course,
all your parents, spouses, siblings, your whole families.
But, you know, this issue is so important because small
business is the backbone of America. It really is part of the
American Dream, and I can tell you that in Nevada, 99 percent
of businesses are small businesses, and so that just continues
to grow, and it is a backbone of my State as well. And we have
a really deep rural frontier State in so many ways, and small
businesses, they just play a crucial role in my rural
communities all across Nevada. And they are key employers from
the backbone of our local economies. They help create wealth
through long-term family business ownership, just like you are
talking about, whether it is a family farm or some other kind
of business. And so it is critical that we create the
environment for our rural communities so those businesses can
continue operating and serving the residents even after a
change in ownership.
So, Mr. Snider, you are getting all the questions here
today. Can you discuss the importance--you did talk about the
importance of succession planning, but in rural communities, we
have in Iowa, New Hampshire. You know, D.C., I guess we have--
around us is rural, but rural communities may not have as many
resources as maybe some of our urban communities just to seek
out as far as even from the SBA or attorneys and the like. What
can we do to be sure our rural communities do not get left
behind?
Mr. Snider. I like the conversation around, like, economic
development centers, family enterprise centers. Even think
about, like, your schools, like, alumni associations.
Senator Rosen. Oh----
Mr. Snider. So there is, like--we have worked with colleges
and universities----
Senator Rosen. Uh-huh.
Mr. Snider [continuing]. And perhaps there is a committee
on entrepreneurship----
Senator Rosen. Right.
Mr. Snider [continuing]. That that alumni association has.
So, again, I know it is kind of maybe----
Senator Rosen. A community college----
Mr. Snider. Like a community college.
Senator Rosen. Yeah. Yeah.
Mr. Snider. Yeah. Sure. So I think it is critical for the--
for the rural communities because there is just less businesses
there.
Senator Rosen. Mm-hmm.
Mr. Snider. And to your earlier point, really the backbone
of that community. I think you were talking in your testimony
about the little league baseball team and the things that
business owners do, particularly in those smaller communities.
So I think I go back--I know I have said it 3 times now
here in this hearing, but I think it goes back to education and
just that critical mindset shift for the business owners and
the people that surround them provided through smaller
organizations like an SBDC, alumni association, and again,
changing that conversation.
Senator Rosen. Being sure they get out to our rural
communities is particularly important.
Mr. Snider. Right.
Senator Rosen. And we do know they sponsor all the--all the
sports teams----
Mr. Snider. Yeah.
Senator Rosen [continuing]. And so many other things. A lot
of our social services are also sponsored----
Mr. Snider. Sure.
Senator Rosen [continuing]. And supported--local social
services by our philanthropies by our philanthropies, by our
business community as well. And in Nevada, we are a younger
State. We have a lot of first-generation business owners all
through the state, 280,000 small businesses, like I said, and
about 20 of them are--20 percent of them are Latino owned and
many more are minority owned in general, and so they are
incredibly small businesses, family-run businesses, first-
generation businesses.
And only half--particularly our Latino community, only half
of our Latino business owners have a succession plan in place,
and I am concerned about the long-term success of these
businesses. And so, Ms. Croscut, we are going to move over to
you this time. What challenges do you think first-generation
small business owners, especially those maybe from some of our
minority communities, face when navigating the complexities of
succession planning?
Ms. Croscut. I am assuming it is overwhelming, you know,
for any first-generation who is probably trying to figure out
how to run the business and not really thinking about the exit
strategy there, but I think there are a lot of those companies
out there, right?
Senator Rosen. Mm-hmm.
Ms. Croscut. There are probably as many as there are
retirees transitioning, and they need the same level of
assistance from their advisors. There are all kinds of, you
know, potential challenges, right?
Senator Rosen. Yeah.
Ms. Croscut [continuing]. Whether it is getting financing
for what they need for the business, whether it is figuring out
what the exit strategy will be, getting labor. You know, there
are labor shortages.
Senator Rosen. Labor shortages. Very hard in our rural
communities.
Ms. Croscut. Absolutely.
Senator Rosen. Yeah.
Ms. Croscut. So just the--just the day-to-day is a lot,
right, for any first-gen business, and then to sort of figure
out what am I going to do next when the business has run its
course and I need to retire, so.
Senator Rosen. Well, I see that my time is just about up,
so I will yield back because--are you quite ready there,
Senator Hickenlooper?
Senator Hickenlooper [continuing]. 30 seconds.
Senator Rosen. I will turn it back to----
Senator Hickenlooper [continuing]. 10 seconds.
Senator Rosen. I will back to--we will filibuster here.
[Laughter.]
Senator Rosen. Thank you all again for being here. I yield
my time back to Chair Shaheen. Thank you.
Chair Shaheen. Senator Hickenlooper, if you are not ready,
I think Senator Ernst and I are going to do another round. So
if you are ready----
Senator Hickenlooper. No, I am ready.
Chair Shaheen. Go ahead. Okay.
Senator Hickenlooper. I am ready. So I have been looking
forward to this as someone who has loved looking at things like
ESOP. You know, Colorado has a wonderful brewing company called
New Belgian Brewing Company, and the founders of that were old
friends of mine from my early days. I always point out that
they were a couple of years after we were. But anyway, that
notion of being able to take a workforce that often functions
like a family and basically include it as part of your estate
planning, and figuring out a way to make sure that that magic
and that chemistry is preserved and, at the same time, creating
opportunities is a big deal.
I will start with Ms. Croscut. Back in 2007, I sold the--my
brew pub. We didn't use an ESOP, but I sold out to my partner
and then a number of our senior employees, and they were able
to--he guaranteed to take them on and function in a similar
way. These days, transitioning to employee ownership probably
is easier ever in Colorado, thanks to the State has an employee
ownership office. There is a commission on employee ownership
and an employee ownership tax credit that have all been put
into place kind of at the end of when I was governor and now.
What elements of Colorado's system to support employee
ownership should the Federal Government consider adopting?
Ms. Croscut. Thank you for raising that question. I think
there are many aspects to what Colorado is doing that the
Federal Government can take as sort of a path, a strategy. One
of those is just the idea of setting up State centers with
State funding or government funding. We have seen that in the
ESOP community at large, that the centers in various States--I
sit on the board of the Vermont Employee Ownership Center as an
example. Centers that are set up in schools, colleges, you
know, their financial issues are different than the centers
that are set up with Federal-State funding availability. They
are--they are more consistent, right, and they can do things
that other centers that are outside of that and not getting
that funding might not be able to do.
They also bring somewhat of a sense of sort of a stamp of
approval, right, to the people who utilize them, because if
they are set up as a sort of government entity of sorts. When a
business owner reaches out to them, it is sort of like, okay,
well, this entity offering ESOP education or employee ownership
education has that sort of sense of approval versus maybe a
consultant who is in a not-for-profit or something like that.
So there are just some really large benefits, we think, from
that structure.
Senator Hickenlooper. Good.
Ms. Croscut. Yeah.
Senator Hickenlooper. Great. I would ask each of you, there
was a book called the ``Great Game of Business.'' I am sure
some of you have seen that, but it is talking about the
Springfield Remanufacturing Company, which I actually went to
visit at one point when I was still in the private sector just
because I wanted to see about them. But one of the--one of the,
I thought, great things about ESOP and that kind of transition
is that it leads you to open book management, whereby, you
know, you do not know the details of what your coworkers are
getting paid, but you are able to see what the revenues are,
what your costs are, and how well you are doing, which I found
to be very beneficial. What is your take on that in terms of
that open book management?
Mr. Snider. It is something that we have in our own--our
business is not a--is not an ESOP, but I would challenge any
business owner to be more open with their employees and create
that culture. I think certainly in the ESOP world, more open
than ever because you have to be, but I think that kind of open
book culture, especially for younger generations, who, I think,
look for ownership or ownership in some form. I think a
critical path for creating a great business is kind of an open
book, open culture policy.
Senator Hickenlooper. Right.
Ms. Hildreth. Thank you, Senator, for that question. I am a
small business owner, and our employees see a number on a
whiteboard in my office, and these are young men, not out of
college very long, great employees, salt of the earth, great
people. But they walked in my office one day and they said,
what does that $159.87 mean--hundred and fifty-nine and eighty-
seven cents--and I said to them, that is how much money we need
to bill every day, 365 days a year to cover our insurance cost.
I need them to be aware of things like that, that as an
employee, you do not worry about general liability insurance or
workman's comp insurance. You are worried if you are going to
get a paycheck.
So I think it is mentorship, and it is going to the basic
foundations of operating a business and educating your
employees. These are the challenges. This is why it is so
important that you do this or you do that or why I do this so
you get paid.
Senator Hickenlooper. Yeah, I agree, and that is one of the
open book lens of that kind of mentoring. Anything to add?
Mr. Schoening. I think you will find, generally, with
family businesses, they do have an open book policy, even if it
is not mandatory. When things go wrong in a family business or
times get tough, everybody tightens their belts together. That
is somewhat different than a multinational corporation where
the executives' pay may be tied to the stock performance or
something like that, but it is a much different dynamic in a
family business or a family farm, and I would say, for the most
part, I would associate myself with what Theresa said. She runs
an open book type policy, and I think a lot of our family
businesses do as well.
Senator Hickenlooper. Right. So interesting. I am out of
time, but I will leave you with just the one thought, that a
couple of different polls have gone out and talked to people
about the primary motivation that people use to start a
business. And I was shocked that, you know, over three-quarters
of people, it is not to make more money. It is because they do
not want to have a boss, and I believe that so deeply, and when
I finally understood that, it really changed my worldview about
small business and what an important and powerful thing it is.
Thank you. Thank you all for coming in today.
Chair Shaheen. So how does that track with the fact that
now that you are in the Senate, you have thousands of bosses in
your constituents?
Senator Hickenlooper. No, no, no. I view myself as their
servant----
Chair Shaheen. Okay.
Senator Hickenlooper [continuing]. In the same way that as
a restaurant, I try to serve all my staff.
Chair Shaheen. Good.
Senator Hickenlooper. But I still think I am the boss of my
life.
Chair Shaheen. Thank you, Senator Hickenlooper. I have--
Senator Ernst had another engagement, so she needs to leave,
and I have to go vote, but I do have one final question, Ms.
Croscut, that I would like to ask you, because in your opening
statement, you talked about the 7(a) Loan Program and changes
that have been made to try and make those more helpful to
ESOPs. Have you seen that that has made a difference in terms
of interest in using the program?
Ms. Croscut. Excellent question. So I think I would respond
to that in two ways. The level of interest, I think, is related
to, again, back to education, unfortunately, right? We had some
struggles with that program, but you do not get to the program
until you first hear about ESOP, so if you are not hearing
about ESOP, you are not getting to that stage of using the 7(a)
loan.
What I have seen in my recent experience is that the
program has improved, that we were able to use it, at least in
a recent engagement, to transition to a hundred-percent ESOP
ownership in a successful way that was not traumatic. In
previous experiences, it was a little bit traumatic. It was
very drawn out. There were a lot of requirements that were
difficult for us to really provide to SBA, but there have been
certainly some improvements, and I think it is just going to
take some time and some additional education to be able to
utilize that fully in the new state that it is being offered.
Chair Shaheen. Thank you. That is helpful, and as we are
talking about education, virtually all of you have mentioned
the importance of educating small business owners about the
challenges of succession planning, and I think we would all
agree that SBA has a role to play in that. The resource
agencies, the women's business centers, SBDCs also have a role
to play. Is there more that could be done by those agencies, or
should we be asking them to partner with other entities or
organizations to try and get the word out about the resources
that are available to people? Any thoughts about--final
thoughts, Ms. Hildreth?
Ms. Hildreth. In Iowa, we have a program that is starting
up not too far from me. It involves nine counties, and it is
called Hub 7 1-2. It is federally funded. It is a 2-and-a-half-
year program. I do not know a lot about the backside of it.
Chair Shaheen. Do you know who funds it, through what
agency? Is it funded through rural development, or through----
Ms. Hildreth. I think it is through rural development, and
it--the process has been going on. The Greater Carroll Economic
Development Corporation is leading that for Carroll County and
eight counties surrounding that. And Hub 7 1-2, it is all about
growing entrepreneurs and bringing to them the tools that they
are not finding someplace else. Maybe they do not know where to
look, but the backbone of it is mentorship, and I think
mentorship, it goes to the heart of us as leaders and wanting
to grow. Why not ask the guy who has been through it all and
through this program?
Chair Shaheen. Yeah.
Ms. Hildreth. And through this program--like I--like I
said, I know it is federally funded. It is going to launch. I
think they are going to name all the entrepreneur or the
leaders in February. That is going to be a great day for Iowans
and others across the United States that are going to have
these hubs to help them help our entrepreneurs.
Chair Shaheen. Other thoughts? That is a great example. Mr.
Snider.
Mr. Snider. Yeah, Senator, if I may, I would say I think
any great organization has grown through partnerships. So in
Colorado, actually, we have a local chapter, so the Exit
Planning Institute has about 30 chapters across the United
States where business owners and business advisors come
together to talk about exit planning and gain partnerships and
gain further education around the topic. Governor Polis there
actually funded a regional State of Owner Readiness Survey so
that he could better understand the business owners within his
State, and through that, the ESOP organization, through the
government, has now worked with our organization to fund things
like online education, something easy and simple that an owner
can come online to and take owners forums, further research,
and whatnot.
So yes, the short answer is absolutely, and I think the
agencies and the organizations locally should look to partner
to bring that--to bring more awareness and education to
business owners.
Chair Shaheen. Great. Mr. Schoening, Ms. Croscut.
Ms. Croscut. All right. I will jump in. I think the Main
Street Ownership Act actually directed the SBA to help with the
education around ESOPs, employee ownership in general. We have
seen some of that, but it hasn't been as full, I guess I would
say, as we would like it to be. So I would say, yes, there is
more to be done. The act certainly was helpful in sort of
providing the directive, but we would love to see more of that
outreach and probably more education for those SBDCs. For
example, you know, if they do not have the knowledge, they
cannot share it, so.
Chair Shaheen. So maybe this Committee should direct the
SBA in doing more succession planning.
Ms. Croscut. That would be fantastic.
Chair Shaheen. Mr. Schoening, the last word.
Mr. Schoening. So from our perspective, family-owned and
operated businesses, a lot of them work with local colleges on
career and technical education. For example, an electrical
company may partner with a college that already has this
equipment on hand, and they can train people in exactly how to
use it, exactly how to repair it. So there may be some
opportunity there to pair up with local colleges that
specialize in estate planning and do some more education in
terms of what they need to do, the will they need to have in
place, the plan they need to have in place, and things like
that.
So yes, I do think that there is more of an opportunity for
us to educate our members, especially family business owners
and farmers, who, as we have heard here today, simply aren't
prepared for succession.
Chair Shaheen. Well, thank you. I agree. We have a--we have
a great example at the University of New Hampshire, a center
that helps with succession planning, but one of the challenges
is helping people know it is there, and I think getting the
word out, as you have all mentioned, is really important.
So thank you all very much again for being here today and
for your testimony. We look forward to staying in touch and
hope that, Mr. Snider, you will share with us the results of
your survey when you get it, and as all of you are working in
your areas, that you will think about sharing with this
Committee any ideas that you have.
The record--the official record will remain open for 2
weeks for any additional questions and statements.
[The information follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairwoman Shaheen. And with that, the Committee stands
adjourned. Thank you again.
[Whereupon, at 3:34 p.m., the Committee was adjourned.]
[all]
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