Are Baby Boomers Ready to Exit Their Businesses?
It’s official: as of Jan.1, the oldest of America’s baby boom generation started turning 65 at a rate of 10,000 a day — a trend that will last for the next 19 years. As articles like this one point out, the coming wave will mean big business for many industries. Many of us who offer financial services linked to retirement have been anticipating the day when the largest wealth transfer in our nation’s history officially begins. We originally thought it would occur in 2008.
Yet there is no shortage of articles proclaiming that people born from 1946 through 1964 are ill-prepared for retirement. While I’ve never seen a statistic comparing the lack of retirement planning with a lack of exit planning for retiring business owners, I’d be willing to bet that there is a strong correlation between the two. In fact, my experience tells me that, while most people check the value of their stock portfolio at least occasionally, most business owners wait until the 11th hour to determine the value of their businesses.
“They are afflicted with a business disease that is caused by a lack of exit planning,” said Peter Christman, founder of the Exit Planning Institute and author of “The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners.” By Mr. Christman’s estimate, as many as 75 percent of all business owners are afflicted with the no-exit-plan disease. According to a 2008 study conducted by Atlanta-based White Horse Advisors and Vistage International, 96 percent of boomer business owners agreed that having an exit strategy was important — but 87 percent did not have a written plan.
“People should think of exit planning like they do a personal will,” Mr. Christman said. “The plan should be done thoroughly once, and then updated periodically. A good exit plan prepares the business owner for their future — whether they want to retire, exit, work or whatever.”
While business owners certainly aren’t the only people guilty of poor planning, boomers anticipating selling a business as they approach retirement in the coming years may be faced with a double whammy: lack of planning and a glut of supply. “This is a landmark moment in our generational development,” said Patrick Ungashick, president of White Horse Advisors, and author of “Dancing in the End Zone: The Business Owner’s Exit Planning Playbook.” According to Mr. Ungashick, 9 million of America’s 15 million business owners were born in or before 1964, resulting in one business owner turning 65 every 57 seconds — and the potential for a tsunami of businesses for sale.
Both Mr. Christman and Mr. Ungashick believe that many of these Boomers have a disproportionate share of their wealth tied up in their businesses. “If these sellers don’t start planning now, they will be sorely disappointed,” Mr. Christman predicted. Both Mr. Christman and Mr. Ungashick recommend that business owners work with tax, legal and exit planning advisers. Mr. Christman also suggests finding a mentor and allotting a certain amount of time each month to working on your exit plan. “It’s amazing how much you can get done in a year with this type of schedule and help,” he said.
Mr. Ungashick encourages business owners to identify areas of transferable value in their businesses. These include management, financial controls, systems, and customer concentration. He noted that not having an exit plan can undermine what he calls legacy aspirations. “Owners have goals and values that they founded the business on,” he explained. “They don’t want to see them kicked to the curb.”
Time will tell whether retiring Baby Boomers exit their businesses with a victory dance, or a shuffle of disappointment. One cause for optimism: Boomers have a tendency to re-shape entire industries. Perhaps it will be their retirement that transforms exit planning from an obscure financial tool to a business best practice.
All business owners should meet with a competent business broker or intermediary who can provide a valuation. That valuation should then be reviewed with tax and legal counsel to best maximize the return on your business sale.