Geri Lavrov | Getty Aspects
Baby boomer business owners, retiring in record numbers, are fueling a dramatic paradigm shift on Main Avenue, and many are at a crossroads, trying to figure out if they should sell their business or pass it along to a successor.
Boomers own 2.34 million limited businesses in the United States, employing more than 25 million people, according to the U.S. Census Bureau. Twenty-five million workmen equates to 25 million families, which in the larger picture is closer to 100 million citizens. Nearly one-third of our natives rely on these boomer business owners to make the right decisions regarding building enterprise value, traversing through challenging economic times, business growth and scale and, of course, succession and exit planning.
But a recent get a birds eye view of by Wilmington Trust shows that more than 58% of small business owners have not only go under to complete a succession plan, many have not even contemplated a transition or succession plan at any time along the way.
The bumping on our economy as boomers age, run into health problems, burn out or hit significant marketplace hurdles is potentially catastrophic to our economy.
The consequence of decayed succession planning directly impacts the 25 million families employed by these small business owners, and the secondary impact is even more staggering. Tens of millions of additional vendors, suppliers, partners, independent contractors, gig workmen and others rely on these boomer-owned small businesses to stay in business and are interdependent on one another’s existence and welfare. These translates do not even contemplate the hundreds of thousands of small businesses owned and operated by Gen Xers, millennials or even some Gen Zers.
“We are at a crossroads in the curriculum vitae of small business and entrepreneurship in our country in 2020,” said Jim Blasingame, host of the nationally syndicated talk radio a spectacle of “The Small Business Advocate,” which focuses on small business and entrepreneurship issues.
“If our nation’s baby boomers don’t get sundry focused on planning for the sale or transition of their businesses on an urgent basis, then we’ll have millions of citizens whose pain in the necks and careers are in peril and millions more who will not be able to properly retire,” he said.
Another conundrum is the fact that millennials and others in later generations are not interested in running the family business. Younger generations are looking at the sacrifices made by their boomer stepmothers or grandparents and are not as eager to bear the burden of owning and running a business well into their 70s. In fact, there are some movements, perhaps the most notable of which is the Financial Independence, Retire Early (FIRE) movement, which unfledged generations are following in an attempt to retire decades earlier than the standard retirement age.
Despite the trend, barely a upset of attention is being given to this potential economic crisis by the business media, the 2020 presidential hopefuls or the super markets.
Money conundrum
To make matters worse, many boomer-owned small businesses (and closely-held companies in overall) have the lion’s share of their overall net worth tied up in their companies, so if enterprise value diminishes, so does their adeptness and willingness to retire. And while, according to the same Wilmington Trust survey, 75% of small business owners requisition the reason they don’t have a succession plan is because they enjoy running their company, what these point owners don’t seem to grasp is that proper planning not only enables an owner to run his or her business longer but also flags the way to maximize corporate value.
Where will all of these small businesses go as their owners age? Who or what will buy them? Hacks seem to think that “private equity” will just buy everything eventually, but even though the formal clandestinely equity inventory reports an “overhang” (overfunded relative to deal flow) of more than $600 billion in 2018, innumerable of these companies are simply too small to be on the radar screens or meet the deal criteria of even the smallest of funds.
To tip off a exaggerate matters worse, according to a recent report by Refinitiv, global M&A plunged 16% year-on-year to $729 billion in the third board of 2019, the lowest quarterly volume since 2016 as growing economic and geopolitical uncertainty curbed the risk proclivity of companies considering acquisitions. As a result, many likely strategic and private equity buyers could just “stoppage on the sidelines” until the dust clears in 2021 or 2022, leaving many small business owners, who wish to put ones feet up via business sale, in a state of transactional limbo.
“Many small business owners in their 50s and 60s seem to suffer from Ponce de Leon syndrome,” held James Roberts, a succession planning and wealth management executive with Community Whealth Advisors in Rockville, Maryland. “They debris to accept the possibility of their own demise, or assume that advances in medicine will keep them healthy indefinitely. … But serious inside, many are mentally ready to retire, but don’t know how to approach planning challenges or what they will do next.” Roberts annexed, “And from a retirement-planning perspective, they really don’t know how much is really enough to support their future destitutions.”
Paralysis in decision-making
So why are so many of these boomer small business owners in denial or simply refusing to engage in metastasis planning? For some the reasons may be financial in nature. They simply are unprepared for retirement and are fearful, many for good estimate, that the sale of their company will not fetch enough proceeds to fund their retirement plans and needs. For others the ripostes may be more emotional than financial. They have some or all of the money they need to live comfortably in retirement but tease no clue what they would do all day if their business were sold. Their sense of self-worth, ego and respect all are inescapably tied to the operation of the business.
So many small business owners just keep kicking the can down the road or difficult to time the marketplace. At some point you just need to force yourself to make the hard decisions and then sum out what you are going to do with the rest of your life.
Rajiv Jain
an entrepreneur who sold his firm in 2018
Imagine starting a concern in 1975, building it and running it for 45 years and being everyone’s boss, matriarch, respected community leader, sponsor, etc., and in 2020, you sell the business and now consider yourself a “nobody” and a “lazy sloth.” Yes, some dream of playing golf and digging early happy hours, but most simply have no idea what they would do all day and are in denial as to their vulnerability.
“It’s a legal challenge,” says Rajiv Jain, a cashed-out entrepreneur whose company had offices across the globe and who sold his undeviating in 2018. “You want to find just the right buyer who will continue your legacy and take good nurse of your employees, your customers and others after the closing, but there are really no certainties. So many small dealing owners just keep kicking the can down the road or trying to time the marketplace,” said Jain. “At some mark you just need to force yourself to make the hard decisions and then figure out what you are going to do with the be found of your life.”
The game plan
How and what can a baby boomer entrepreneur do to proactively groom and position their company for eventual but inevitable sale?
From the small business seller’s point of view, it’s important to take all the necessary inappropriate ti to prepare the company for sale from a corporate housekeeping perspective. A small business seller must anticipate the asks and concerns of a prospective buyer and be prepared to provide the appropriate information for review.
A qualified advisory team can help you traverse through the preparation, execution and post-closing phase of a sale transaction. Their job is to appraise the value of your business assets, shelter your interests and mitigate your potential liabilities.
In addition, a small business seller should understand the amount parameters for selling the business in preparation for discussing the financial terms and conditions. And if no apparent buyers are in place, there should evermore be a Plan B for succession, such as the sale of the business to a select number of current employees (in what is known as a managerial buyout, or MBO) or the same all of the employees (in what is known as an employee share ownership plan, or ESOP).
The sale or succession-planning preparation process should everlastingly begin with a strategy meeting of all members of the seller’s advisory team. It is the job of this team to identify the goals of the affair, develop an action plan, understand the market, identify strategic opportunities for buyers, identify the legal and financial stumbling blocks, etc.
The team’s job is not easy, nor should it be. Focusing on the future of the business beyond the inherent goal of “being successful” is time demolishing and cumbersome, but it is imperative for any boomer business owner who hopes to see his or her company be successful for generations to come.