There is going to be a massive increase in the number of businesses for sale, as baby boomer entrepreneurs begin to retire. As of January 1 this year, the oldest of America’s baby boom generation started turning 65 at a whopping rate of 10,000 a day…a trend that will last for the next 10 to 15 years. Over that time there’s going to be a massive increase in the number of businesses for sale, as baby boomer entrepreneurs begin to retire. The owners of most of these businesses, now 50 years old or older, are beginning to think about retirement and that is going to have a major impact on the economy, infrastructure, business, government and peoples lives over the coming years.
In total, more than 7.7 million business owners are expected to exit their businesses and these businesses represent over $10 trillion in wealth. However, studies by Mass Mutual, Price Waterhouse Coopers, Marquette University and others show that over 75% of these business owners have no exit or transition plan or any idea how to handle what will be the single biggest financial decision of their lifetimes. This is not only an inconvenient truth, but also a recipe for disaster. An exit plan is a comprehensive, integrated plan that addresses all personal, business, legal, financial, tax and estate issues involved in exiting from a privately owned business. The plan shows business owners how to position themselves and their businesses to gain maximum leverage to accomplish all their personal, financial and business goals when they exit their business.
The American Family Business Survey sponsored by MassMutual showed that approximately 30% of these owners plan to sell their business to a third-party buyer. As a result there is likely to be a glut of businesses on the market. The possible result of this glut of available businesses will be downward price pressure for most privately owned companies, as the supply and demand curve will favor buyers. So, it will be incumbent on the business owner to focus on doing everything they can to increase the attractiveness, value, and salability of their businesses. They will need to focus on improving profitability, building a sound management team and growing revenue and profits as a key differentiator against competition.
One way for baby boomer business owners to deal with this situation is to put themselves in the drivers seat by having a strategic Exit Plan ensuring that they build value and are positioned to seize opportunities that present themselves for attracting quality buyers. The significant benefit of planning is that business owners are often able to reduce, or in many cases, eliminate capital gains taxes due at the time of sale. This increase in after-tax net proceeds can be dramatic and allows owners to keep more of their hard earned gains of a lifetimes work. Another benefit is peace of mind, often overlooked, but essential when embarking on a new phase of life. Taking charge of their future is now in the hands of the baby boomer business owner, rather than at the whim of an institution, bent on getting their pound of flesh.
Exit planning delivers very tangible benefits, as many savvy business owners sell for enhanced premiums over their contemporaries who come to market unprepared. An Exit Plan will include contingencies for burnout, divorce, illness, and even an owner’s untimely death. A good Exit Plan shows business owners how to maximize value of their business at the time of exit and minimize their tax burden. It ensures business owners are able to accomplish their personal and financial goals. However, with so many baby boomer businesses on the market concurrently, these objectives won’t easily be met for everyone. Without a plan, owners won’t be prepared for the tax implications related to selling a business. They won’t realize how today’s business decisions could impact on future succession and transition. There are many options that a business can execute legally and safely to minimize tax implications later.
Reasons for Doing Exit Planning Now
Important Facts In to Keep in Mind As You Plan
- Oldest of the baby boomers were born in 1945 and are now 66 years old. The youngest baby boomers were born in 1961 and are now 50.
- By 2009, the numbers of business owners wanting to sell their businesses each year will have increased fivefold over 2004. This trend will continue for the next 10-15 years.
- It will take 2 years of focused activity to get your business ready to sell at a reasonable price.
- We are currently experiencing the lowest capital gains tax rates in the last 60 years.
There is only one-way to get started with this process…you have to become well informed. Exit Planning is typically a “one-time” event and is not a process which is familiar or which business owners have experience. As a result, the use of an Exit Planning advisor is recommended.
Seek information from reliable sources and the best independent and objective sources possible. Talk with trusted business friends who have gone through the process, talk with trusted advisors like your attorney, accountant, financial advisor, or insurance professional or an M&A Specialist who focuses on privately held businesses. These specialists work with all variants and levels of professionals daily and are constantly helping business owner’s grapple with the vagaries of building, running, and selling their businesses.