The Expected Wave of Exiting Business Owners

With the largest generation in our country’s history entering retirement age, and many of the nation’s private businesses owned and run by these Baby Boomers, the need to prepare for one’s business exit is more important now than ever before. Within the next 35 years, Robert Avery of Cornell University estimates that $10.4 trillion of net worth from private businesses will be transferred. With so much competition in the transaction markets, it is imperative for you to plan and position your business in advance, and to learn about this expected wave of exiting owners. There is urgency to this emerging market, with very few advisors currently trained and prepared to give advice on the traps, and possibilities, of planning an exit strategy. The dynamics of orchestrating a successful business exit are very complex, and traditional “advisors” do not think broadly enough to head an owner’s “Exit Strategy Team.” These lawyers, accountants, and financial advisors will play crucial roles on this Exit Strategy Team, but a “quarterback,” or an advisor with the knowledge and experience needed to lead the team through one of the largest financial and emotional decisions in your life is necessary. The majority of your wealth is likely tied up in your illiquid business, and a strong team comprised of both fresh perspectives and advisors with a long relationship with your company will be critical to transforming that illiquid asset to fulfill your needs. “The majority of boomer wealth [in the United States today] is held in 12 million privately owned businesses, of which more than 70% are expected to change hands in the next 10 to 15 years” according to Robert Avery. He also adds that, “By 2050, virtually all closely held and family owned businesses will lose their primary owner to death or retirement by 2050.” (Ibid, pp12) With such an unprecedented number of exiting owners within all industries, the need for a comprehensive and customized exit strategy plan for your business will be crucial to your financial and emotional well-being. There are many factors and circumstances specific to each exiting owner and their business. You must consider the reasons for your exit, as well as the industry you are in - Is your industry dominated by retirement-age Baby Boomers? Has it matured, and is there likely to be growth or decline in the future? It is a fact that not all Baby Boomer businesses or industries will survive the expected wave of exiting owners, with both the weakest businesses and least-prepared owners left unable to successfully sell or transfer their businesses. nnGenerational Divide Another point to consider is that there is a cultural difference in how the Boomer generation perceives work and built their business and how the next generation approaches this same idea. In short, the generation behind the Boomers doesn’t want to work in the same way, creating more of an imbalance between the number of business owners needing to sell or transfer and the number of willing buyers for these companies. Even if you are not planning to sell the business, but instead to transfer stock and control to family members or a key management team via gifting and/or Employee Stock Options Plans, it is essential for tax and managerial reasons to begin these processes years prior to your anticipated date of departure. Foresight and planning are the best ways to guard against the unexpected, and to ensure that your wishes for the future, of both the company and your family, are fulfilled. In the face of increasing competition amongst retiring Baby Boomer business owners and a changing business marketplace, a well-planned and adaptable exit strategy will be necessary to achieve your desired exit outcome. Whether selling, transferring, or gifting a business, you must recognize that you will be competing in the flood of near-term business exits, and should begin accumulating information and building an exit strategy team years prior to the desired business exit. The majority of an owner’s wealth is often tied to this illiquid business, and an owner and his or her family may be dependant upon sale proceeds for the next step in life. In the emerging wave of exiting owners, only the exiting owners with strong business models and well-planned exit strategies will be poised for successful transfers and, ultimately, a successful next stage of life.nn© John M. Leonetti