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Boomers Head for the Exit


Joan M. Gruber Ridley, CFP™

The baby boomer generation has been one of the most entrepreneurial generations in the history of our country. During the last 30 years, over 5 million businesses with annual revenues ranging from $1 million to $75 million were founded. The owners of most of these businesses are now 50 and are beginning to think about what comes next. Recent studies sponsored by, or conducted by, PriceWaterhouseCoopers, MassMutual, Rutgers, and Marquette University showed that between 34% and 55%, (depending upon the study), of privately held companies will change hands between 2006 and 2016. This group is largely baby boomers, but also includes their parents and even some grandparents. The result will be a glut of available businesses and downward price pressure for most privately owned companies. And, although there are plenty of buyers laden with cash, they are now more discriminating than ever.

How Boomers Plan to Exit

According to the American Family Business Survey, sponsored by MassMutual, approximately 30% of these owners plan to sell their business to a third-party buyer. Another 30% plan to sell to a family member, while another 18% plan to sell in some manner to current employees. The remainder plan to close and liquidate the business. However, the percentage of third party sales might actually be much higher than the studies indicate. Many who plan to transition the business to another family member will find this strategy not feasible for a number of reasons. Perhaps the would-be successor lacks the desire, expertise, or, does not meet the requirements to run the family business. In addition, many who had planned to sell to a third party 4 years ago were delayed when the market took a sharp downturn. After three years of increasing profitability, these owners are now ready to enter the market, adding to the number of opportunities for potential acquirers.

The Cost of Not Planning

Tragically, according to the PriceWaterhouseCoopers study, approximately 75% of private business owners have no written strategic exit plans in place. An additional 25% have done little or no estate planning. This is a recipe for disaster. These ingredients are essential to preserve or maximize wealth, to minimize tax, and to insure that the business owner's vision becomes a reality during his or her lifetime or posthumously. Anyone who is serious about exiting needs to be well prepared in order to compete for the most desirable acquirers, or to preserve the family business for future generations. For those business owners who intend to sell to a third-party, it will become exceedingly important that they position their business to transition successfully in an increasingly competitive market. With up to 55% out of every two business owners looking to exit over the next 15 years, there will be a glut of businesses on the market. Now, more than ever, it will be important thatevery business owner focus on doing everything he or she can to increase the attractiveness, value, and salability of the businesses.

Chaos - or - Peace of Mind and Wealth Preservation Through Exit Planning

An exit plan is a comprehensive, integrated plan that asks and answers all of the personal, business, legal, financial, tax and estate planning issues that are involved in exiting from a privately owned business. This plan shows business owners how to begin positioning themselves and their businesses so that the owners accomplish all of their personal, financial and business goals when they exit. Planning for both the business owner and the business will be key to a successful business transition, whether they plan to transfer the business to family, employees, a charitable trust, or to a third party. When preparing the business, business owners will need to focus on improving profitability, building a management team, growing revenue, and a host of other critical issues in order to make their companies more attractive and to maximize the after-tax proceeds they receive at the time of exit. When preparing the business owner, taking steps to address personal financial issues and the emotional side of leaving the business merit special attention and preparation to insure a successful transition.

Good Reasons to Begin Exit Planning Now

  • By 2009 the number 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.
  • Selling your business during the first half of the "baby boomer bubble" (2005 - 2010) will provide the best chance of maximizing its value due to an abundance of cash-rich buyers.
  • The economy is currently expanding and we are entering a strong economic cycle which creates a good environment in which to sell.
  • It takes approximately 2 years of focused activity to get your business ready to sell at a reasonable or maximum value.
  • We are currently experiencing the lowest capital gains tax rates in the last 60 years.

The Pay-Off for Those Who Prepare

Exit planning delivers tangible results for savvy business owners. It is not uncommon for companies that have invested the time and effort to prepare themselves for sale to sell for a significant premium over companies that come to market unprepared. In addition, with good planning, business owners are often able to reduce, or in some cases, defer or totally eliminate the capital gains taxes due at the time of sale. This dramatically increases the after-tax net proceeds that owners keep. But the most often overlooked benefit of exit planning, and perhapsthe most important, is the peace of mind that comes when a business owner knows that he or she is being proactive and taking charge of the future, rather than waiting passively to let the future take care of itself. After all, deciding how and when to exit a privately owned business is perhaps the single most important financial and personal decision in a business owner's lifetime.

How to Get Started

Start the exit planning process by getting informed. Seek information from the best independent and objective sources possible. One good place to start is to talk with trusted advisors like your business consultant, attorney, accountant, financial advisor, or insurance professional who focuses on privately held businesses.


Joan M. Ridley is president of Business Wealth Solutions, a Dallas-based advisory firm that consults with business owners about how to successfully grow and leave their business. Visit our website at www.bwsllc.net. Call us today at 214.692.9192 for a complimentary meeting to learn how we can help you get where you want to go.

Copyright 2006 Joan M. Ridley

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