A recent article in Pacific Coast Business Times argues that baby boomer business owners are headed toward a demographic “headwind,” which could limit their ability to transfer their businesses on their own terms and for the amount of money they need. The author warns: “There are projected to be far more sellers of businesses by boomers in the next seven to 10 years than buyers looking to acquire businesses.”
There are about nine million more sellers of businesses in the next decade than there will be buyers. While there are about 76 million baby boomers today, Generation X is only made up of about 67 million people, decreasing the amount of buyers. “The number of boomers that are currently reaching age 65 is about 10,000 a day. That number translates to about 100,000 business owners reaching retirement age each year.”
Further, business owners are not planning properly to prepare for the sale of their businesses, which could cause a lot of problems for owners who are expecting to retire within the next few years. A 2016 survey by Securian found that 72% of small business owners don’t have an exit plan in place. Of these business owners, 54% plan to leave within a decade.
And, according to Forbes, a survey of more than 200 San Diego business owners shows:
- 53% said that they had given little to no thought about their transition plan at this point, even though the vast majority of the respondents were over the age of 51.
- 88% of these respondents had no formal plan to transfer the business from the current owner to someone else.
- 70% don’t know what after-tax income they will need to support life after the transition.
- Two thirds of the respondents admitted that their main goal was to get full value for their business, yet less than 65% have ever had their financial statements audited.
- Less than 48% of businesses with multiple partners have a buy-sell agreement in place.
- Only 25% are comfortable that their managerial team could be successful if the owner was no longer involved after the transition.
Plan, plan, plan! Given these demographics, baby boomer business owners need to start planning for their transition at least three to five years before they’re thinking about leaving the company. Owners are often surprised how long the transition process takes. There are always issues and setbacks that arise and owners need plenty of time to address them and get back on track.
The Bottom Line:
For most owners, selling or transferring their businesses will be one of the largest transactions and events of their lives and they have one shot at getting it right. Planning in advance will positively impact the outcome and ensure that they can live the life that they want in retirement.
Other Business Transition News
Katrina Loftin-Winkel, business broker and M&A Intermediary offers her list of ten must-do’s before selling your business.
Jerry Ripperger, vice president of consulting at Principal introduces a new, free website to help advisers and their clients explore the potential benefits of launching ESOPs as part of a broader ownership transition.
Geoff Green, founder of GRG Momentum, discusses planning for what happens after you exit your business.
Dennis Engelbrecht discusses the challenge of next generation readiness as well as possible solutions for nurturing and developing future leaders.