BOOMER BUSINESS OWNERS

Background

The retirement of the baby boomer generation has long been a pending economic concern. It is now no longer pending— it’s here. Every month, more than a quarter-million Americans turn 65. This is a trend with deep economic consequences. As baby boomers, those individuals born between 1946 and 1964, move into retirement, new market opportunities and demands are being placed on the economy.

According to the Bureau of Labor Statistics, Americans over age 50 control 77% of the total net worth and have almost $46 trillion of wealth. Mid-lifers are living longer, healthier lives and pursuing a wide variety of undertakings and interests. Retirement is no longer seen as an ending, but the beginning of “Act II.”

Much of the information available implies the boomer generation places huge demands on our economy; stating that overall they do not contribute as much to the economy as workers. But the facts show that boomers are actually an economic boon. Consider some of these statistics:

Globally, the spending power of consumers age 60 and older will hit $15-trillion by the end of this decade, up from $8-trillion in 2010.
Although boomers and seniors have seen a slight decrease in their median family net worth, they still have a net worth that is 3 times that of the younger generations.
Baby boomers account for nearly $230 billion, or 55% of consumer packaged goods sales each year.
96% of baby boomers participate in word-of-mouth or viral marketing by passing product or service information on to friends and family members.

We know that many businesses have capitalized on this population as they move toward retirement with various housing options and elaborate retirement home plans. Harley Davidson is offering a three-wheeled version of its motorcycle. There is a lot of competition for the revenue that boomers will continue to bring to the market place.

According to the California Association of Business Brokers (CABB), baby boomers (about 70,000,000 of them) are poised to make a great impact on the American economy. The CABB provided these statistics:

• Retiring boomer business owners will sell or bequeath $10-trillion worth of assets over the next two decades. These assets are held in more than 12-million privately owned businesses.
  
• More than 70 percent of these companies are expected to change hands.
  
• The sale of almost 12-million businesses over the next 10 to 15 years represents a significant increase in the annual number of businesses that will be sold.
  
• These business owners should have a valuation performed by a business broker to map out a strategy for selling and structuring the sale of the business.
  
• Planning ahead will enable business owners to achieve the best transaction possible during this boomer-induced wave of business sales.
  
• The 12,000,000 businesses likely to change hands over the next 10-15 years might involve a large number of boomer-to-boomer sales.
  
• Baby boomers ages 45 to 64 form businesses at a higher rate than other age groups.
  
• 55 to 64 year olds form businesses at the highest rate of any age group.
  
• Many of the baby boomers are too young to retire; they typically have ample capital through savings, investments or other assets; they have job-related skills accumulated through a lifetime of work; many have lost faith (and money) as a result of large company layoffs and restructurings; and many will buy their own business in coming years.
  
• Many boomers find themselves unhinged from their traditional employment safety nets. This dislocation has fueled an intense desire and need to have control of their destinies.
  
• Ironically, now small business ownership is seen as much more safe and secure than working for a large company.
  
• In the coming decades, not only are we likely to see millions of baby boomers selling businesses they now own, we will also see additional millions of boomers (who’ve spent their lives working for someone else) buying businesses.
  
• The next two decades will see a significant increase in the number of small and mid-sized businesses being bought and sold by baby boomers in addition to the other generations of Americans that business brokers regularly deal with.
  

Baby boomers are now flooding the market thanks to the improving economic conditions. Many boomer owners may have planned to exit their businesses several years ago but were forced to delay due to the recession driving down prices. As the economy has recovered, so have the businesses.

If you are one of the boomer owners wanting to sell or transition your business, you need to prepare for the other boomers that are doing the same. One wrong move could jeopardize your ability to enjoy retirement or reach other post-sale goals. You must:

• Have a well-defined strategy that will maximize the return on your years of investment and meet your personal goals.
  
• Have your business in a prime condition including: physical assets in good condition, well documented business processes that are effective, a strong, committed management team, current technology, and operations that can run without your daily participation.  
  

What is a Transition Strategy?

Many business owners think a transition strategy is about selling the business. However, depending on your retirement goals, you may prefer options that allow you to continue with some participation in the firm. These could include:

• Transitioning management to the next generation
  
• Selling to your current management team
  
• Merging with another company
  
• Employee Stock Option Plan
  

Additionally, there are transition strategies that could give you complete freedom from the business such as:

• Selling to another company or individual
  
• Selling to the public market (IPO)
  
• Selling the assets of your company to another firm
  
• Gifting the business as a charitable donation
  

Always keep in mind, the transition strategy you choose needs to factor in to what your personal goals are. Ask yourself:

• Do you intend to continue to work on your company?  
  
• Do you intend to retire? If yes, when? How much will you need to meet your financial objectives?
  
• Are you looking to maximize immediate cash?
  
• Are you looking to minimize tax implications?
  

Preparing your Business for Transition

Your business should be in prime condition to maximize the return on your investment. There is strong competition in the market with boomer owners selling their businesses. According to a recent story in the New York Times:

“The number of small businesses listed for sale nationwide is at a six-year high, according to data compiled by BizBuySell.com, an online marketplace. The tally of completed transactions is also rising, and the median sale price is up 12 percent compared with prices a year ago.

Businesses are sold for a wide variety of reasons, and America’s improving economy is the largest factor in the recent rise, according to those in the industry. But bankers and brokers say there is a significant increase in sales from business owners in their 60’s and 70’s who are ready to turn their creations over to a new generation of owners.”

Additionally, Lynn G. Ozer, the president of government-guaranteed lending at Susquehanna Bank in Lititz, Pa., said pent-up demand was contributing to the 2015 surge:

“Baby boomers who were going to sell got stopped in their tracks in 2008, 2009 and 2010,” she said. “Things froze for a few years, then got better. In 2012, 2013 and 2014, they put together great years. Now, their books look good and they’re ready.”

Depending on your selected strategy, preparing your firm for transition in a competitive environment will require special attention to some specific areas of operation.

For example, if you plan to transition to current management or next generation, solid business processes that are clearly documented to help guide the new leadership as well as cash reserves to assist with transition are essential. If selling your business to another firm or individual is the best choice for you, it will require that all aspects of the business reflect continued strong earning potential; prospective buyers will be concerned about employee turnover and potential investment in outdated assets.

Summary

Typically, a business transition will happen just once in your life. It is understandable to have some hesitation when thinking about retirement or transitioning your business. However, understanding your long-term goals will help you determine the best strategy and next steps for success. As with almost any life changing event, procrastination will prove to be fatal, but preparation will prove to be fruitful.