Business owners frequently approach exit planning much like a new fitness routine. They know it is necessary, but it always seems to be something that can be put off until tomorrow.
For the Baby Boomers, tomorrow is already here. Business owners who were born between 1945 and 1964 make up 25% of the population, but own over 60% of the small businesses. This is the result of their surge into the job market in the 1970s, and the lack of room in corporate America to absorb a much larger and better educated employee population. From 1975 until the middle 1980s, Baby Boomers opened new businesses at a rate never seen before, and not duplicated since.
Today, over 5,000,000 Baby Boomers are preparing for retirement. Just as when they all went to college, started new businesses, and became prolific consumers, they will create a flood of small business sales in the United States.
The generation that is now reaching ownership age is much smaller, and less inclined to entrepreneurship than the boomers. They are also being hotly pursued by corporate America, which needs to replace their retiring generation of Boomer managers and executives. These three factors combine to create a “perfect storm” of competitive pressures when marketing a small business for sale.
Exit planning is quickly becoming a buzzword in the legal and financial communities. Although boomers are healthier than prior generations, they will all retire eventually. Tens of thousands of professional advisors are positioning themselves to provide tax, risk management, wealth management and contract preparation services to this flood of sellers.
The most effective and efficient approach to exit planning is to select a single professional who can manage all the others in the process. Creating new entities or sale agreements is pointless unless the tax implications are first understood. Planning to reduce the impact of income taxes may be rendered moot if a company is not in position to sell. Putting the company up for sale may be a disaster if an owner doesn’t understand what buyers are looking for, and how much they’re willing to pay.
An effective and lucrative exit plan frequently takes up to five years to plan and execute. It starts by examining the strengths and weaknesses of the business, IT systems, management team, and customer base. With that information, you can realistically set expectations about who a likely buyer might be and how much you will realize after taxes. If you would like to have a preliminary conversation about starting your exit planning process, please contact us.
© 2014, MPN Inc.
Don Pippin Jr