Are you a “Baby Boomer” Business Owner?
The Unique Position of “Baby Boomer” Business Owners
Are you a “Baby Boomer” business owner? If so, you are part of a significant demographic. It’s estimated that 52% of businesses in the United States are owned by individuals aged 50 to 88, translating to around 9 million businesses. To put it into perspective, a business owner turns 65 every 57 seconds.
Why This Matters
For most business owners, their business represents 50% to 75% of their net worth, often more. The rest is typically tied up in personal real estate and financial investments. This means that business owners usually have only one opportunity to monetize their largest asset: the sale of their business.
The Wave of Retirements
Every day, approximately 11,000 people turn 65, a trend expected to continue for the next 18 years. Many of these individuals are business owners looking to sell their businesses to fund their retirements. These businesses collectively hold about $10 trillion in assets.
The Buyer-Seller Imbalance
While the number of businesses for sale is increasing, the pool of potential buyers is shrinking. Currently, the largest segment of business buyers is Baby Boomers aged 55 to 64. Although there are 80 million millennials in the U.S., their capacity to purchase these businesses is limited.
Supply and Demand Dynamics
Applying the law of supply and demand, we can expect a growing inventory of businesses for sale each year, while the number of qualified buyers decreases. This imbalance suggests there will be pricing pressure on these businesses. Historically, only 1 out of 4 businesses sell after being put on the market. However, the success rate increases to 1 in 3 for businesses with sales of $10 million and 1 in 2 for businesses with sales greater than $10 million.
The Importance of Exit Planning
According to PriceWaterhouseCoopers, over 75% of business owners have done little planning for their most significant financial asset. It’s a startling fact that business owners often spend more time planning their vacations than their exit into retirement.
Start Planning Now
Business owners should begin the exit planning process immediately. Creating a timeline to position the business for the highest possible valuation is crucial. Fortunately, current conditions are favorable: low interest rates, low inflation, historically low capital gains taxes, and high business valuations make it an ideal time to sell.
The Exit Planning Process
Exit planning is a comprehensive process requiring significant effort. Business owners should assemble a team of professional advisors, which may include:
- Business intermediary firm
- CPA/accountant
- Business attorney
- Financial planner
- Investment advisor
- Insurance advisor
- Valuation specialist
- Investment banker
- Business consultant
The Five Exits
Using a roadmap analogy, the exit planning process can be broken down into five exits:
- Making the Decision to Sell
- Exit Planning Process
- Maximizing Business Value
- Preparing the Business for Sale
- The Deal Process
Seven Steps of the Planning Process
The planning process often includes the following seven steps:
- Identify Exit Objectives
- Quantify Business & Personal Financial Resources
- Maximize & Protect Business Value
- Ownership Transfer to Third Parties
- Ownership Transfer to Insiders
- Business Continuity
- Personal Wealth & Estate Planning
Don’t Miss Your Exit
There is no better time than now to start planning your exit, whether it’s tomorrow, next month, next year, or the next decade. Missing your exit could lead to regret and missed opportunities. For more insights on the emotional aspects of selling your business, visit our article on The Emotional Side of Selling Your Business. If you’re considering selling your business, learn more about the process at Selling a Business. By starting your exit planning today, you can ensure that you are well-prepared to sell your business at the optimal time and for the best possible price.
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