Baby Boomers, Businesses and Retirement: The importance of having an exit strategy
Planning is key to a Successful Future
Written by Megan Harris
Selling a business is not an easy task. Baby Boomers are reaching retirement age, and many of them are now looking to sell their businesses. The transition into retirement from entrepreneurship is also not an easy one, but with the right preparation, it can be successful.
Arbitrage Magazine recently spoke to Hubert Kelly, President of Murphy Business Canada, one of North America’s largest business brokerage firms,
about the importance of Baby Boomers having an exit strategy when planning their retirement.
Kelly says that in his experience, he’s found that many entrepreneurs become comfortable in their business and focus on the daily running and performance of the business rather than on its future. However, looking ahead is key, according to Kelly. As he explains:
“[The business owner] won’t be around forever, and they need either a succession plan, one where it stays within the family [...] and management runs it for them, or absolute exit, which is liquidity.”
Two of the options business owners have when preparing for retirement is to transfer ownership to either employees or family members. ESOP, or Employee Stock Option, gives certain employees the right to buy certain company shares at a predetermined price. A business owner can also transfer ownership to family members, though Kelly says it’s important to work with a third party, especially in this case, because often with family, there is more than one person involved, as in families with multiple siblings, and there needs to be equitable sharing.
For this reason, one of the most important steps an owner can take is to hire a broker. A broker is able to work from an objective point of view and break things down to a science, lessening the potential for disputes.
[pullquote]The process can become complicated, and getting help from a broker will ensure a smoother transition with fewer risks and surprises.[/pullquote]As Kelly points out:“The broker takes it down to a business [...] Entrepreneurs have a tremendous amount of pride, [their business] is their baby, and if somebody wants to undercut its value, even if it’s a negotiation, emotions can get quite fanatic. So the broker allows it to go through as a business transaction.”
A broker keeps the deal on track and is able to cope with any issues that arise in the process, keeping focused on the deal and selling the business. They are able to rationally explain why a business is worth what it is, and why a certain price is being asked. They have not been emotionally invested in the business from the beginning as the owner has been, and so they are more easily capable of seeing the situation from a purely business and financial point of view – and the finances are usually a top priority for owners who are selling.
It’s also crucial to go over options as to how the deal shall proceed. Important considerations include how much time the business owner will invest in helping their new buyer become acquainted with the company, the customers and other elements, and how much the seller is willing to help the buyer finance. The process can become complicated, and getting help from a broker will ensure a smoother transition with fewer risks and surprises.
Kelly says that a lot of business owners do not have formal succession plans written down, but that it’s imperative to consider making one. To start out, he suggests that owners should look for guidance from various people.
“[Business owners] have the professionals they work with — they typically have an accountant. They need guidance from them,” Kelly explains. “But [they should] also ask a broker, because they can help them think about what their steps may be. They also need to discuss it with their family, even if they’re not part of the business structure.”
Business owners should also ensure all books are in order, namely that inventory is up to date: what Kelly refers to as the “window dressing”. This is not something a business owner may worry about daily, but organized and accurate bookkeeping key factors in marketing a business.
Owners should also think about what they’re going to do after the transition from entrepreneurship to retirement is complete, when they no longer have work to go to every day. Thinking hard about this transition will prevent rash decisions from being made and will ensure that all options are explored.
Kelly emphasizes that it is often difficult for business owners to envision relinquishing the business they so enjoy and simply walk away from it. But leaving their “baby” in trustworthy hands can ensure their legacy of hard work and passion will live on.
Business News with BITE.
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