An “age wave” is hurtling toward our economy like a tsunami building strength before it hits land – but land it will, and it will affect small business owners, especially “Boomers,” for decades. Many in this generation are already looking to “exit” their businesses after years of building their entities, providing for their families, and contributing to the community. With over 8,000 people turning 65 each day, and over 8,000 companies owned by private equity firms which are available for sale, business owners need to understand what major forces will have an impact on their succession planning and ultimate business exit. Selling a business, your life’s work, is not to be taken lightly or to be entered into without proper planning in order to realize the full value at transition and minimize taxes.
Owners must consider:
- The Market Cycle – it fluctuates. This unprecedented market rise which favors sellers will soon be tempered and begin to favor buyers. Market trends are difficult to predict, many economists feel a correction is overdue and a recession is imminent.
- The Number of Businesses for Sale – there is a lot of competition for retiring business owners and a lot of choices for buyers which may drive the prices down.
- Lack of Capital – younger business owners are also in the market seeking capital for growth initiatives at the same time Boomers are looking to sell.
The lack of funding will make buyers very selective, and only the A+ deals will get done—and even those may have a reduced purchase price. According to recent statistics, only 20–33% of businesses complete the sales process. You need to have a plan in place before you sell to harvest the most value because the proceeds from the sale will fund your retirement and provide for your family’s financial future.
Don’t have a formal plan? Is that because you feel it’s:
- Too early?
- Too time consuming?
- Too complex?
- Too intimidating?
There are several steps to the Exit Planning process.
- Understand what your goals are and your financial needs in retirement, and how the sale of your business fits financially.
- Arrange for a current market valuation of your business.
- Identify the value drivers and enhancers of the business.
- Look at the current value and devise a plan to increase it.
- Transition and retain your key employees.
- Sell when that higher value has been achieved.
- Pick the best way, and a buyer that best suits you, to exit your business.
There is not a one size fits all exit plan. Which type of sale best suits your situation? You may have very specific conditions or need guidance on the options available:
- Strategic 3rd Party
- Existing Partners
- Management Buy-out
- Sale to Family/Children
- Sale to an ESOP
- Recapitalization
- Orderly Liquidation
A successful business transition does not have to be painful. A CEPA can assist you with the key components of exit planning: Identify, Protect, Build, Harvest and Manage the wealth within your business. It is imperative business owners understand their goals and are truthful about the strengths and weaknesses of their entity.
CONTACT US: Lou Fuoco is a CPA and a CEPA. His expertise in tax, accounting, financial and business consulting, makes him uniquely qualified to assist family-owned businesses and closely held entities with value creation and transfer. A member of both the Business Exit Institute and BEI Network of Exit Planning Advisors, Lou assists business owners interested in selling their businesses with creating a projected timeline, identifying the options available, differentiating the pros and cons of each, and providing guidance on financial goals and objectives. A CEPA can help you stay in control of the process and the sale as well as the tax-efficient transfer of value, thus helping you achieve your financial goals and the successful transition you both desire and deserve! Call toll free: 855-534-2727.
