We are currently in the midst of the silver tsunami. That is, entrepreneurs aged 55–73 years old who are part of the Baby Boomer generation are now retiring from their businesses or are currently in the stage of transitioning their business
Considering the significant percentage of entrepreneurs who are retiring in the next ten years, there is a need to look at how the market will support the steady increase of business owners wishing to exit their businesses.
In the U.S. alone, millions of businesses are owned by Baby Boomers and employ almost 25 million people. This translates to 25 million families or 100 million individuals who rely on these businesses for their basic needs. This is one-third of the population of the U.S.
However, among the millions of entrepreneurs in this generation, over 58% have not completed a succession plan or have not even started thinking of one yet. This lack of having a plan affects retirement plans for the owners, as well as the millions of people employed by these businesses. Additionally, suppliers, contractors, and the like that rely on the operations of these businesses will be impacted by this change.
Whether you will be selling your business or handing it over to your family, it is important to take the necessary steps to exit in the most beneficial way possible for everyone involved, including you.
Boomers And Retirement
For entrepreneurs who have invested their time and effort in the success of their business, retirement is not a process many wish to think about, let alone plan and execute. As a small business owner, you’ve probably put in a lot of work to keep your business running and thriving, and it is probably a big part of your identity. That is one concern that must be resolved during your transition.
If your plans are not carried out in a timely fashion, you may incur losses for you and the others involved in your business. It’s best not to wait until personal or business issues force you into a quick exit as you could find yourself competing with more businesses seeking to sell at the same time as you.
If you own a family business, it is critical that you have a clear understanding of whether or not the next generation is ready and willing to step into running the family business. If so, are they ready, or will you need to continue working during a transitional period while they learn the ropes?
Boomers’ Retirement And Business Transition
Some experts say that around 65% to 75% of small businesses in the U.S. will be up for sale in the next 10 years as the number of entrepreneurs from the Baby Boomer generation who are all thinking of retiring or doing something else take action. As more businesses come onto the market, the projection is that sales might be even faster as some entrepreneurs sell before their valuation goes down to access the cash proceeds or simply turn to something else.
This poses a big challenge to the market since there will be a surplus of available businesses for sale, and there will not be enough demand from younger generations ready or interested in acquiring an existing business. Consequently, this would entail a change in the standards of buyers and the valuation of businesses. That is, as more businesses saturate the market, the buyers now have an overwhelming number of choices; therefore, their standards may be stricter. On the other hand, businesses that are for sale at the same time will affect one another’s value, potentially making it difficult for some entrepreneurs to sell.
Interestingly, among entrepreneurs surveyed by Wilmington Trust, there was a significant decline in confidence that their business would succeed without them. Over half of the entrepreneurs surveyed in March 2020 were confident that their businesses would be well-managed if they weren’t able to. That percentage dropped to 34% in their latest survey (February 2021).
Because of these extraordinary times, there is a need for retiring entrepreneurs to plan and to have a timely transition. Some may have to go on and manage the business way beyond their retirement age and wait for the market to be favorable, while some may panic and sell right away.
Tips For Your Transition
When it comes to retirement and planning a business transition, it pays to plan ahead. Even if you plan to exit in a few years, starting to build a plan is a wise investment.
Progress is essential, no matter how small it may be. As a small business owner, it is important to make sure that you plan ahead. In terms of your business transition process, this may mean organizing different files for an easy turnover or preparing for different questions that potential buyers may ask. Understanding the value of your business today enables you to set goals to improve profitability and grow revenue to increase the valuation.
Form a team
An advisory team would be really useful while planning your business transition. They could provide you with objective and useful insights that you may not have thought of if you did this alone. This team can help you throughout the process, from appraising your business to mitigating losses. As you prepare for your succession plan, they can help you strategize the best course of action and discuss details in terms of legal and financial issues.
Draft a succession plan
As an entrepreneur, you have to be ready for anything during a business transition. You have to be knowledgeable about the price of your business and how to deal or negotiate with potential buyers. It would also be useful to have a Plan B, like selling assets to buyers or selling your business to some or all of your employees.
Business transitions are inevitable, so it will be most favorable for you to prepare for them. It pays to do something today that will be useful when the time comes when you retire.