The Baby Boomer Generation consists of individuals that are between the age of 67 and 49. According to the 2002 United States census, over half of the business owners in the United States were baby boomers. These numbers would tend to show nearly half the business owners in the US are nearing the age of retirement. Many of these individuals are planning on getting value out of their business to aid in their retirement plan. But how easy is that?
Succession planning is an intimidating term. Basically, that term boils down to having an exit strategy. To put the planning in perspective, think of your house. That is a large item and if you were planning on selling your home you likely have a value that you would like to get out of it. That number that you have would likely become a lot less flexible if you needed that money to fund your retirement. How quickly do you think that you would be able to find a buyer that would come close enough to your number that the transaction could happen? It likely would take a while. In the sale of your business, the monetary figures are likely more than the value of your house and market is a lot smaller than the residential real estate market.
Having an exit strategy or succession plan is vital to making sure that you can maximize the value of your business but also ensure that you have time for that plan to come together. These plans can take many different forms. Some common examples are other owners taking over, a key employee buying you out, an outside buyer coming in or a family member stepping in.
Every plan is unique and can be handled differently. With other owners buying your share, money can be set aside with a financial planner so that when the time comes for you to leave, there is a good chunk of the purchase price available to buy you out. There is also the option of having life insurance policies on other owners so if one of the owners was to pass on the others could use the life insurance proceeds to buyout his share.
These succession plans become even more important to family owned businesses. Family dynamics add another twist and if the business owner is not around to facilitate those issues, family rifts can quickly develop. Ensuring that someone is well trained in the business is taking over while all other beneficiaries are compensated can be a challenge but it is vital to keep a family from fighting amongst one another.
The most important thing is to have a plan. These are things that often get pushed off because they are not an immediate need for the business but all too often they get pushed off for too long. Then the business owner or his family is forced to liquidate the business for pennies on the actual value of the business.
Speaking with a business law firm can aid you in the commencement of this process. Your business attorney can ensure that you see all the angles, have a good team around you to ensure a smooth transition, and the right questions are asked. Most business attorneys have contacts with CPA’s, tax advisers, business brokers, business valuators, financial advisers and estate planning attorneys. All of these may be necessary to ensure you have the best plan for what you want to do. It’s never too late to plan for your future, so don’t put it off for another day.