Boomers in business advised to plan a smart exit
While many business owners are getting back in the saddle after the great recession crumbled the economy, others are facing another kind of hurdle: getting out of the business.
Now, more than ever, leaving a business behind for the seemingly greener pastures of retirement is a priority for many baby boomer business owners. Within in the next two decades, more than 70 million people from the baby boomer generation in North America are expected to retire, according to the Pew Research Center.
What does that mean for the business community? A monumental change — and a daunting challenge.
Baby boomers own 63 percent of all businesses in the United States. A retirement boom would translate to half of all privately held businesses transitioning their operations to someone else — an historic $10 trillion transfer of wealth.
But very few have done enough planning to make that happen, said Steve Beatty, an exit planning expert and owner of Henderson-based Financial Solutions 4 Business.
Beatty is now gearing up to head a new Las Vegas chapter of the Exit Planning Institute, an Ohio-based financial agency focused on educating business owners about exit strategy.
Launching on Sept. 25, the new chapter will draw together Las Vegas-based financial advisers to make them aware of exit planning strategies and teach them skills needed to help aspiring retirees make a smooth transition.
The Exit Planning Institute is currently rolling out chapters in 15 cities around the country, following its release of a recent survey that revealed some disturbing statistics about company exit plans:
• About 66 percent of U.S. businesses have no exit strategy.
• 7 percent of those business owners don’t have a formal retirement plan.
• 40 percent of owners have no plan to cover illness, death or forced exit.
• 56 percent of owners feel they had a good idea about what their business is worth but only 18 percent had a formal valuation in the past two years.
The rub? Many business owners do not plan far enough ahead, and eventually pay for it.
“You always want to be prepared,” said Scott Snider, vice president of the Exit Planning Institute, an Ohio-based financial agency focused on educating business owners about exit strategy.
That’s because a recently-retired business owner can never plan for life-changing events, such as poor health, divorce or and boredom in the absence of a job held for so long.
Financial advisers dedicated to exit planning often focus on three main points when it comes to helping a business owner transition to life after business: maximizing the value of a business, getting financial estates in order and creating a life-after-business plan.
A common mistake among business owners is having too much wealth attached to their business without other significant investments, Beatty said.
“Those owners have 80 to 90 percent of their net worth tied up in their business,” Beatty said. “If they’ve got no plan to monetize it, what’s gonna happen?”
Beatty has worked with other clients who have too little cash set aside for a downturn in the economy or their own health.
Meanwhile, other clients have taken care of the financial side of their strategy, only to fall prey to boredom and unhappiness after closing up shop.
Consulting a financial adviser could help business owners avoid those kind of problems.
“I think it’s a huge issue for our economy,” Beatty said. “We have a silver tsunami out there on the ocean, and it’s coming toward the shore here pretty quick.”
Contact reporter Ed Komenda at ekomenda@reviewjournal.com or 702-383-0270. Follow him on Twitter @ejkomenda.