Options for Boomers to Transition Their Businesses
After years of dashing off to work, a business owner will reach an age when the idea of scaling back comes to mind. Oftentimes, simply getting out of the business isn’t an option, because there might be too many years left before retirement. Fortunately, there may be other ways to spend your time other than working.
Business owners who have properly prepared can have their cake and eat it, too – meaning they have a chance to still be part of their company, watch it grow and still take extended time away. It may take some work, but it is possible. Read on to discover your options.
Read Also: Do You Have A ‘Get-Out-Of-Business’ Plan?
First, let’s look at the traditional ways to leave a business. They include:
- Selling the company to a larger synergistic buyer or private equity group.
- Selling the company to a financial buyer (e.g., employee).
- Transitioning or gifting the company to the next generation.
- Creating an ESOP.
- Closing the business.
Like most things, there are positives and negatives for each of these traditional paths.
Don’t Make Buyers Coy, Roy
There are more strong buyers of businesses than ever before ̶ and less high-quality companies actively selling. As a result, the value of the businesses being sold are at all-time highs. Banks and lending institutions are aggressively providing funding for deals, which means higher amounts paid at closing and less earn-outs and seller financing. There has never been a better time to sell a company with high profits and potential.
Get Your Son On The Bus, Gus
First, you need a family member who wants to be in business – your business. Sometimes that’s easier said than done. Oftentimes, the younger generation wants nothing to do with their parents’ business. Additionally, the family member to tap to take the reins must have the skill set necessary to effectively acquire and run the business. For this type of transaction, the business may become part of your estate or business transfer, which means you will not get a “big check” when you leave the company. Hopefully you are not relying on proceeds from the company to fund for your dream retirement.
Give Employees The Key, Lee
An employee stock ownership plan, or ESOP, won’t work for every business. Its applicability is limited by a company’s size and profitability. However, it can provide excellent tax breaks and the opportunity to get cash for the business. To be successful, you need a strong management team and a well-seasoned group of advisors to assist you during the process.
Don’t Look Back, Jack
As baby boomers continue to age, we will see many businesses closing their doors, especially in situations where the business is not profitable and it has a significant amount of assets. However, be aware that there are unseen costs when closing a business. One of which is that owners face the emotional toll of letting long-term employees go, as well as selling assets often at a loss.
Make A New Business Plan, Stan
A new philosophy for a business transition allows owners to remain with the business for a period of time, while reducing their hours and responsibility. Like some of the other options for transitioning your business, the feasibility of becoming an absentee owner will depend on the profitability of the company, and whether the right personnel are in place to manage the business when you aren’t there. It also requires the business owner to relinquish at least some of the business control.
If you’re looking to create a succession plan for your business, contact the professionals of Rea & Associates’ business valuation and transaction team. We are be happy to work with you to develop a plan that is the best fit for you and your business.
By: Tim McDaniel, CPA/ABV, ASA, CBA (Dublin office)