Why Many Baby Boomer Businesses May Fail in the Near Future
How has the pandemic impacted your drive and desire to continue to grow and run your business? Many of you fall into the Baby Boomer Generation. You have seen many ups and downs since you either started or purchased your business. Now, you are dealing with a pandemic that has no clear end.
If the uncertainty of the pandemic is not challenging enough, you are starting to think about retirement and exit from your business. In a Wisconsin State of Owner Readiness Survey published in 2018, it stated that 60% of all companies in Wisconsin are owned by Baby Boomers, which matches the U.S. census data that states 63% are owned by Baby Boomers, and who are in rapid retirement mode. In addition, the data shows that Baby Boomers that don’t prepare the right exit strategy at the right time will suffer. Some statistics include:
Ten TRILLIION dollars’ worth of businesses will change hands by 2025, according to several experts.
An estimated 65% to 75% of small companies in the U.S., some 10 million, will likely hang up a “for sale” sign during the next 5-10 years.
Research from the Pew Research Center indicates that the oldest of America’s baby boomer generation started turning 65 on January 1, 2011, at a rate of 10,000 people a day, which is a trend that will last for the next 19 years.
These baby boomers that have grown their business over the last 20+ years have focused on what they know. However, selling a business is a totally different thing. Not preparing for the exit can result in disappointment in many areas. Some mistakes that are typically made:
Ignoring retirement – Most owners don’t want to retire. However, for all of us, the day will come when the demands of the business are too much. Planning for that day can make the transition easier, both mentally and physically.
Failing to plan for life-changing events – You may feel and be healthy now, but an unexpected illness or situation that requires your time and attention could put you out of the office, and put your business at risk. None of us want to think about the worst, but properly planning for those risks can put the business in a positive place and maintain the business legacy.
Inability to see waning passion – Losing the love for your business is normal. As with anything, years of doing the same things leads to burn out. However, failing to address it can put your business at risk of losing its position in the market. This is especially dangerous if you haven’t evolved the company into a place where good talent wants to work.
Ill-prepared multi-generational ownership – Just because your children are interested in and/or work in the business doesn’t mean they should run the business. Failing to accept that your children aren’t the right future leaders of the company is important if you want to preserve the business for years to come and leave a legacy behind.
Diluted ownership – If you’ve been appeasing managers and other key team members with equity, you now have their interests to consider when it’s time to sell. With many owners, you can make your ability to exit on your own terms next to impossible.
Lack of younger managers – If your entire management team is within five years of your own age, you’ve got a big potential brain drain that could occur in a short time frame. Not having key members who plan to stay on long-term makes the business less sustainable when all the key players retire.
Misguided employee ownership plan – Assuming your top employees will want to take over the business can lead to a rude awakening when you realize they’re A) not really capable of leading and making the tough decisions, or B) they never really saw themselves taking over for you.
Unrealistic business valuation – Just because you heard a competitor sold his business for $X million, doesn’t mean that your business is worth the same. Market conditions, business positioning, debt, management talent, etc., are all factors you’ll need to consider. You could find that your business is worth a lot less than you expected.
Getting objective about your current situation, evaluating all of your options, and making an informed decision as to the correct path for you, can minimize the chance of any of the 8 mistakes occurring. Also, bringing in an outside expert with a set of “fresh eyes” can help you see what you might be blind to in your business.
If you’re one of the four million Baby Boomer business owners who have shaped business today, don’t let poor planning of your exit be what people remember most about your business legacy. Your departure is one of the most significant aspects of how you’ll be remembered by employees, peers, and your industry. It’s time to make sure your reputation stays intact.
Jayne McQuillan, CPA, MBA, is a strategic management consultant and the owner of Journey Consulting, LLC, in Green Bay