Retiring Baby Boomer Business Owners On Economic Radar Screen
Small businesses are the engines that power our economy and are the spark plugs that drive growth. Outlined below are powerful statistics that speak to the importance of the continuity of these enterprises.
1) Have generated 60 to 80 percent of net new jobs annually over the last decade
2) Employ 50.6 percent of the country’s private sector workforce
3) Represent 97 percent of all the exporters of goods
4) Account for almost 40 percent of the U.S. gross national product
5) Represent 99.7 percent of all employer firms
6) Generate a majority of the innovations that come from United States companies
(Source: U.S. Small Business Administration)
If baby-boomer business owners choose to close down instead of transfering their companies to new ownership, who would employ our children? Who would create new technology and new ideas? Who would produce our goods? How would the U.S. be governed without the tax base that small business provides? They are the root upon which our society and government stands.
These are alarming questions that are best left for everyone to paint their own picture. However, it is very clear that it’s in everyone’s best interest that as many of these firms survive as possible.
I hope you agree.
This huge transfer of wealth — the largest in our nation’s history — has obvious implications for the owners, their families, the buyers, the firms’ employees and the communities served by these businesses. They represent an astonishing amount of investment, effort and achievement.
It will address issues such as the best time to leave the business, how business valuations are changing, and how business owners can bridge the gap between the company’s present worth and that in the future. The gap is the difference between what a business owner needs in order to move on to the next phase of their life and what the business is actually worth. If the current business value provides that amount, they may chose to sell their business now. If there is a gap between what they need and the value of their business, then they may chose instead to hold onto and grow their business. Tax issues and future changes in capital gains
There are more than 300,000 privately held U.S. businesses with revenues of $5–150 million¹ that together with millions of smaller sized companies represent 55 percent of United States GDP. Of which, 70 percent will transfer ownership within the next 10 years² and the number of business sales is growing. Rapid globalization and new technology add risk to mid-size businesses as most of their net worth is tied up with the company. A number of mid-size business owners are opting out of global hyper-competition by selling their businesses. Most private companies are bought by well-funded corporations and private equity groups—and not always from the US. Add these factors to business sales due to the retiring Baby Boomer population, and it is evident that millions of people will be affected.
“The impact of globalization and leapfrog technology on mid-size businesses is just beginning to be felt. Businesses can be blindsided by low cost competition from anywhere. “Every business owner and advisor needs to update their ‘Financial IQ’ to compete”. Many are surprised that business owners, merger intermediaries, and academia could get together to respond to a new trend. Especially, one that is not even on the radar screen of most business schools because of their focus on large corporations in public markets, and not in the news even though 55 percent of the U.S. economy is the subject.
To interview leaders of AM&AA, Midmarketplace.com, Evalueserve, Loyola, or ROCG, please contact Debbie Douglas (949) 464-9301 or send an e-mail to firstname.lastname@example.org.
Business Owner Exit Strategy: Avoid the Boomer Retirement Wave
Chicago (PRWEB) December 14, 2007 — Business owners considering retirement should finalize their exit planning in 2008 because business sale prospects will be negatively impacted by coming demographic and economic changes, according to Chicago-based investment banker David Kauppi, managing director of MidMarket Capital.
“In 2008 we will see the beginning of ‘the rush to the exits,’ as the first wave of baby boomers retire. In addition, the current credit and housing market crunch will bring a new surge of business sellers to the market,” said Kauppi.
While business sale prices have held up well in 2007, we are likely to see deteriorating conditions in coming years as the number of sellers will begin to outnumber potential buyers
Kauppi noted that Federal Reserve projects that almost 500,000 businesses will change hands in 2008, a record number.
Another warning signal for business owners is the current debate over tax reform. Leaders of both parties have put forward proposals to change the current tax code including the alternative minimum tax (AMT) and the estate tax. If the Democrats should sweep to power next year, many of the tax reform proposals suggested by party leaders would directly or indirectly raise taxes in coming years for business owners, Kauppi noted.
Kauppi said the best strategy for business owners is to move up their sale timeframe, but not their exit timeframe. For example, an owner could sell his business in the next 18-24 months with an agreement to continue working full-time for an additional year to transition customer relationships and transfer intellectual property.
“This solution requires the business owner to view the business sale and their retirement as separate, contingent events. Too many owners wait too long and end up selling because of a crisis such as a health issue, loss of a major account or a shift in the competitive landscape,”