During the next 15 years, the U.S. economy will experience an unprecedented increase in the number of businesses for sale as baby boomer entrepreneurs begin to retire. The result will be a glut of available businesses and downward price pressure for most privately owned companies.

The baby boomer generation has been one of the most entrepreneurial generations in the history of our country.  During the last 30 years more than 5 million businesses with annual revenues ranging from $1 million to $75 million were founded. The owners of most of these businesses are now 50 years old or older and beginning to think about retirement. Recent studies by PriceWaterhouseCoopers, MassMutual and Marquette University showed that one out of two businesses would change hands between 2006 and 2016.

Ken Dychtwald, a nationally respected demographic expert and author of AgePower has written extensively on the topic of the aging of the baby boomer generation and advise multinational corporations and governments on how to prepare for the impact that the aging of our society will have on our economy, healthcare systems, infrastructure, etc.  Dychtwald calls the aging of our population the Agewave.  He makes the persuasive case that demographic trends like this are predictable, unavoidable and need to be understood and planned for so that they don’t overwhelm us.  Dytchtwald believes that, if properly understood, such trends can be tremendous opportunities.

Just as the Agewave threatens the solvency of the Social Security system, the wave of private business owners seeking to retire will seriously strain, and possibly overwhelm, the available supply of buyers and the available capital for business transactions as these owners approach retirement. Given the significant increase in business owners wanting to retire during the next five years, experts expect that the increased number of businesses for sale may create a case where supply exceeds demand.  If we all think back to Economics 101, we know that when supply exceeds demand, prices tend to drop.
The American Family Business Survey sponsored by MassMutual showed that approximately 30 percent of these owners plan to sell their business to a third-party buyer.  Another 30 percent plan to sell to a family member, while another 18 percent plan to sell in some manner to current employees. The remainder plan to close and liquidate the business.

For those business owners who intend to sell to a third party, it will become increasingly important that they position their business to sell successfully in an increasingly competitive market.  Now, more than ever, it will be more important that business owner focus on doing everything he or she can to increase the attractiveness, value and salability of the businesses.  

Tragically, the PriceWaterhouseCoopers study showed that approximately 75 percent of private business owners have no strategic exit plans in place.  An additional 25 percent have done little or no estate planning.  This is a recipe for disaster.

An exit plan is a comprehensive, integrated plan that asks and answers all of the personal, business, legal, financial, tax and estate issues that are involved in exiting from a privately owned business.  This plan shows business owners how to begin positioning themselves and their businesses so that the owners accomplish all of their personal, financial and business goals when they exit.

Given the number of companies coming to market, business owners will need to focus on improving profitability, building a management team, and growing revenue in order to make their companies more attractive and maximize the proceeds they receive at the time of exit.

KEEP THESE IMPORTANT FACTS IN MIND AS YOU PLAN

    * The oldest of the baby boomers was born in 1945 and is now 60 years old.  The youngest of the baby boomers was born in 1961 and is now 44.
    *  By 2009, the numbers of business owners wanting to sell their businesses each year will have increased fivefold over 2004.  This trend will continue for the next 10-15 years.
    *  Selling your business during the first half of the baby boomer bubble (2005-2010) will provide the best chance of maximizing its value since the younger baby boomers who are retiring from corporate jobs will be active buyers.
    * The economy is currently expanding and we are entering a strong economic cycle which creates a good environment in which to sell.
    *  It will take 2 years of focused activity to get your business ready to sell at a reasonable price.
    *  We are currently experiencing the lowest capital gains tax rates in the last 60 years.

To get started on the exit planning process as well as the selling process, get informed. Seek information from the best independent and objective sources possible. One good place to start is to talk with trusted advisors like your attorney, accountant, financial advisor, insurance professional or an investment banker who focuses on privately held businesses.