Baby Boomers Retiring: Why Business Owners Need a Solid Transition Plan
This is a guest column from Matt Silasiri, the Marketing & Business Development Manager at Sunbelt Business Advisors.
Minnesota's baby boomer generation (those born in 1946-1964) is reaching a significant transition. Soon, a wave of baby boomer entrepreneurs will seek the best path to ensure the future success of their businesses and shore up their personal assets for retirement.
It's easy for this hard-working generation to think they have already done the lion's share of the work in building their businesses, but exit planning pushes entrepreneurs to consider multiple factors and ensures a foundation for long-lasting success.
1. The Impact of Baby Boomer Retirements:
This isn't a small group: Almost 29 percent of Minnesota businesses are under baby boomer ownership. Their businesses will change hands within the next five years, which could have major impact (positively or negatively) on our economic outlook. It is crucial to carefully consider the preservation of these businesses and the continuity of their legacies.
2. Understanding Succession Planning:
Successful transitions require meticulous planning. First, owners should evaluate potential successors for the business, which might include internal and external buyers. Selling the business to an internal buyer involves identifying and grooming potential successors to ensure long-term sustainability. Selling to an external buyer requires evaluating the likely buyers, including Private Equity, Financial and Strategic Buyers.
Both internal and external buyer options require that:
- you understand the value of your business
- the buyer agrees
- the deal can get financed.
Although business owners might have an idea of which option they'd like to pursue, they should still review them all to ensure their instincts are correct.
3. Seeking Professional Guidance:
Navigating complex business exit strategies requires the expertise of professional advisors. According to the State of Owners Readiness Survey completed in 2023 by the Exit Planning Institute, 50 percent of business owners haven’t even begun this process.
A transition advisory team should include:
- Business Broker or M&A Advisor familiar with selling companies of your size
- Accountant/Tax Advisor to help you navigate tax issues
- Financial Planner to make sure the proceeds of a transition are sufficient
4. Valuation and Sale of the Business:
Determining the value of a business is crucial to securing a fair and successful sale. Owners who seek professional business valuations to assess the worth of their enterprises often maximize their net proceeds by setting an appropriate asking price with favorable terms.
It’s vital you understand what is being valued. Many business owners fail to understand what is being INCLUDED in the sale and what is being EXCLUDED.
5. Legacy and Community Impact:
For many owners, their businesses often represent the culmination of a lifelong dream, hard work, and deep community ties. Considerations beyond financial gains, such as preserving the business culture, come into play. Some owners may wish to explore transition options that allow their businesses to thrive while maintaining the core vision and community presence they have developed.
By engaging in comprehensive succession planning, seeking professional guidance, understanding the valuation and sale processes, and considering their business’s legacy, owners can successfully embark on their next chapter while ensuring their businesses continue flourishing.
As Minnesota bids farewell to a generation of successful entrepreneurs, it welcomes a new era of innovation and prosperity. With the right preparation, owners can secure a thriving future for both their businesses and the wider Minnesota landscape.
If you're ready to start planning your company's exit strategy, reach out to the team at Sunbelt to learn more about their process and talk about a no-cost business valuation at sunbeltmidwest.com.
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