Much has been written about the Baby Boomer generation but one thing that we all know for sure is that retirement is already underway or imminent for many of them.
Retirement of this generation is going to have a major impact on the economy, with widereaching implications. An unprecedented proportion of those baby boomers are business owners and many of them are without a transition plan for their business. For a lot of them, their wealth is tied up in a single asset (their business), which is at the mercy of a slowly recovering U.S. economy.
The coming upsurge in business sales will be driven by the baby boomer generation getting to retirement age as well as owners who were planning on exiting earlier but were affected by the global financial crisis. This may create a pent-up wave of business owners looking to offload their biggest asset and free up their money for use in retirement. In addition, a lack of exit planning by business owners could have serious consequences on their wealth; the productivity, employment and even survival of their business.
According to a representative from Hampton Roads business brokerage, Sunbelt, the majority of business owners he talks to do not have an exit strategy and also have no idea how to sell their business. “It can take up to a year to sell a business, depending on the industry,” their rep told us in our interview. “This gives the broker enough time to market the business well. Planning needs to start two years prior to putting it on the market,” he said.
“Consideration needs to be given to how the business is setup,” he continued. He gave an example in the past where the business owner had not separated the property and the business. They had never paid themselves rent and when it came to amortization, mortgage, etc it impacted the sellability of the business, and possibly resulted in the accounting being short by $50-60k.
Brenda Tusing of The Royal Chocolate does not have issues with property ownership, although the 10 year lease of her store in Virginia Beach Town Center is certainly a consideration in her plans for retirement.
Another major consideration for Brenda is her business partner. Terry, being 10 years Brenda’s junior, hasn’t got retirement on her radar as yet. Brenda’s husband is retiring soon and, as more people around her get out of the workforce, it’s been playing more on her mind. “I’ve been considering how many good years I have left and what I want to do and how I want to live the rest of my life,” Brenda said during her interview. “I really want to do so many things in my retirement. Beekeeping is something I’ve always been interested in,” she continued. “And I’d love to travel and do more gardening. But will it be as satisfying as what I do now? I love the feeling of ownership and I feel like I need to have challenges and excitement, which I still have at The Royal Chocolate. My philosophy is to keep going until I don’t enjoy it anymore, until that thrill is gone.”
“I’ve been fortunate to have a business partner who has complementary skills to me, that I can communicate with and who I have great respect for. Families are our first priority. Having flexibility for things like an extended vacation with my family and friends, or for Terry to work part-time during summer, allows us both to keep fresh, and refreshed,” Brenda said.
She also admits it allows her to postpone making decisions just yet about retirement. “But if Terry doesn’t want the business, we’ll have to look at selling it. But we both have to be emotionally ready to do that.”
Pam Katrancha is a self-confessed planner. This serves her well in managing her store, Garden Gazebo, in Pembroke Mall as well as her 32 seasonal franchise operations for Hickory Farms.
Although she likes to keep busy, there’s no way she can do that without planning and always keeping an eye on what’s ahead. That’s one reason why she shut down her Ghent Garden Gazebo store after 10 years.
Having recently reached retirement age, Pam has no plans to stop working completely but she does hope to slow down enough to allow her more time to do other things.
“Closing my Ghent store has provided the freedom to focus on setting new goals and the energy to put into two projects that have been on the backburner for a while,” said Pam.
“I feel like I have unfinished business. I’ve had a patent on a product for 10 years that I want to start developing, plus I also want to get our online store up and running.”
The two projects might seem like a lot but, in actuality, set her up in the long term for ongoing income with reduced labor input. “I’m simplifying things that will in fact make more money but mean not working harder, but working smarter,” she continued.
Pam has also been working on getting her employees at her Pembroke store to be able to run it without her being so involved.
“I’d love to be able to hand it over to one or more of them when the time comes to sell it,” she continued. “I’ve always admired other people who have sold their business to employees. Although I love my store, I wouldn’t mind if someone bought it and wanted to make changes. I’d even be happy if it was someone younger who wants to improve what I’ve done. I could mentor them and be involved to help educate and support them with orientation and training for six months or so if they wanted.”
“If I was to sell my store, I’d make an exit strategy. Obviously leases are a big expense, and negotiating as early as possible when you might want to end it, or renegotiating for an annual renewal, which is what I’ve done with Pembroke. Closing Ghent gave me great experience in how to handle the closing of a store, especially with product liquidation, relationships with vendors, customers and employees. We started planning 8-9 months prior to shutting the doors and with our ‘grand closing’ close out prices, final markdowns and other initiatives, we were able to sell everything as planned.”
Another retailer who is making plans towards retirement is Tom Kinerk, of Jeness Uniforms. Initially, when thinking about retirement, he went through three options. Liquidate? Pass to his children? Sell?
But then a fourth option came into play and became the most viable choice for him. The same initiative Pam is working on but taking it one step further…keeping the business but giving the employees full responsibility.
Tom took a conscious step back from his business and handed the reins over to his staff. “Apart from being a mentor, strategic planner and occasional fireman, my 11 staff now completely run the two Jeness Uniform stores,” he commented.
“But for that to happen, I spent a great deal of time finding the right current or new employees who would take ownership and buy into the concept, training them for months on end and turning all my customers over to them.“
He also changed his payment model to be based more on pay for performance. As Tom put it, “If the business does well, they do well. If the business shrinks, it impacts them as well.”
Fortunately this model has worked well for him thus far and allows him to take extensive amounts of time away from the business to travel and enjoy semi-retirement.
“I was able to take six months away from the stores last year,” he said. “But you really have to know what you want to do in retirement before you begin planning and also how you are going to afford it. I was fortunate that I’ve been able to stay involved on a part-time basis but still be able to do things that I want to do such as travel.”
If selling is the most viable option for a retailer, it can be a tough task. The more attractive you make your business the better.
But when you get ready to sell, ask yourself questions such as: Do I really need to replace my computer or printer? Do I really need to spend money on store improvements right now? How much money do I want to put into this and will I make my money back?
Any money you save or don’t invest will go directly to your bottom line.
Buyers usually need a loan and if your financials look attractive and there has been a steady cash flow, the financial institution will more likely have a positive perception of your business.
The process of retirement and selling your business can be one of the most stressful times in your life, so it’s important to start planning in advance so you have control over the situation.
Baby Boomers need to be prepared with the proper documentation, financial planning and professional help in order to make their exit and transition smooth.