By Terence J. Shepherd

Listen … can you hear the rumbling in the distance? And is it cause for alarm? If you are a business owner, the answer is categorically yes!

The noise you hear is the 70 million people in the United States who are fast approaching retirement age during the next five to 20 years. They are the baby boomers, the generation born between 1946 and 1964.

According to economist and demographic expert Robert Avery at Cornell University, baby boomers will transfer 10 trillion dollars to later generations. The significance to you as a business owner is that the vast majority of this wealth is held in more than 12 million privately owned businesses. Talk about a stampede to the exit.

As a business owner, two of the obvious issues you should be concerned about are: One, with all these sellers, who is going to be left around to buy? And two, what will happen to business values? We all know what happens to prices when there are lots of sellers and very few buyers; it’s a great time to buy and a lousy time to sell. It will not be a pretty picture for all those business owners who have worked extremely hard trying to build a business of value to help fund their “retirement” years, if they go in unprepared.

With such a crisis pending, wouldn’t you think that succession planning would be forefront in every businesses current strategic planning agenda? After all, the necessary planning it is not just about the end financial transaction. It is also about transitioning the business owner’s leadership and management role. Surprisingly, however, studies show that for those family-owned businesses that will change hands in the next five years, only 4 percent of them have started properly planning for their succession. Why is that, do you think?

Many reasons have been given and I have listed the predominant ones below. Do any of these sound familiar and describe your circumstances?

First, everyone thinks they have time on their side and they will ‘eventually’ get to it. There is always tomorrow.

Second, it is time consuming. How can you take time to properly plan for succession and still concentrate on the day-to-day operations? Something will suffer.

Third, they haven’t found a comprehensive source for advice and tools to help them in the planning process. Few resources exist to guide them step-by-step.

Fourth, the subject matter is too complex. It is human nature to not confront things that are too difficult.

Fifth, they don’t want to think about leaving. It is very similar to not wanting to talk about one’s own death. For many business owners, this has been their life. The business is and has been who they are and how they have defined themselves.

Sixth, they do not want nor do they necessarily know how to deal with the very emotional subject and potential conflict between family members and long-time employees.

Finally, they don’t understand the tremendous return on investment that an exit plan can provide.

With that in mind, here are just a few of the benefits of proper business transition planning:

• You can decide whom to transfer your business to.
• You can control the timing of the transition and how you wish to ultimately exit the business.
• You can achieve the transitional and transactional value you desire in accordance with your own wealth objectives.
• You can put in place a tax strategy that enables you to keep more of the business value for yourself and your heirs.
• It frees you up to do the work you do best – building your business to be less dependent on you, and in so doing, creating time for you to enjoy other pursuits while you are readying for business transition.
• Your family can have peace of mind, knowing that there is a transition plan for the business that you are happy with, and because they will know in advance how your business transition might affect them.
• You can create the opportunity for a business legacy, and can create certainty for key loyal employees and other important stakeholders.
• You can save money by having a single transition plan that all your trusted advisors have been part of. There will be no duplicated services or costs.
• The transactional value of your business will substantially increase. Buyers generally are prepared to pay more for businesses that have used Transition Planning.
• You will differentiate your business from all the other businesses trying to position themselves for an exit sale.

As you can see, there are many benefits to be gained with proper planning. But how does one go about it?

The International consulting partnership that my firm is a partner with, ROCG, are business transition specialists, and we have developed a six-step transition planning process that we believe is essential to ensuring that owner’s objectives are met along with maximizing the ultimate end value. The process assists in both the planning and the implementation of the owner’s business transition and then the transaction itself, if and when appropriate.

My next article will go into the details of this planning process along with some of the intricacies of the business transition plan itself. I want to leave you with what we believe should ultimately be your goal as a business owner, in setting up your own business succession plan. You should deem your plan successful if and only if it meets the following three conditions:

1. It occurs at the time of your choosing.
2. It occurs in accordance with your wishes for the future ownership of the business.
3. It occurs with a value that is satisfactory to you in conjunction with your wealth objectives.

Terence J Shepherd, CPA, MST, is Lead Partner of ROCG~Shepherd & Goldstein Consulting Group, international consultants to small and medium sized family-owned enterprises, and Managing Partner of Shepherd & Goldstein Business Consultants and Certified Public Accountants. He can be reached at terences@sgllp.com. In YOUR LOCATION contact YOUR NAME at xxxx@rocg.com or PARTNER NAME at xxxx@rocg.com.