Planning a business exit

Things to consider amid the coming wave of transitions

As baby boomers age, there will be increasing demands placed on Social Security, our health care system and their adult children.

We hear and read of this frequently. Less talked about are the impacts that this demographic wave are likely to have on business and our economy. Estimates are that, over the course of the next 10 years, companies with aggregate worth of approximately $10 trillion are likely to change hands.

As many as 12 million companies will see both a change in ownership and a change in management, upwards of 5 million of them being family businesses. This upcoming wave of business transitions will provide many of us, as employees, employers and perhaps family members, with both challenges and opportunities.

But while nearly 80 percent of business owners have started to discuss their potential business exits, less than 20 percent have sought transition advice or counsel, and less than 20 percent have committed their exit plans to writing.

Many of these business owners have spent lifetimes building their companies, and, for many, the sale of their business will be the largest financial transaction of their lives. Most of these owners are expecting that a company sale will provide for most of their retirement needs. Given the emotional and financial significance associated with an owner’s exit, the decision as to how and when to exit is anything but simple or straightforward.

There’s the obvious question: To whom should the business be sold or transferred? A third party, family members, management or employees are all potential exit paths. But beyond this question are fundamental issues regarding the owner’s financial expectations, personal needs as well as his or her legacy goals:

 • How and when will a business exit provide an owner with sufficient retirement income?

 • Post-exit, how will an owner redefine his or her role or purpose?

 • With sale of a business, will an owner satisfy his or her legacy goals with respect to family, employees and perhaps community?

From the business’ perspective, there are a myriad of questions and potentially issues that need to be addressed. These include, but are certainly not limited to:

 • Does the company have the necessary operational and financial strength to see its way through a transition, or are there operational and financial enhancements that need to be made?

 • Are company managers and/or family members adequately prepared for this transition, or does the company have additional training, retention and/or hiring needs?

 • What outcomes need to happen from both a valuation and emotional standpoint that will result in a successful business transition?

These questions and, perhaps more to the point, the steps necessary to adequately address them will take time and a team. The team is likely to include a business owner’s trust and estate and corporate attorneys and other business professionals — insurance, banking and accounting professionals, to name a few. Depending on the transition path chosen, professionals with qualified and non-qualified benefit plan design, ESOP (Employee Stock Ownership Plan) as well as those with investment banking or business brokerage experience may be necessary.

As for the time necessary for a successful transition, typically it takes a minimum of 3 to 5 years. A successful business exit is not an event, but a process. And like any process, it’s one that needs to be managed.

Given that most company owners have no shortage of demands on their time, and have never gone through an exit before, a business exit planner can bring much value to what is, in fact, a business imperative. For all owners, one way or another, will exit their companies — typically being a once-in-a-lifetime event, it is best done with much thought, sufficient time and an experienced team.

Todd F. Bachelder is director of corporate development at Baldwin & Clarke Companies, an independent, integrated financial services company in Bedford.