I attended an XPX breakfast meeting in Stamford this week where there was a panel presentation on the current state of merger activity in the accounting profession (XPX is a leading organization of financial planners, M&A firms, lawyers, CPAs, bankers, business consultants, and other shady characters that assist owners in maximizing and preserving a business owner’s wealth through a transition). In the course of the presentation, two facts jumped out at me:
- 10,000 baby boomers are turning 65 every day, and
- 60% of the members of the CT Society Of CPAs are older than 60.
It’s clear that these two facts offer a tremendous opportunity for CPA firms seeking to grow through acquisition, but represent a problem for those firms that haven’t prepared for this demographic tsunami.
It also reminded me that the same set of circumstances exists in the US economy. It is estimated that Baby Boomers own about 8 million closely held enterprises, all of which will need to be sold, transferred or liquidated over the next 10 to 15 years. The sheer volume of businesses will create what I believe will be a buyers’ market. Because of this, owners that haven’t prepared for the transition will not command an optimum valuation. A reality check may therefore be in order, particularly if they are counting on the proceeds of a sale to fund their retirement.
The first step is to find out how much their business is worth. A valuation serves as a benchmark and will indicate what an owner might reasonably expect to receive in a sale. A good intermediary should also be able outline what the terms of a sale will be. Beyond this, an owner’s trusted advisors such as their accountant, financial planner and/or a tax and estate attorney should weigh in. This is essential, as their analysis will determine the net proceeds of a sale, which as far as an owner is concerned, is the most important number. Through thoughtful tax and estate planning, good advisors can make a seemingly low valuation that won’t accomplish what the owner needs financially into one that does.
In cases where all the tax planning in the world can’t get an owner to the goal line, then they have two choices; settle for less money or improve their business. Fortunately, there are many capable firms and consultants who are adept at creating more value in a business. It’s worth tapping into this network. For Baby Boomer business owners, exit planning is what a future sale of business will be all about. Demographics are not on their side and the sooner they get started with the planning process, the better off they will be.