We now have a Certified Exit Planning Advisor, John Howe, on our team, and he is building a team with some of our other Associates to work as our Business Transition Strategies Division.  This will be a group working with a broader focus than just simple exit planning, and looking for opportunities to help across a broad spectrum of business development and value enhancement issues.

 John Howe has written the following piece to describe what that is all about and give you an understanding of the approach the new group will be taking.

  A good time to look ahead

Prepared by John H. Howe, CEPA

Over the next 15 years, the U.S. economy will see an unprecedented increase in the number of businesses for sale as baby boomer entrepreneurs begin to retire and venture out in search of their next challenge. Just as the Boomers have had an impact on everything from education to health care, the same generation will inspire an unprecedented shift in private business ownership.

The baby boomer generation has been one of the most entrepreneurial in the history of our country.  During the last 30 years over 5 million businesses with annual revenues ranging from $1 million to $75 million were founded. The owners of most of these businesses are now 52 years old or older and beginning to think about retirement. Studies by PriceWaterhouseCoopers, MassMutual and Marquette University showed that one out of two businesses will change hands between now and 2016.

The American Family Business Survey sponsored by MassMutual showed that approximately 30% of these owners plan to sell their business to a third-party buyer; another 30% plans to sell to a family member; 18% plans to sell in some manner to current employees. Others are considering transferring to a trust, while the remainder are considering closing and liquidating.

For those business owners who intend to sell to a third-party, it will become increasingly important that they position their business effectively to attract buyers in a competitive market.  Owners accustomed to calling all the shots are often not the best ones to evaluate whether their businesses are in shape for a transaction. And considering that for most owners, their business is their nest egg, it is important to seek experienced advice to maximize their return.

Business Transition Strategies is a division of New Hampshire Business Sales, Inc., a New Hampshire company with over three decades of experience. It can help the business owner focus on doing everything he or she can to increase the attractiveness, value, and salability of the businesses. Our team of advisors will help owners as they prepare for what could be their biggest challenge ever: life after business. We do this through a thorough exit planning process that helps owners consider the personal, business and market factors necessary for a good transition. Our engagements can be scaled to the business, and adjusted to the specific situation faced by the owner. And we will bring their businesses to market in the same confidential and thorough way used successfully through the decades. Our careful and methodical approach is not flashy, but it is effective in getting value for owners.

Surprisingly, the PriceWaterhouseCoopers study showed that approximately 75% of private business owners have no strategic plans in place for what to do as they approach retirement age.  An additional 25% have done little or no estate planning.  This is a recipe for disaster. 

A transition plan from Business Transition Strategies is a comprehensive, integrated review that asks and answers all of the personal, business, legal, financial, tax and estate issues that are involved in exiting from a privately owned business.  This plan shows business owners how to begin positioning themselves and their businesses so that they can accomplish their goals.

Given the number of companies coming to market, business owners will need to focus on improving profitability, developing management talent and growing revenue in order to make their companies more attractive and to maximize the proceeds they receive at the time of exit.

Transition planning delivers tangible results for savvy business owners.

Owners who commit to the process often are able to identify opportunities previously overlooked, and find significant ways to enhance the value of their companies. This can result in a higher value, and a smoother transition when the time comes for sale. It also can help identify problems that could emerge as deal-breakers at time of a transfer.

In addition, with good planning, business owners learn about tax consequences that lie ahead and adjustments they might consider to maximize retained earnings.  As any owner knows, the net earnings are more important than the gross receipts.

The most often overlooked component of transition planning, and perhaps the most important, is the peace of mind that comes when a business owner knows that he or she is being proactive and taking charge of the future, rather than waiting passively to let the future take care of itself  – after all, deciding how and when to exit a privately owned business is perhaps the single most important financial and personal decision in a business owner’s lifetime.

GOOD REASONS TO BEGIN TRANSITION PLANNING NOW

*  The oldest of the baby boomers was born in 1945 and is now over 64 years old.  The youngest of the baby boomers was born in 1961 and is now 48.

*  By 2010 the number of business owners wanting to sell their businesses each year will have increased fivefold over 2004.  This trend will continue for the next 10-15 years.

*  While the oldest boomers may be ready for retirement, the companies they exit are viewed as desirable “new opportunities” for younger boomers seeking work independence. The youngest members of this generation are active buyers. They are very entrepreneurial, and are eager to take charge of their careers.

*  The economy has been through an historic disruption, but the picture is improving and there is pent up demand.

*  It can take as little as 6 months and as long as 36 months to get positioned for a transaction.

*  We are currently experiencing some of the lowest capital gains tax rates in decades. But how long will this tax climate last?

There is another reality to consider.

What would happen if you were unable to continue in your current role?

We have seen this tragic development recently when owners figured they would always have time “tomorrow” to think things through, but were wrong, and others ended up saddled with doing it for them. Consider the potential burden you would leave on your family and employees as they struggle to piece together an action plan without you in the picture. Often they lack the resources and skills to do this.

To get started on the transition planning process, get informed. Seek information from the best independent and objective sources possible. One good place to start is to talk with trusted advisors like your attorney, accountant, financial advisor, or insurance professional or an investment banker who focuses on privately held businesses. And remember to work with us; we try to think of the entire picture, not just one piece of it.

Business Transition Strategies is ready to help. We collaborate with other experts, such as the one who gave this article to you, to make sure you get the thorough advice you deserve. Call us today for a confidential evaluation.

>John Howe, CEPA, is credentialed through the Exit Planning Institute of Chicago. He has run businesses on his own, and served for over 30 years as general manager for a family owned company. He knows the special challenges faced by owners. He works as part of a team of business advisors and transaction specialists who work with him in Business Transition Strategies, a division of New Hampshire Business Sales, which has an exceptional record of effectively working with business owners for nearly four decades. A confidential diagnostic can be performed to evaluate your readiness. It will help determined what is needed for an effective transition. We can be contacted through the offices of New Hampshire Business Sales in Portsmouth, Meredith and Henniker, 603-279-5561, and affiliated offices in Portland, Maine and Vermont. Inquiries can be made in complete confidence to jhowe@nhbizsales.com, or NHBS@nhbizsales.com