Photo: Debra Brash, Times Colonist
Most small business owners are so focused on making their ventures profitable that few take the time to develop a plan to eventually sell and retire, says Brent Boyd, who operates Business Exit Strategies in Victoria. “There is an emotional unwillingness to face the reality that every business owner is going to leave their business one way or the other. For many of them, it's their life and their identity,” said Boyd. “But for the sake of himself, the business, the family and the people he's responsible to, it's an imperative.”
By Andrew A. Duffy, Times Colonist
October 19, 2010
They may be president, executive director, the hired help and cleanup crew all wrapped into one neat bundle.
But small business owners often leave a gaping hole when it comes to planning their business lives — how to get out of it.
According to Brent Boyd, a certified business exit planner, small business owners are often at sea when it comes to planning their own retirement and walking away from the businesses they've built. “Woefully unprepared would be a perfect summation,” said Boyd.
He said many small business owners are so focused on making their businesses profitable that they rarely have time to look far down the road, to say nothing of eventually closing their doors or selling. “It's often exceptionally difficult to get them to change their mindset given they are so heavily immersed in day-to-day operations — it's hard to get them to think longer-term than a week or a month,” said Boyd.
For many small business owners, there's also a major emotional hurdle to cross in order to even consider exiting the business world.
“There is an emotional unwillingness to face the reality that every business owner is going to leave their business one way or the other, voluntarily or otherwise. For many of them, it's their life and their identity,” said Boyd. “But for the sake of himself, the business, the family and the people he's responsible to, it's an imperative.
“It's not something that can be put off and still have a result the owner would be happy with.”
Boyd said time is the one thing business owners have on their side and the sooner they start planning their business exit strategy, the better.
He recommends owners start by determining when they intend to retire, what they will need to retire in order to live a comfortable lifestyle and who they intend to sell the business to — be it an insider deal to friends, family or staff or a third party on the open market.
The answers to those questions will dictate the strategy any business owner can take, as if the exit point is in the near future the business may have to go straight onto the market, given typical sales take between nine and 12 months to complete.
There is also the question of valuing the business, something Boyd said most owners tend to overestimate.
“Most don't have an objective understanding of what their business is worth, for some they over-value, for others it's under-valued, but the minority under-value it,” he said.
Boyd said the open market will ultimately determine what any business is worth, and suggests exit planners, who understand the vagaries of the market and the path required to make the transition to retirement can be worth their weight in gold.
“The bulk of a small business owner's wealth is tied up in their business, and for them to realize on their retirement goals and their financial goals they have to sell that business,” he said. “A lot of them don't really have an idea of the value of their business or what to do to improve that value or what the business sales process is all about.”
Even then, there needs to be alignment of three factors — an owner ready to go, a business prepared for sale, and a market ready to take it up — before the exit works.
The market could prove to be the problem in coming years, as the baby boomer generation retires in large numbers and there are simply not enough people in the following generation to fill in the gaps. “With that huge demographic tsunami hitting the shores over the next five to 10 years, hard reality is 80 to 90 per cent of businesses will not sell,” said Boyd. “The dream may have been selling and retiring, but the reality may be a lifetime working plan until they close their doors.”
A recent survey by American Express Canada found more than half of small business owners already know that and expect to keep working past retirement age.
While most owners said they wished they could retire, 70 per cent said they didn't see it in their future. The survey also found a third of those owners plan to keep an ownership interest in their business, and 41 per cent said they plan to work part time after retirement.
Nearly one-third say they have the money to quit today if they wanted to, but they don't necessarily want to.
“The business is them and they are their business. It's an integral part of their identity, so it's not surprising when you look at it through that lens that small business owners actually don't view retirement in the same way [as wage-earners],” said Eric Nielsen, general manager of American Express's small business services.
Although the average age of retirement in Canada is 62, the survey found 34 per cent of respondents expect to continue working full-time after 65. Eight per cent said they don't expect to retire at all, although 40 per cent said they'd be hanging up their business suits between the ages of 60 and 65, and 17 per cent said they would retire before they were 60.
Of the respondents who said they would work past 65, 51 per cent said it was because they love what they do, and 39 per cent were in it for the money. Only 48 per cent said they had savings that could finance a retirement, and only 22 per cent said they had a retirement plan in place.
Given time, owners can work on their businesses and determine what needs to be done to improve the inherent value and make a sale and retirement more likely.
“They need to figure out what will make it more sellable and desirable,” said Boyd, noting that often means ensuring strong cash flow, good internal systems, a strong management team and a facility that reflects the asking price among myriad other factors.
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