Where is the wave?

I first started hearing about “the wave” back in 2007. It had been widely discussed and written about years before it hit my radar, though. The wave comes with an eye-popping price tag of $10 trillion.

Based on size alone, many refer to the wave as a tsunami.

The wave, of course, is the $10 trillion of wealth that will transfer when the Baby Boom generation decides to call it quits. Ah, the Baby Boomer retirement: much anticipated, widely studied and largely non-existent up to this point.

Planning for retirement can be a sticky wicket in any circumstance. Retiring Baby Boomer business owners face an additional challenge in figuring out how to exit their business through an outside sale or internal transfer method. Regardless of how they do it, millions of Baby Boomers will need to transfer ownership of their business in the coming years. This has led folks like PricewaterhouseCoopers to predict an oversupply of businesses for sale, resulting in downward pressure on valuations and a buyer’s market between 2018 and 2025.

Couple that with the notorious difficulty associated with turning your most illiquid asset (i.e. the equity you’ve built in your business) into cash, and you’d think Boomer business owners would be beating down the doors of their local exit planning professionals. Alas, that doesn’t seem to be the case.

You can sort the reasons why business owners postpone exit planning into two broad categories: financial and psychological. A recent conversation illustrates two of the latter hurdles that can get in the way of a successful exit.

The first is a lack of urgency. It can be hard to make a decision when there’s no sense of urgency looming over your head. Postponing the decision to restock inventory or pay bonuses would be unthinkable to most business owners. The consequences would be swift and disastrous. By contrast, if you put off planning the sale of your business, nothing grinds to a halt. As a matter of fact, business goes on as usual. The consequences may eventually be disastrous, but it’s hard to envision that today.

My firm received a recent inquiry about a business valuation, a logical first step in the minds of many owners who are thinking about an exit. My initial question when someone calls about a valuation is to ask what it’s needed for. “We’re well into our sixties,” the owner replied. “I guess we’re going to have to do something.” I sensed as much urgency in her statement as I have about cleaning out the cabinet above my refrigerator.

Another hurdle that prevents many business owners from engaging in exit planning is the absence of any real plan for life after business ownership. The most successful exits I’ve seen have been where owners are excited about starting a new phase in their life. Whether it’s building a lake house, traveling the country in an RV, or opening a music studio, these owners are eager to make the transition from business owner to something else.

In my recent example, we finished the valuation and discussed a possible sale. The owners were happy with the price they could fetch, and pleased to hear that the current market for selling a business like theirs is fantastic. Despite all that, they felt that now was not the right time to sell: One didn’t feel ready to retire just yet, while the other had no plans to retire because he “wouldn’t know what to do with himself.”

Pressure from the “silver tsunami” continues to build, with the leading edge of Baby Boomers now turning 71 at a rate of 10,000 a day. Meanwhile, many advisers stand on the shore, watching the horizon for that wave to break and wondering why the water is only up to our ankles. If you’re part of that wave of retiring business owners, I hope you’re working on your exit plan. If not, contact an adviser who can help you put the pieces in place.

The wave will come crashing down eventually. Something tells me we’re going to need a bigger boat.
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Editor’s note: Barbara Taylor is the co-founder of Allan Taylor & Co., a mergers and acquisition firm in Bentonville. The opinions expressed are those of the author.