The Boomers Are Coming

Posted on February 1, 2013 by in Blog, Retirement, Strategy

This is a very timely article by Mark Miller. A big part of our practice is beginning to focus on this, and Forward Results has already begun working with business owners. It takes a great deal of time and effort to optimize the business – not just the books – for a successful sale. In short, it takes planning – at least a couple of years out.

 Leonetti trains financial advisers to work more effectively with clients who are small business owners, focusing on exit and retirement strategies. He is the author of Exiting Your Business, Protecting Your Wealth: A Strategic Guide for Owners and Their Advisors.Leonetti says most small business owners are relying on a very illiquid asset for retirement security—the value of their companies. Making that asset liquid isn’t easy.

“For most small business owners, 80 or 90 percent of their personal wealth is tied up in a privately-held, illiquid business” he says. “Most of them don’t know how to take that asset and turn it into cash they can use to support themselves in retirement. And they don’t even know what they don’t know about it.”

Indeed, a report last year by the U.S. Small Business Administration found that small business owners over age 50 were significantly less likely than their employees to have pension or retirement plans, including 401(k)s on their current jobs, although they were more likely to have IRA or Keogh plan savings.

Small business owners can access a range of qualified retirement account options specially suited for them. But Leonetti finds that those accounts usually are dwarfed by the value of the business itself. “They might have $200,000 or $300,000 in an IRA, but the business might be worth $5 to $10 million.”

It’s also possible that as all boomer business owners head toward the exits at the same time, they’ll flood the market with companies for sale during a weak economy and not be able to extract the value they anticipated, says Bill Entwistle, a Rhode Island-based financial planner who advises many small business owners.

“You have owners who are ready to retire, but the business is worth half of what it once was, so they’ve been holding off on selling. Now that the economy is starting to get better the value of the business may be rebounding, but they will all want to get out at the same time,” he says.

“In some cases, you also need to emphasize the importance of disciplining their current spending habits,” he adds. “But the bottom line is you can expect better results if you have more time to plan.”