Exit Planning Tools for Business Owners

economy

Baby Boomers’ Influence – Still Strong

by

There is ample evidence in the marketplace that Baby Boomers’ influence is still powerful. From walk-in tubs to stand-up bikes, and from pharmaceutical commercials to river cruises, Boomer tastes are catered to in every market.

We all know the sterotypes of the “typical” Boomer. Goal oriented, workaholic, spendthrift, and oriented towards accumulating material evidence of their achievements. They identify work and position with their value in society. We have also discussed often in this space the issues of employers who have to replace the corporate knowledge base of retiring Boomers.

Clearly, one way to keep the economy moving upwards is to encourage Boomers to work longer and accumulate more. The more they earn, and the more they spend, the better we all fare. (Except, of course, for the Gen Xers who are behind them in the promotion queue.)

Boomers Influence Legislation

One really obvious example of this is the SECURE (Setting Every Community Up For Retirement Enhancement) Act, which took effect on January 1, 2020. It was missed by many, gliding through as a budget attachement, and absent the histrionics that seem to accompany any legislation in Congress.

What could be so important and universally desirable that both parties would happily cooperate? Getting the Boomers to work longer. How do you accomplish that? Give them the opportunity to accumulate even more than the $17 Trillion (one year’s GDP) that they already hold in personal assets.

The SECURE Act is aptly (if somewhat elaborately) titled. Boomers who are more financially sound will be less of a burden on the public sector. That’s the Community benefit referred to in the title. In addition, as Social Security feels the pinch of paying back those who funded the first two generations of beneficiaries, it theoretically will reduce the outcry when benefits are reduced.

The New Terms of Retirement

The act doesn’t provide Boomers with additional benefits. Instead, it gives them the chance to pay more into the system. Here are the major changes.

  • The age at which you must start taking Required Minimum Benefits from your employer or individual retirement plans has been raised from 70 1/2 to 72 years old. (Social Security benefits, however, still max out at age 70- even though you would still have to make SS contributions.)
  • You can continue to pay into your retirement plan of any type for as long as you want- there is no longer a cutoff age for contributions.
  • Small business owners may now group together to offer retirement plans. Formerly, many were too small to bear the costs of having a 401K, for example.
  • Part time employees (read: semi-retired Boomers) can now participate in employer retirement plans.
  • Employer plans may now offer annuities for lifetime income among their options.
  • Inherited retirement accounts must be spent in ten years- they cannot be rolled to another generation.

Are you getting the message? We’d like you to to work longer, pay more in taxes, and (at least theoretically) leave more behind when you go.

Why is this indicative of the Boomers, influence? Because that’s exactly what we seek. With health care, exercise and nutrition so much better than for previous generations, we were saying that 60 is the new 40. Now we are saying that 70 is the new 50.

No one is forcing us to work longer. They are just recognizing that many of us want to. C’mon Boomers, you fueled the longest sustained expansion is US history (40 years from 1968-2008.) Can’t you do just a little bit more?

John F. Dini, CExP, CEPA is an exit planning coach and the President of MPN Incorporated in San Antonio Texas. He is the publisher of Awake at 2 o’clock, and has authored three books on business ownership.

Exit Planning: Ripples and Ripples.

by

Every stone thrown into a pond creates ripples. Every advance in technology does the same.

The late Stephen Hawking said that we were progressing too quickly. Along with other technology and science notables, he argued for a slowing down of development in Artificial Intelligence (AI).

Most current “AI” is actually machine learning. As computing speed increases exponentially, the ability of a computer to calculate, test hypotheses and weigh varying outcomes increases as well. Computers can now beat the best humans at every game ever invented. From Chess to Go, and from Texas Hold ‘Em to Ms. Pac Man, binary geniuses are sorting through billions of possibilities, and even being credited with rudimentary “intuition.”

But Machine Learning isn’t intelligence. A computer can sort through every chess move possible, but has trouble deciding what to do when a person with a bicycle steps out between two cars.  What if the correct answer is to swerve into oncoming traffic? A computer can’t make that call.

Robots on the Roads

That doesn’t mean you can be smug about what is coming. Take autonomous trucks. Clearly they aren’t smart enough (yet) to negotiate narrow city streets, bumper to bumper traffic jams or unload oddly-shaped cargo. That would require some real intelligence. But they don’t have to. They can just take care of the 80% of the easy stuff, long haul driving. Automatically driving great distances on relatively clear roads is completely feasible right now.

What if autonomous trucks were limited to driving from 8:00 PM to 6:00 AM? A few lanes on interstate highways could easily be electronically tagged for higher speed,  and robot-truck only use. They can follow more closely, having both quicker reaction times and the connected ability to “see” what is happening further ahead. A truck that doesn’t have to stop for food or sleep could cover a lot of ground in ten hours of high speed driving. Daytimes would be reserved for human-operated local delivery.

Ripples in the Pond.

How much would that affect trucking and other industries?

There would be far fewer driver jobs, although most drivers would likely be closer to home.

Traffic would be greatly lessened during the day. Good, you say? Tell that to the paving contractors, sign companies, crane operators, orange cone manufacturers, lighting and signal electricians or bridge builders. It could be decades before we have to expand highway capacity again. With the speed of technological advancement, decades could translate into “never.”

Is this good news for truck stops, all night diners, and budget motels? Heavy equipment manufacturers? Civil engineering companies? Public sector spending on highway construction is almost $100 billion every year. For comparison, that’s about the size of the whole digital/streaming TV and video industry.

Returning to the trucking industry itself, I doubt that trucks will remain as “one size fits all.”  Current testing is on models than can be autonomous, but also accommodate a human driver. The latter will go away. Robotic models can greatly reduce size, be more aerodynamic, and weigh less. They would also be more fuel efficient, and could be electric.

Uh oh. Trucks consume almost a quarter of all the petroleum products used in the U.S. That starts the conversation about the impact on oil companies, the fuel distribution network, gas dispenser manufacturers, drillers, pipeline construction, tank fabrication and installation…the ripples continue.

As an Exit Planner, I’m predisposed to look down the road, and to consider the risk in every transfer. Not all scenarios are doom and gloom, and many new industries will be born, most of which I can’t imagine.

I guess my message is that none of us should be smug about the future. If the financial community sees a threat on the horizon, expect lenders and investors to run the other way, fast. We watch the stones. They watch the ripples.

 

 

Why GenXers Won’t Buy Your Business

by

There are six reasons why GenXers won’t buy your business.

Last week I presented a webinar for the Exit Planning Institute entitled “The Perfect Storm.” It looks at six factors impacting the desire and the ability of Generation X buyers to acquire a Baby Boomer business.

The first three, demographic, psychographic and sociographic, are macro trends that make Xer’s unlikely to buy any business that requires capital or more than full-time commitment. .

The last three factors, Regulation, Disintermediation and Entitlements, describe why all businesses are harder to sell today than they were even ten years ago.

The presentation is a bit long (38 minutes), and the quality isn’t perfect.(My apologies for the “dings” when viewers check in. That wasn’t controllable on my end.) None the less, if you are an advisor to owners, or an owner who is planning to sell, you might want to watch this data-based approach to the market forces you’ll deal with.

“Read” my new book in 12 minutes!

Your Exit Map, Navigating the Boomer Bust is now available on Amazon, Barnes & Noble and wherever books are sold. It was ranked the #1 new release in its category on Amazon, and is supplemented by free tools and educational materials at www.YourExitMap.com.

Now, we have a really cool 12 minute animated video from our friends at readitfor.me that summarizes the book, and helps you understand why it is so different from “how to” exit planning tomes. Take some time to check it out here. Thanks!

 

Exit Planning in a New Political Environment

by

What does a new political environment mean for business owners who are planning to transition their businesses? Should you accelerate your plans, or slow them down?

As I’ve said many times in this space and elsewhere, the biggest single factor in successfully selling a company is the current condition of the financial markets. Since the Great Recession, the Federal Reserve has poured new cash into the system at very low interest rates. This “cheap money” has trickled down to fund a wave of leveraged buyouts by financial professionals seeking a better return than that from more traditional investments.

This wave of cash enables some 7,000 private equity groups (PEGs) to seek targets in almost every industry. Those targets, however, are typically among the 20,000 or so privately held companies with over $1,000,000 in pre-tax profit.

That leaves out some 9 million employers on Main Street (those that sell for less than $3,000,000.) Of those, about 5 million are owned by Baby Boomers who are, or should be, thinking about life after business ownership.

Most of the owners I talk to are at a loss to predict the climate of the next few years. They hope that a pro-business administration will reduce bureaucracy and pull back some of the regulatory burden on business owners. On the other hand, they are concerned that trade wars, rescission of treaties or diplomatic snafus will drive the US, or the world, into another economic trough.

A very few claim that they know exactly what President Trump and the Republican Congress will do. In the words of Prussian General Helmut von Moltke, “No battle plan survives contact with the enemy.” People may think they know what is coming, but it would be foolish to bet the ranch on any single outcome.

What does this mean for exiting business owners? At the risk of sounding too pat, it means exit planning is more important now than ever before.

Why Start Exit Planning Now?

Here are some reasons why an exit plan is valuable in uncertain times:

  • If your planned exit is more than five years from now, the landscape will likely change again before you transition. A plan will give you the tools to track key components of a successful exit, and improve your ability to respond to changes.
  • If your intention is to preserve the legacy of your company by selling it to employees or family members, starting the transfer now can put you in a position to accelerate or delay the final transfer according to current conditions.
  • If the stated intention of the new administration (a return to 4% GDP growth) is successful, a plan to maximize your value to a third-party buyer will leverage higher pricing multiples.
  • If the economy winds up in the tank, a plan is only a plan. It can always be put on hold until conditions improve.

An exit plan is, by definition, a strategic plan with the addition of a completion date. Some owners fear that by stating a deadline, they are committing to it regardless of circumstances. Of course that isn’t true.

Planning your exit and actually exiting are two different activities. It only makes sense that the political environment should be one of the factors that affect your final decision.

Would you like free excerpt from my new book Your Exit Map: Navigating the Boomer Bust?

Just register here. We’ll send you short pieces every few weeks until its publication in the Spring.

Exit Timing and the Global Economy

by

How much will your exit timing be affected by the global economy? Most small businesses serve local markets. Their owners, if they have thought about it, plan to sell to a local individual. If the local market is healthy, why worry about the rest of the world?

A few weeks ago I attended a presentation by  Austan Goolsbee, former Chairman of President Obama’s Council of Economic Advisors and the youngest member of his cabinet. Dr. Goolsbee was also a college champion debater (he beat Ted Cruz in the national finals) and a member of an improv troupe. That makes him an anomaly in the “dismal science;” a funny economist.

“We are only doomed in the short run.”

Here is a partial list of why he feels the economy will continue on this slow-growth path for some time, and some of the logic (including laugh lines) he used for each.

  • Home prices have returned to their normal annual growth rate (.4%) of the 90 years prior to their run-up. (From the Onion: “Furious Nation Demands New Bubble to Invest In.”)
  • Oil doesn’t have the effect it once did. Fuel efficiency has dropped its impact to less than half the percentage of GDP of 20 years ago. Falling gas prices used to be a boost to the economy. Now that we are a major producer, not so much.
  • The administration is trying to boost consumer spending. The problem is that in the early 2000s Americans were spending more than they made. Now they have returned to their (fairly minimal) savings habits.
  • Europe is circling the event horizon of an economic black hole.
  • Epic job growth (4.5%) is being countered by shrinking productivity in the last few years, resulting in a “stagnant” economy.

For those that expect a stimulus from China’s growth, Goolsbee points out an interesting item.

man-with-head-in-boxThe USA publishes it’s GDP growth statistics one month after the end of a quarter, with adjustments over the next few months. China puts out the number on the last day of each quarter, and never updates it. As Goolsbee says, that causes economists to wonder, “Why do they wait so long?”

Does this affect small business?.

How does this big picture information impact the exit timing of a small business owner?

Exiting is a liquidity event. You are exchanging the equity value of your work for cash. The cost and availability of cash in the financial markets has a lot to do with who is able to buy your business and how much they will pay.

For the last ten years of Quantitative Easing, the markets have been awash with cash. Low deposit rates led many investors to seek higher returns. Private equity groups not only found plenty of investors, but could also leverage their purchases with debt at a relatively low cost.

As the PEGs push towards ever-smaller opportunities, a trickle-down effect has propped up pricing on the lowest (small business) end of the market. Professional investors are flocking to privately held companies. Perhaps they’ve found a new bubble to invest in.

I speak nationally about the coming of the Boomer Bust; the buyer’s market for small business. ( To receive free advance excerpts of my new book on this topic, go here.) According to the demographics, it should be starting already. It appears that the financial markets are hot enough to support prices for those who are exiting now, but demographics are like gravity. You may not like it, but you can’t change it. The flood of exits will come.

Your exit timing is a personal decision, but don’t make the mistake of thinking it’s only a personal decision. The domestic financial markets, which are influenced by the global economy, will have a material effect on your selling price.  Keep one eye on the bigger picture. It could make a material difference in your retirement funding.

Please share Awake at 2 o’clock with another business owner. Thanks for reading!