There’s a retirement storm ahead
Planning, whether for growth or for a graceful exit, is similarly important in our own businesses and with our family business clients.
Unprecedented but not unpredicted storms have again wreaked havoc. Just as Texas was recovering from Hurricane Harvey’s destruction and record setting floods, Hurricane Irma utterly devastated many Caribbean Islands before turning to make landfall in Florida. According to The National Hurricane Center, Irma was the longest-lasting powerful hurricane or typhoon ever recorded, worldwide, with 185-mph winds sustained for 37 hours. There are losses that touch us–Galliard Institute members and their families and clients have suffered and our hearts go out to them. Sometimes, no amount of preparation can mitigate property damage, and, sometimes, planning literally can mean the difference between life and death. Surely many lives were saved because some people saw the forecast, made a plan, and chose to and were able to evacuate.
“The more we can do ahead of time, the greater control we have over our destiny, our dignity and our safety”GFBAI Founder and Board Chair, Lisë Stewart
So what are the storms on the family business horizon that are forecast? One is what GFBAI member and author, John Dini, calls The Boomer Bust. In his book, Your Exit Map, John weaves a narrative from The Baby Boomers’ Bootstrap Business Boom, where between 1975 and 1986, 30-something Boomers “more than doubled the rate of new business formations” to their now pending retirement or exit into The Third Phase, as we at GFBAI prefer to call it. John posits that psychographic, demographic, and sociographic trends are coming together as a “Perfect Storm” to create a buyer’s market in the family business marketplace. Compounding the impacts of this forecast, John writes that many family business owners “list more than 70% of their net worth as the value of their business.”
And there’s a retirement storm ahead. Rick Bastian, GFBAI member and CEO of Blackhawk Bank, writes: “Family-owned and closely-held businesses comprise something more than 80% of all North American businesses and 80% of those employ 20 employees or less. Family businesses account for not less than 58% of GDP, more than 60% of the US workforce and at least 78% of all new job creation.” That’s the good news. He continues that “small businesses face an unstoppable demographic tsunami. Around 60% of these family owned and closely-held businesses expect a change in leadership or ownership in the next 10 years as Baby Boomers retire.”
What can we do to ease the impacts of these predicted storms of a buyer’s market coupled with a wave of pending retirements? John recommends that financial planners insist that their business owner clients obtain a third-party valuation for their business from a professional accredited or certified in this specialized skill. Given the large percentage of an owner’s net worth attributed to their business’ fair market value, a professional valuation is key not only to the business but also to the owner’s financial plan. (Remember to check GFBAI’s Member Directory for valuation professionals who also are certified in Galliard Methodology.)
Other key planning strategies include creating (1) a strategic plan that keeps the organization focused and forward-thinking, (2) a succession plan for leadership transitions or other graceful exits, and (3) a plan for The Third Phase, formerly known as retirement. These strategies, especially when combined, help maximize the value of the business now and into the future, while also strengthening the foundation of the business owners’ financial plan. So whether the waters ahead are smooth or choppy, safely riding out storms is more likely. As Lisë says, “change often comes swiftly, without warning or sometimes without reason.” In this case, we have the advantage of a forecast and it’s up to us to use it to plan for our own businesses and with our clients.