The litany of problems the Baby Boomer generation will face in retirement is familiar– Social Security, health care and long term care. Now, some advisors say, boomer business owners should add something else to that list: a potential liquidity problem for those owners who have not yet developed an adequate succession plan.
According to Guy Baker, managing director of BMI Consulting in Newport Beach Calif., one basic economic principle that impacts the sale price of a business–and anything else for that matter–is the concept of supply and demand. The more buyers in the market, the higher the asking price, while fewer buyers result in a lower asking price.
Boomer business owners headed toward retirement will all be looking to sell their businesses at the same time, Baker explains. “Theres going to be an oversupply of businesses on the market and a low demand for people to buy them. If theyre a prime candidate for an outside buyer, where [is that buyer] going to come from?”
Baker adds that, rather than continuing to invest new dollars in their businesses, these boomer business owners need to start thinking about stabilizing the value of their business and finding a buyer.
Other advisors, however, feel that this “oversupply problem” will not be the case. “My business owner clients take nice trips, they play golf when they want to, they go to shows, they go to events, they do things, theyre there for their grandchildren–why retire?” asks Herbert K. Daroff of Baystate Financial Services in Boston, Mass.
Daroff says many of his boomer business owner clients have never had the expectation to retire, and William Keen agrees.
“One of the things I think well see is people are going to continue to work longer,” says Keen, principal of Professional Benefit Services, Fairfax, Va.
Keen adds that with people working longer, the number of boomers looking to get out of their businesses at the same time will be spread out. “The game is shifting a bit in terms of timelines. Were no longer a society that says when you hit age 65, you retire.”
In fact, the biggest issue Daroffs boomer business-owner clients are concerned with is how they will pay for their health care. “Theyve set aside retirement funds, but theyre concerned about whos going to take care of their health care costs in the future,” he says.
Whether or not the wave of boomers approaching retirement impacts the liquidity of their businesses remains to be seen, but this same supply and demand problem is hitting businesses in many parts of rural America today.
Timothy OConnor, a planner with OConnor and Associates in Grand Island, Neb., notes that the erosion of the population in his area has made the search for successors a difficult one. According to OConnor, 20 years ago the average family farm was about 600 acres, now its over 3,000. “You have fewer farm families out here. Some of these guys would like to get out, but they dont have a buyer,” he says.