There is an old Scottish proverb that goes something like this: “The grandfather buys, the father builds, the son sells, and the grandchild begs.”
This saying is referring to the transfer of wealth from generation to generation. Sadly, as we have seen over the decades, it is often true. A family creates a business that is well run and profitable, and as successive generations take the reins, too often the investment and the legacy in the business is completely lost through bad management, lack of focus, and poor decision making.
Generational Equity has seen this countless times as well. There is nothing more disheartening than to meet an entrepreneur who passed his business on to his children only to be forced to take management of the company back when it was clear that the offspring were unable or unwilling to effectively manage it. In many cases the original owner loses millions in the process and is forced to leave their retirement to re-run their company. This is tragic and completely avoidable.
And sadly, most business owners have nearly all of their personal net worth tied up in one highly illiquid asset – the family business. Retirement planning and savings for retirement are shockingly lacking in our society. According to a recent article in the Los Angeles Times based on a new study by BankRate.com:
Although this data is not specifically for business owners, I would bet that in many cases the numbers may be even higher. Many entrepreneurs that we meet have not really set aside funds for retirement because they are assuming that the business will somehow (without any pre-planning) fund their retirement. This assumption is made despite not having an exit plan in place AND having no idea what the business is actually worth.
Baby boomer business owners that we meet at our M&A conferences are indicating now, more than ever, that they simply have no one in the family to pass the business on to. And this is not surprising. Clearly the level of risk associated with sustaining and growing a privately held business is greater than ever before. The volatility in our economy, as well as national and international politics, is at unprecedented levels. On top of this, having witnessed their parents’ stress of simply trying to survive the last recession, who can blame the children of aging baby boomers for being unwilling to take on the daily management of dad or mom’s business?
If you are thinking about exiting your company, you are probably examining all of your succession planning options. If you have a child who has been groomed to replace you, has the talent and skills to fill your shoes, and most importantly, is willing to make the sacrifices necessary to grow the business, consider yourself fortunate. Most owners of privately held businesses do not have this as an option.
The reality is that many of you are in this position. You have successfully built a viable, ongoing business enterprise. The company has reached a level of success due to your hard work and dedication. But you are no longer willing (or able) to make the sacrifices necessary to take it to the next level. Fortunately there are options that you can explore which will allow you to both exit your company when you want to AND protect the financial legacy you have built throughout the past years and decades.
Some of you recognized years ago that your family members would not be the optimal choice to run your company upon your departure. If so, chances are good you have been building a “buyer ready” business for years. A buyer ready business is one that has been positioned from day one to have the key features that buyers are attracted to. Some of these would include:
Most importantly, the really good news is that buyers are becoming more active than ever. The past 12 months has seen a solid increase in deal making activity, much of it involving privately held companies. Most importantly for your exit planning purposes, it is clear that the buying activity will remain strong for the next 12-18 months at least. Strategic players are now sitting on nearly $2 trillion in capital, and financial buyers have more than $1 trillion committed for investing. Given these large sums, and knowing that acquisitions are the fastest way to grow a company, we anticipate that the next year or two could provide the best opportunity in decades for you to find a buyer for your business.
If you would like to learn more about current M&A trends, I invite you to attend one of our complimentary M&A workshops addressing how and when to exit your company for the most profit. One of the areas covered is the decision to sell and the best time to do so. We also examine inter-family business transfers and how to protect yourself and your legacy from unprepared family members.
The decision to leave your legacy to another is difficult. You have built your business from the ground up and have made it successful. However, the worst decision you can make is to do nothing with the hope your children will one day take over for you. Don’t make the Scottish proverb true in your case! Protect your financial legacy by planning and preparing in advance.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2014 Generational Equity, LLC All Rights Reserved
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.Bryan D. Horn, Owner, Over Under Clothing
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
Dear Chris and Andre, I just wanted to say thanks for all your help. Even though this process was not an easy one, it was comforting to know that I had a capable team standing beside me. You made me feel like we were almost your only client or at least the most important one. Thanks again, and I will recommend your service in the future.Shenille Engelhart, Owner – CLS Technology
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!Eric Erlandson, Owner, Action Fastenings, Inc.
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
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