Businesses that close their doors at the end of the vacation season are common here in Maine. Messages saying “See you next year!” are posted in windows, on doors, and on outdoor signs. However, a new and disheartening trend is emerging in Vacationland.
An increasing number of businesses will not reopen the next spring because their baby boomer owners are retiring and cannot find someone to either take over or buy their business. In the past year alone, several businesses in the Midcoast have closed for this reason.
This troublesome trend will have long lasting effects because every time a business closes, the landscape of the community around it is forever changed. This is especially true of family-owned businesses and sole proprietorships. These businesses are an alternative to the homogenized shopping experience, selection of merchandise, and food choices offered by chains. What many vacationers and local residents crave are the unique experiences, merchandise, services, and foods these businesses offer.
When these businesses disappear, communities suffer. Employees are out of work. Both the state of Maine and local municipalities no longer receive sales tax revenues. Suppliers lose customers. Empty store fronts blight shopping centers and Main Street. Consumer choice is diminished.
“In Maine, many small to mid-size businesses are not aware of succession planning and the steps they need to take before they sell their business,” said Audrey Lovering, a Rockland based consultant who works with business owners preparing to retire. “This is part of an ongoing problem in our state because they are somewhat in denial that they are facing retirement and they are scared of what that could mean.”
With 10,000 baby boomers turning 65 every day, the need for business succession planning for boomer-owned businesses is obvious. Without it more businesses will disappear. To reverse this trend, baby boomer business owners need to enlist the services of professionals who can determine the best time and strategy for selling their business and who can help create a plan to accomplish their goal.
However, the time frame to sell a business varies widely depending on the type of business and organizational structure. These factors can either accelerate or delay the sale and the owner’s retirement. “I’ve worked with companies that had a five year plan for selling their business. I’ve worked with others that have sold them in 12 months,” said Lovering. Having an offspring, partner, or employee who is ready to take over the business significantly simplifies the succession process.
“It’s essential to work with a team of professionals including a lawyer, accountant, and financial planner to determine what is in the business owner’s best interest and what is in the best interest of the business that is going to continue after the owner retires,” she said.
There are other factors that keep business owners from moving on. “What most people fail to consider, when planning to sell or leave a business, is their emotional attachment to it. They often think of their business the way they would a child that they nurtured and developed over years and decades,” she said.
This emotional attachment often leads to delaying the development of a succession plan. By thinking “I’ll get to that later” they are creating a de facto succession plan that most likely will have an unsatisfactory outcome.
Research shows that filling the void caused by the sale of the business can be extremely difficult, especially if the owner’s self-identity is wrapped up in the business. “Many owners go through a period of mourning after selling their business,” Lovering said. “It’s extremely important not only to deal with the financial aspects of selling a business, they need to address the emotional aspects of that sale as well and to start the process of slowly detaching themselves from the business. That is what succession planning is – it’s a staged process to make this transition successful for everyone.”
Determining a valuation for the business requires accurate information about profits and operating expenses. Without open books and full disclosure a buyer cannot get funding or determine whether the business is a good investment.
Without a clear valuation, some owners are at risk if the sale of their business is the primary source of their retirement income. They may believe their business is worth more than it is and plan their retirement around that unsubstantiated number. If the valuation is lower, they have less money for retirement than anticipated. This reality often leaves them in the unenviable position of needing to go back to work for another company as an employee at an age when it can be difficult to find employment. As a result, their retirement years may be far less golden than anticipated.