Use the Downturn for Planning

In this article from our Spring 2009 newsletter, ASG Managing Partner Mike Grubb provides advice for business owners planning their retirement.

Thankfully, there is almost always demand for growing, profitable companies with unique products or services, strong gross margins, predictable recurring revenue and/or stable employees and customers. Even as 2008 progressed and the economy slowed, companies that showed strength/growth and those in more recession-proof segments enjoyed strong demand in part because they demonstrated resilience and in part because there were relatively fewer companies for sale (see our analysis for additional details). However, many companies’ results have been negatively impacted by the economic conditions; for the owners of these companies, this is simply not the right time to sell.

There are more 8 million privately held companies expected to change ownership as 75 million Americans retire over the next 10 to 15 years. The question for many of these business owners is how their retirement will be impacted by changes in the economy and the market for privately held companies. There are no one-size-fits-all answers to these questions; however, ASG offers the following advice to business owners who are considering these issues.

• According to a November 2008 study by McKinsey & Company, 69% of baby boomers born between 1945 and 1964 are not prepared to maintain their lifestyles in retirement. To ensure that you are in the other 31%, start planning early – especially if you are counting on the value of your company to fund a significant portion of your retirement.
  
  
• Engage a financial planner or a professional wealth manager. Conduct an analysis of your expected retirement expenses, estate goals and philanthropic interests and determine the type and level of assets required to support your goals with consideration for your risk tolerance.
  
  
• Talk to your CPA about tax and corporate structure issues. For example, the newly approved economic stimulus package includes provisions that may make it more attractive to convert existing C corporations into S Corporations. The resulting conversion may make your company more attractive in an eventual sale.
  
  
• Make sure you understand the value of the business today, along with the factors that contribute to or detract from value. Recognize that valuations draw on a range of methodologies and often yield divergent estimates. For retirement planning purposes, the valuation should be based upon firsthand knowledge of the market conditions, which are driven by the acquisition appetites and strategies of acquirers.
  
  
• Finally, if the company’s value is currently insufficient to support your retirement objectives, then get help developing a picture of how the company needs to look financially and operationally by the time you sell. Use the intervening time to execute on initiatives that build on the company’s strengths and address its challenges.

Many privately owned companies represent a significant portion of the owner’s net worth. Consequently, developing and executing a successful exit strategy may be one of the most important things a business owner can do. With just a few consulting hours, ASG Partners can estimate the market value of your company and – more importantly – we can identify and prioritize initiatives that will increase value regardless of whether you decide keep the company in the family, transition it to employees or sell it to a third party.

I invite you to contact us if you are curious about the value of your company or are interested in beginning to plan your eventual exit. Our conversation will be strictly confidential, and I am sure it will be worth your time. Contact ASG Partners via email (info@asgpartners.com) or phone (425-450-4800) or read more about ASG's consulting services.

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