Of all the moves Chris Swain has made since founding Swain & Associates, a Toronto-area firm that advises other businesses, one of the most complicated was figuring out her exit strategy.
“I took an excellent vacation when I came up to my 25th year in business, and did some ‘beach strategy.’ I asked myself, ‘What’s next? What does the next stage look like?’” says Ms. Swain, 56, who sold her company last year to a global professional-services firm.
Ms. Swain made the decision to sell to an outside firm after making sure that her three children, all pursuing successful careers elsewhere, were not interested in taking over.
While ultimately it wasn’t difficult to find a buyer to acquire her 20-person company, it did take another five years. She ended up meeting the right people at a cocktail party, from a company called TMF Group, based in Amsterdam.
Consider her lucky. Research shows that for businesses run by baby boomers, the transition to the next generation of owners is a major challenge.
Many boomer-owned businesses are ill prepared for the transition. In some cases it’s because, unlike Ms. Swain, they haven’t yet contemplated it; in others it’s because the owner has had trouble facing the idea of change.
In a 2016 survey of Canadian family businesses by PricewaterhouseCoopers, only 18 per cent had put together a comprehensive succession plan. Lack of a documented handoff plan can leave businesses vulnerable to events that could force a hurried sale.
“People should be way more concerned than they are about this,” says Eric Gilboord, chief executive officer of the Toronto-based consultancy Warren Business Development Centre Inc. and author of a book on how to transfer a business successfully.
“I work with a lot of buyers and sellers and find that while many people who consider selling have thought about the idea intellectually, they haven’t dealt with the emotional side,” he says.
“They do something for 20 or 30 years and they’re not about to just walk away or hand it over to somebody else,” Mr. Gilboord says. “There are all kinds of reasons why people second-guess themselves, and it comes down to the idea that this is something that has been your life.”
In Ms. Swain’s case, the situation was not nearly as emotional because she remains with the company as a new-business developer.
“I don’t have to manage anyone any more,” she says. While she is proud of the management skills she developed over three decades, she is relieved to let someone else take on that role.
For baby boomers who sell, it can be hard to let go of the reins, particularly when they pass the business on to children or relatives. “There’s always a risk that they’re going to come and interfere,” Mr. Gilboord says.
The Family Business Institute Inc., a North Carolina-based business advisory firm, says that while 88 per cent of family business owners in the United States believe their firms will stay among kin within five years, “succession statistics undermine this belief.”
In fact, only about 30 per cent of family businesses there survive into the second generation. Only 12 per cent are still viable into the third, and 3 per cent operate into the fourth generation or beyond, the institute says.
“There is a disconnect between the optimistic belief of today’s family business owners and the reality of the massive failure of family companies to survive through the generations. Research indicates that failures can essentially be traced to one factor: an unfortunate lack of family business succession planning.”
Mr. Gilboord agrees. “I have three questions for clients when they ask about their kids taking over. First, have you talked to them and are they interested? Secondly, are they qualified? And third, can they afford to buy your company?” he asks.
To help sellers face the issues, Mr. Gilboord likes to refer to the insights offered by Bo Burlingham, a U.S. author and expert on business transitions. Mr. Burlingham has written that business owners make seven typical mistakes when trying to sell their companies:
- They haven’t figured out who they are, what they want and why.
- They haven’t built a company that’s sellable.
- They haven’t prepared themselves and their companies for the transition.
- They haven’t gotten the right kind of help.
- They haven’t thought through what they owe to their employees and investors.
- They don’t understand the buyer’s intentions.
- They don’t know what to expect before, during and especially after the deal.
Sellers who make these mistakes will have difficulty receiving the right offers or the price they hoped for, Mr. Burlingham writes.
The market could become tougher as more baby boomers reach retirement age, says Matthew Shafer, a financial adviser and senior investment management consultant for Morgan Stanley.
“Unfortunately for many unprepared business owners, as this wave of business transactions gets going, it may create a buyer’s market in which only those who have planned well will experience a successful exit,” he says.
Ms. Swain, on the other hand, says she is pleased with the way things have worked out – for her business, her former employees and herself.
She credits good planning and the fact that she could explain to the prospective buyer why particular business decisions had been made – for example, why she limited expansion and growth to what she believed the company and its staff could handle.
“I had a really process-driven, well-documented, scalable operation,” she says, “and that was really obvious to the buyer.”Report Typo/Error
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