As we age, most of us become more conservative. For baby boomers who own and operate businesses, their views on growth and appetite for risk will shift. Most of them are thinking less about building the business and more about preserving the wealth they've accumulated.
For many baby boomer business owners, the unspoken challenge is how to address the impact of aging on their business. After all, putting the brakes on risk-taking can have a significant impact on their business, and it's rare that someone can divorce their personal risk profile from their business risk profile.
In light of Jim Flaherty's unfortunate passing at the age of 64, and within such a short period of leaving his post as Canada's Minister of Finance, boomers can't help but reflect on their own lives. Those running their own businesses may feel that when you leave work that means a great deal to you, there's a loss. Others may realize that, like Flaherty, they should get their business and family's future financially secured, as unexpected health issues can strike at any time.
In addition to increased risk of a decline in the business growth, the majority of business owners in their sixties delay addressing the risk diversification of their wealth as they age. If you look at where the balance of their net worth is held, it's usually in three places: the home, stock portfolio and business.
Generally, the business can represent 60 to 80 per cent of their total net worth. It's inevitable that owners with this risk profile are working hard and push off decision making until an emergency leaves them with regrets.
Good management for the business owner means acknowledging the hard truth about being in the boomer cohort. Here are a few suggestions on where to start:
1. Look to diversify the portfolio. Weigh the shares in the business against the rest of the stock portfolio. Is it balanced or dangerously dominated by one stock, the business? It is good sense not to put all the eggs in one basket and have wealth in the one stock, the business, particularly when an owner is integral to sales, the technology or other critical skills not easily replaceable. Understand the risk to your family of keeping a large portion of the wealth in that one stock, the business.
2. Get your business ready for sale just in case. Even if you don't want to sell the business, develop a plan to pass over the ownership. Putting down some thoughts in writing will nudge the process of building a stronger business. The business needs to be wholly independent as this does impact the valuation but, more importantly, the survival of the business without the owner.
3. Start a succession plan. One business owner began the succession planning process with his team and realized he did not want his children to take on the mantle of the family business. He began to think about the future of his business and to discuss it with his advisory board.
Over a few years, he transferred 30 per cent ownership of his shares to his employees, some of whom mortgaged their homes to buy into the business. When employees become owners, they also want growth. The owner took on an advisor and did a staged approach of partial sale and then, after a few years, the remainder of the company was sold.
4. Accept that you are not indispensable. The ego is what built the business but it can also become the bottle neck to growth. It can be the trickiest milestone to get over. Quite justifiably, the owner may think to herself: 'who can run this business better? I built it. The buyers' contracts are because of me. I am integral to the business. If I sell part of the business, the value will probably be impacted and I do not want my shares to go down.'
If you want your business to be a legacy, there needs to be the next leader learning the ropes. Dan Sullivan of Strategic Coach, who has worked with many boomer business owners, says making it to a healthy old age means start with that elusive health life balance. Take that cycling trip in Italy, get that education plan for grand children done, go to Florida each winter.
5. Focus on best practices. How does a manager react if the owner says, "I'm never going to retire." Compare the dedication and energy of the management team if there is room to move up in the business or even have the opportunity to buy some ownership. The business is dynamic. It's painful to let the company move beyond control of only the owner, but over the long run, families are better off and businesses are more likely to thrive for many years to come.
Jacoline Loewen is the director of business development of UBS Bank (Canada), named Best Private Bank Globally 2014. Ms. Loewen is also the author of Money Magnet: How to Attract Investors to Your Business. You can follow her on Twitter @jacolineloewen.