Young or old, succession planning remains important

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As younger millennial entrepreneurs who have grown a business and accumulated wealth begin considering an exit, the traditional heir commonly groomed in a family business may not be apparent.

The age of business owners exiting companies is trending downward as the millennial generation more frequently changes jobs, said Doyle Butkiewicz, Milwaukee market manager for JPMorgan Private Bank. The classic scenario of a business owner in his 50s or 60s passing the company on to a child is not always the case anymore.

โ€œIt is starting to develop here in the Midwest somewhat. On the West Coast, itโ€™s a much bigger deal,โ€ Butkiewicz said. โ€œIn this new technological world, people literally in their early 30s could be at the point where they want to pass it on or do something different, but at that point they donโ€™t have any children.โ€

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Many younger entrepreneurs take a different approach from the traditional model of owning a business for several decades and exiting at 65. They like to create value quickly, move forward and sell it, then start another business, he said.

Butkiewicz

โ€œThat earlier exit may be a sale of that business and a creation of a serial entrepreneur,โ€ Butkiewicz said. โ€œThen that person at a very young age, relative to how businesses used to establish themselves, might be starting a second business and planning another succession.โ€

New Berlin-based insurance brokerage and business advisory firm HNI recently hosted a seminar on the changes that have occurred in succession planning since the Great Recession.

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Natalizio

โ€œOne of the things that started to happen is companies started growing again,โ€ said Mike Natalizio, chief executive officer of HNI. โ€œCompanies were very stagnant, many shrunk, many went out of business. Today, weโ€™re finding a lot more capital in the market, money is a lot more reasonable or cheap, so thereโ€™s a lot more opportunity to sell your business.โ€

Natalizio said he has not seen a marked increase in exits from younger entrepreneurs in the Milwaukee area.

Durham

โ€œI canโ€™t speak to that definitively, but I do believe that the workplace and the entrepreneurial spirit has changed a lot, especially post-recession, where younger people are starting businesses, and theyโ€™re much more apt to sell a business and move on to the next thing,โ€ he said.

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At any age, and whether or not the business is family-owned, itโ€™s important to plan the transition of ownership long before a sale, Natalizio said. Planning a perpetuation strategy ensures there are younger leaders prepared to step in when older leaders retire.

โ€œThereโ€™s a lot of emotions that go into selling a business, especially if itโ€™s a family business,โ€ he said. โ€œThere might be an heir apparent, or they think theyโ€™re the heir apparent, but theyโ€™re not. When theyโ€™re not, that can cause a ripple effect.โ€

The principles are the same whether the buyer is internal or external. They include making sure the business is efficient, making good financial decisions and tying up any loose ends, Natalizio said.

โ€œWhatโ€™s inevitable is if you own the businessโ€ฆyou have to start thinking about who will ultimately be buying your company,โ€ he said. โ€œDuring the recession, (business owners) were just hunkered down on keeping the business alive, and now theyโ€™re hunkered down and planning who will be the next owner of the company.โ€

Cathy Durham, president of Capital Valuation Group Inc., which has offices in Sheboygan and Madison, agreed that the guidelines are the same no matter the sellerโ€™s age or relationship to the buyer.

Itโ€™s important for owners to have a realistic understanding of the value of the company, Durham said. Younger owners may have an advantage when planning an exit, because they have the time to increase the value of the business to get the best deal.

โ€œIf you have three to five years, thereโ€™s time to increase value in your business,โ€ she said. โ€œBut if you wait until the last minute because youโ€™re sick or youโ€™re burnt out or youโ€™re tired of dealing with employees or customers, you may have missed your opportunity to be able to increase business value.โ€

Rather than a lot of early exits from young entrepreneurs, Durham expects to see an influx of baby boomer retirees selling their businesses in the next 10 years, at ages closer to 75 than 65 because of their relative health and the delay imposed by the recession.

โ€œIโ€™m actually seeing more young people, 30, 40, 50 year olds getting into businesses and buying out those who are 50, 60, 70,โ€ she said. โ€œI think itโ€™s a regaining of confidence because things are gaining slowly but consistently. Baby boomers arenโ€™t necessarily planning to retire at 65. But Iโ€™m seeing plenty of people who are 60 or 70 years old who are thinking, โ€˜Gosh, Iโ€™d better hurry up and get out of here.โ€™โ€

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