Retirement countdown babyboomer

Baby Boomer Retirement Countdown:
A Narrow Window of Opportunity

At the start of 2018, we see two major business trends: the largest, wealthiest U.S. generation is on the verge of retirement, and unlike the past, their businesses aren’t staying in the family.

Ready for the best news you’ll hear today?

We have a once-in-a-millennium opportunity to transform the face of our country’s social economic landscape. Even better, we can do it in a simple, proven and exciting way. No exaggeration—we can dramatically narrow the wealth inequality gap, create thriving workplace environments and build a more stable, robust economy filled with sovereign companies in under 3,650 days.

Consider the following numbers:

  • 8 million baby-boomer business owners will retire over the next 10 years.
  • $10 trillion USD of net worth will change hands in this process.
  • Less than 90% of very small businesses (under $20M in revenue) on the market actually sell.
  • Leveraged ESOP deals have been 98.1% successful, according to a recent NCEO study
  • The U.S. already has ~7,000 ESOPs covering nearly 11 million employees.

Given these facts, what are our possibilities and outcomes?

  1. An owner sells his/her business to a competitor, who essentially captures their book of business. The new business absorbs their clientele and typically lays off redundant employees.
  2. Owners who cannot sell their business, liquidate inventory, sell any real-estate, lay off employees and ride off into the sunset.
  3. Traditional private equity companies acquire large or attractive businesses in a roll-up strategy (buy and aggregate lots of similar businesses). Next, they reduce redundancies and inefficiencies (i.e. employees who do the same job, costs, extra offices/headquarters, etc.).
  4. Business owners transition their companies to employee-owned businesses.

Imagine if the employees that helped create these businesses had the opportunity and support to earn shares of the business?
What if they became co-owners of these enterprises, with top-flight leadership support to get there?

How can we seize the opportunity within Baby Boomer retirement?

Four letters and four words: E-S-O-P & Creating Employee-Ownership Cultures

An employee-stock ownership plan (ESOP) looks and acts like a retirement benefits account. It comes with many attractive tax benefits for the selling owner and new employee co-owners. Assuming the business in question is profitable, banks see ESOPs as very coveted lending opportunities.

Essentially, owners can sell their businesses to their employees, walk into retirement with cash from the transaction, and benefit from massive tax breaks. Most importantly, they postively impact the lives of the people who helped them create the single largest portion of their net worth.

Sounds amazing – why doesn’t everyone do it?

Three hurdles get in the way of this otherwise idyllic exit strategy:

  1. Education and Awareness
    Unfortunately, very few professional advisors (lawyers, CPAs, financial advisors, etc.) actually understand ESOPs. Given the tremendous tax benefits of this form of business, ESOPs have been heavily abused in the past and, thus, come with many stipulations, regulated by the U.S. Department of Labor and IRS. Many trusted advisors will sooner shoot down an ESOP option rather than own they don’t fully understand its intricacies.
  2. Leadership and Organizational Development
    The vast majority of small businesses cannot continue to operate successfully once the founding owner/operator walks away. They often vitally depend on the owner, and they lack the culture, systems, processes and leadership depth to make a successful transition. Without these tools in place, banks or any investors may hold off in getting involved.
  3. Forward-Looking Planning
    Nearly 55 percent of adults do not have a will or estate plan in place. People don’t like to talk about the D word. As such, owners wait until the last minute to acknowledge that their son or daughter, who may have never actually been involved in the business, will not quit their career and take over the business. In many cases, the owners have lost the energy/motivation to run the company. Life is short. Unsurprisingly, retiring business owners would prefer to spend the last third of their lives crossing items off their bucket list.

Baby Boomer retirement: 3650 days and counting

Right now, we have a unique opportunity to transition these companies facing succession cliffs into employee-ownership enterprises. By combining capital and a team of seasoned leaders who understand how to cultivate high-performing and engaged, employee-ownership cultures, we can effectively bridge the wealth inequality gap in society while we produce more engaged business-minded co-owners. These co-owners, in turn, create high performing organizations.

Employee owned companies create a win for the exiting business owner, a win for the employees, a win for investors and lenders, and a win for customers, suppliers and partners alike.

More employee-owners means more people develop business acumen. If employees learn operational responsibility, they garner greater fulfillment from impactful work. This is ultimately a win for society.

The clock is ticking. Would you like to learn options for your business? Please contact me directly at ahad@coreworkcapital.com or plan to attend RMEOC’s Company Culture Conference on May 14, where I’ll be presenting alongside business culture expert Jennifer Briggs.

 


 

Ahad Ghadimi Head ShotAhad Ghadimi is a corporate iconoclast, who has worked with organizations in over 30-countries with the objective of transforming them into highly engaged, employee ownership-cultures. From businesses coming out of bankruptcy or companies transitioning to employee-ownership, Ahad gets involved with companies in one or more of the following roles: adviser, investor, and/or operator

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