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Certain things in Iowa are predictable. I was reminded of this recently as the first major winter storm of the season was forecast. It was going to snow, most likely a lot. And, it was going to snow soon and often.

Screen shot 2012-12-19 at 4.47.00 PM

The television weather forecasters were positively giddy. They were like 5 year olds on Christmas morning. They couldn’t stop smiling while they made dire predictions about monumental snow falls and the ensuing delays and cancellations. The interns at the station were forced to stand on the side of the road as cars and trucks whizzed by spraying them with road residue as they reported on the storm’s impact. Programming was interrupted for the slightest weather related tidbit. 

People rushed to the grocery stores to stock up on staples. Apparently there is something about a snow storm that makes you believe you will need 8 gallons of milk and 12 loaves of bread in the next 24 hours (even though you haven’t used that much in the prior two months). In the words of the Boy Scouts, people wanted to be prepared.

This too shall pass. It is Iowa after all.  This certainly isn’t our first or last winter storm.

But this does raise a question, why isn’t there a similar level of concern about the upcoming storm of baby boomer business owners retiring?

The numbers tell the story.

(1)   A baby boomer business owner turns age 65 every 57 seconds. For many business owners this is not something that will happen in the future, it is happening now. (LIMRA 2010)

(2)  13% of U.S. households own privately-held businesses with a value of $12 trillion, which represents 39% of the household’s net worth.  A significant portion of this value will need to be converted to cash to fund the owners retirement and manage their estate planning needs. (Federal Reserve 2010)

(3)  About three in five of business owners (59%) indicate their business does not have a plan to continue their business in the event of their death, disability, or retirement. (Harris Interactive 2012)

Working with a financial professional, business owners can develop a succession plan that addresses their needs.  By planning ahead, they may be able to take advantage of options such as Employee Stock Ownership Plans (ESOPs) as part of their strategy.  An ESOP can also help business owners better manage their tax liabilities.

This baby boomer business owner storm will not go away. The time to prepare is now.

In addition to blogging here, I also tweet regularly about topics of interest to ESOPs. Click to follow me on Twitter- @jlripperger .

Click here to follow my ESOP blog

*Scaling the pre-retiree market, LIMRA 2010

**Federal Reserve’s 2010 Survey of Consumer Finances, 2012

***Harris Interactive, Business Owner Research, May 2012, conducted on behalf of the Principal Financial Group

Affiliation Disclosures

While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.


2 Comments Post a comment
  1. Jerry:

    Great article!

    The statistics on the wealth transfer that will occur in the next 10-15 years are overwhelming.

    Despite all of the education in the area, many business owners still do not understand all of the varied options they have to exit their businesses. Most owners that we talk to about how they will exit their businesses respond “feet first, head up” or hope they wil be able to sell it to a competitor or a larger company. Most do not know that their exit options include:

    Selling it to employees (ESOP, MBO, phantom stock, etc.),
    Gifting it to family members (outright gift, GRAT, FLPs),
    Selling to co-owners (buy-sell),
    Gifting it to charity (Community Foundations, CLT, CRT),
    Selling it to a third party (M&A),
    Going public, or
    Liquidating underlying assets and closing business.

    Which option the business owner ultimately chooses depend on a number of factors – the most important thing is that business owners understand their options and have the necessary information to make an informed decision regarding their exit.

    For many of these companies, an ESOP should be given serious consideration in this decision given the advantage they have over most of the other exit options.

    February 4, 2013
    • Jerry Ripperger, Director-Consulting, the Principal Financial Group, Princor Registered Representative #

      Chris, thanks for sharing your thoughts. Unfortunately for many business owners, the lack of a succession plan effectively eliminates many of the options in your comments. The old adage, no one plans to fail they fail to plan, is all true.

      February 5, 2013

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