Protecting Your Financial Legacy

By Generational Equity


There is an old Scottish proverb that goes something like this: “The grandfather buys, the father builds, the son sells, and the grandchild begs.”

This saying is referring to the transfer of wealth from generation to generation. Sadly, as we have seen over the decades, it is often true. A family creates a business that is well run and profitable, and as successive generations take the reins, too often the investment and the legacy in the business is completely lost through bad management, lack of focus, and poor decision making.

Generational Equity has seen this countless times as well. There is nothing more disheartening than to meet an entrepreneur who passed his business on to his children only to be forced to take management of the company back when it was clear that the offspring were unable or unwilling to effectively manage it. In many cases the original owner loses millions in the process and is forced to leave their retirement to re-run their company. This is tragic and completely avoidable.

And sadly, most business owners have nearly all of their personal net worth tied up in one highly illiquid asset – the family business. Retirement planning and savings for retirement are shockingly lacking in our society. According to a recent article in the Los Angeles Times based on a new study by

  • More than a third of American adults have no retirement savings, and 14% of those ages 65 and older also haven’t saved any money yet.
  • About a quarter — 26% — of those ages 50 to 64 haven’t started saving for retirement, and 33% of people 30 to 49 years old don’t have any retirement savings.
  • Overall, 36% of those 18 years or older have not started saving for retirement, according to the survey of 1,003 adults.
  • 69% of those 18 to 29 years old have no retirement savings.

Although this data is not specifically for business owners, I would bet that in many cases the numbers may be even higher. Many entrepreneurs that we meet have not really set aside funds for retirement because they are assuming that the business will somehow (without any pre-planning) fund their retirement. This assumption is made despite not having an exit plan in place AND having no idea what the business is actually worth.

Who is Qualified to Replace You?

Baby boomer business owners that we meet at our M&A conferences are indicating now, more than ever, that they simply have no one in the family to pass the business on to. And this is not surprising. Clearly the level of risk associated with sustaining and growing a privately held business is greater than ever before. The volatility in our economy, as well as national and international politics, is at unprecedented levels. On top of this, having witnessed their parents’ stress of simply trying to survive the last recession, who can blame the children of aging baby boomers for being unwilling to take on the daily management of dad or mom’s business?

If you are thinking about exiting your company, you are probably examining all of your succession planning options. If you have a child who has been groomed to replace you, has the talent and skills to fill your shoes, and most importantly, is willing to make the sacrifices necessary to grow the business, consider yourself fortunate. Most owners of privately held businesses do not have this as an option.

The reality is that many of you are in this position. You have successfully built a viable, ongoing business enterprise. The company has reached a level of success due to your hard work and dedication. But you are no longer willing (or able) to make the sacrifices necessary to take it to the next level. Fortunately there are options that you can explore which will allow you to both exit your company when you want to AND protect the financial legacy you have built throughout the past years and decades.

Preparing for Your Exit – Plan Ahead

Some of you recognized years ago that your family members would not be the optimal choice to run your company upon your departure. If so, chances are good you have been building a “buyer ready” business for years. A buyer ready business is one that has been positioned from day one to have the key features that buyers are attracted to. Some of these would include:

  • A well developed middle-management team (made up of non-family members) that is not dependent on you
  • Recurring revenue streams
  • A diverse customer base (no customer concentration, which is more than 10% of revenue from a single client)
  • A well trained workforce
  • A developed brand in your market
  • Documented and accurate financial statements

The Near Future Will be Key

Most importantly, the really good news is that buyers are becoming more active than ever. The past 12 months has seen a solid increase in deal making activity, much of it involving privately held companies. Most importantly for your exit planning purposes, it is clear that the buying activity will remain strong for the next 12-18 months at least. Strategic players are now sitting on nearly $2 trillion in capital, and financial buyers have more than $1 trillion committed for investing. Given these large sums, and knowing that acquisitions are the fastest way to grow a company, we anticipate that the next year or two could provide the best opportunity in decades for you to find a buyer for your business.

If you would like to learn more about current M&A trends, I invite you to attend one of our complimentary M&A workshops addressing how and when to exit your company for the most profit. One of the areas covered is the decision to sell and the best time to do so. We also examine inter-family business transfers and how to protect yourself and your legacy from unprepared family members. 

The decision to leave your legacy to another is difficult. You have built your business from the ground up and have made it successful. However, the worst decision you can make is to do nothing with the hope your children will one day take over for you. Don’t make the Scottish proverb true in your case! Protect your financial legacy by planning and preparing in advance.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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