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| Getting The Value Out By John Dunlavey |
| Let's set the stage: People over age 55 comprise 20% of all Americans according to the U.S. Census, 1999. The median age of all CEOs is 56 according to Arthur Andersen/Mass Mutual American Family Business Survey, 1997. Americans are poised to transfer $12-18 trillion dollars to the next generation by 2017, much of that wealth in the form of family business interests. 43% of all CEOs are expected to step aside by 2002. 90% of those people believe their companies will somehow remain in the family and continue after they have taken their last pay check, even though their kids may not be capable of running the business or even want to; even though there may be no market for the stock. Of those business owners who think their companies will go on after them, less than one-third have a formal succession plan, fewer yet have a funded buy-sell agreement in place, and less than 40% understand the financial impact that estate or capital gains taxes will eventually have on their businesses. One local owner just informed us he has letters from three nearby competitors who are all going out of business and all are hoping he will buy them out. (He won't.) Why go into business anyway? We sometimes meet owners who are taking no more income than their key people. I hear two reasons for this: 1. "If we earned more I could pay myself more." (Then he has an expensive hobby. Perhaps he should go to work for someone else, and get rid of all the long hours, headaches and financial risk.) 2. "1 would pay myself more but I've decided instead to plow the earnings back into the company." (Then how does he expect to get his money back? We'll bet he doesn't have a plan.) We submit that a business owner's overriding goal should be to build personal wealth, some combination of substantial income and a growing asset that he can convert back into cash and income when it's time to get out. |
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