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By Jason Stipp | 06-28-2011 03:50 PM

Plan B (and C) for Retiring Small-Business Owners

Retiring business owners should have at least three plans for exit in what could be a difficult upcoming environment, says small-business transition expert and author Jerry Mills.

Jason Stipp: I'm Jason Stipp for Morningstar.

Planning in retirement can be a cumbersome task even in the most straightforward of circumstances, but throw in a small business transition and things can get complicated in a hurry.

Here with me to offer some tips about small-business transition in retirement is Jerry Mills. Jerry is the CEO and Founder of B2B CFO. He is also the author of a related book called "Avoiding the Danger Zone: Business Illusions."

He is here to talk a little bit about some of the things you need to keep in mind as you're transitioning your small-business in retirement.

Thanks for joining me, Jerry.

Jerry Mills: You bet.

Stipp: So, the first question for you. You've written a little bit about some of the broader trends that are happening in the United States, will be happening in the United States, over the next several years, involving retirees and small businesses. And there's a pretty interesting, and in some cases maybe jaw-dropping, numbers there. What's the picture look like for small-business owners in retirement in the next few years?

Mills: Well, the numbers are dramatic. We know that in the United States that there are about 78 million baby boomers that are going to retire in the next 12 to 15 years. Interestingly enough, they own about 12.5 million businesses. And because the younger generation doesn't want to take over those businesses, about 70%, or about 8.4 million, of those businesses are going to have something happen to them. They are going to transition to a third party, they are going to be liquidated, they are going to go to their employees in ESOPs--something is going to happen. Actually, I call it a tsunami. It's never happened in terms of volume in the history of mankind. So, it's going to actually be fascinating, and there's going to be some winners and some losers as we go through these numbers.

Stipp: So, I want to talk a little about what are some of the implications that you see here? Because it seems like there could be some negative implications, certainly, or at least this is a very important thing to have on your radar screen. Do you have any concerns about this massive shift and change in how we're going to see business transitions occurring?

Mills: Oh, I have significant concerns. One, I know for a fact that these 12.5 million baby boomers that own these businesses are not preparing properly for this. The other thing they are not considering is just the law of supply and demand. They are not considering because of this humongous, this enormous amount of businesses that are going to be sold that there may not be enough buyers for their business or they may not buy it for what they think that the company is worth. And that takes some planning and some discipline, and also some emotional dis-involvement, and I am not sure they are all doing that right now.

Stipp: So you think, for example, of the housing market, and the supply and demand situation. We see what that's done to prices right there. So a similar thing could be on the radar for these small businesses?

Mills: It's very similar. It's just the law of supply and demand. So much supply very little demand.

Stipp: So, I want to ... bring this back to the individual's perspective. So, let's say, I am nearing retirement, I do have a small business I've been running for many years. Maybe my children aren't interested in taking over the business. And I know that this economic situation could be coming up, where there might be a lot of businesses, and a lot of business owners, in the similar situation. What steps should I be thinking about, what concrete steps should I be tackling to try to make sure I am going to put myself to the best advantage in this environment?

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