Chicago, Illinois (PressExposure) December 23, 2007 -- Business owners considering retirement should finalize their exit planning in 2008 because business sale prospects will be negatively impacted by coming demographic and economic changes, according to Chicago-based investment banker David Kauppi, managing director of MidMarket Capital. "In 2008 we will see the beginning of 'the rush to the exits,' as the first wave of baby boomers retire. In addition, the current credit and housing market crunch will bring a new surge of business sellers to the market," said Kauppi. Kauppi noted that Federal Reserve projects that almost 500,000 businesses will change hands in 2008, a record number.
"While business sale prices have held up well in 2007, we are likely to see deteriorating conditions in coming years as the number of sellers will begin to outnumber potential buyers," he said.
Another warning signal for business owners is the current debate over tax reform. Leaders of both parties have put forward proposals to change the current tax code including the alternative minimum tax (AMT) and the estate tax. If the Democrats should sweep to power next year, many of the tax reform proposals suggested by party leaders would directly or indirectly raise taxes in coming years for business owners, Kauppi noted.
Kauppi said the best strategy for business owners is to move up their sale timeframe, but not their exit timeframe. For example, an owner could sell his business in the next 18-24 months with an agreement to continue working full-time for an additional year to transition customer relationships and transfer intellectual property.
"This solution requires the business owner to view the business sale and their retirement as separate, contingent events. Too many owners wait too long and end up selling because of a crisis such as a health issue, loss of a major account or a shift in the competitive landscape," Kauppi said.