66% of all companies in the U.S. are owned by Baby Boomers (currently, age 67 or older), who are retiring at a very rapid rate right now.

A study by UNC's Business School shows over half of these business owners may not pass on strong business legacies because they’re failing to account for a 'brain drain'. 63% of all businesses run by Baby Boomers have admitted to not accounting for the impending brain drain (which includes themselves!). As a result, they will be at risk of:

  • Not getting the price they wanted for the business when they’re ready to sell.
  • Set the business up for failure upon their departure.

A Surge Of Boomer-Run Businesses for Sale = Hurt Owner’s Legacies

Data shows Baby Boomers that don't prepare the right exit strategy at the right time will suffer. The sheer volume of Baby Boomer businesses is going to heavily impact the sale of these companies. Some statistics that speak to this include:

  • Ten TRILLION dollars worth of businesses will change hands by 2025, according to several experts.
  • An estimated 65% to 75% of small companies in the U.S.--some 10 million--will likely hang up a “for sale” sign during the next 5-10 years, according to magazine.
  • Research from the Pew Research Center indicates that the oldest of America's baby boomer generation started turning 65 on January 1, 2011, at a rate of 10,000 people a day -- a trend that will last for the next 19 years.

Building a business and selling one are two different things. Not prepping properly for the exit results in more than a few owners disappointed and with lack-luster business legacies.

Here are the most common mistakes are:

  1. Ignoring retirement. Most owners don’t want to retire. But, the day will come when the demands of the business are too much. Planning for that day makes the transition easier, both mentally and physically.
  2. Failing to plan for life-changing events. You may feel healthy, but an unexpected illness, or situation that requires your time and attention could put you out of the office, and your business at risk. Having a plan in place for an unexpected exit is vital to maintain the business legacy.
  3. Inability to see waning passion. Losing the love is normal. Years of doing the same thing leads to burn out. Failing to address it can put your business at risk of losing it’s dominance in the market. Especially, if you haven’t evolved the company into a place where good talent wants to work.
  4. Ill-prepared multi-generational ownership. Just because your kids work for the business, doesn't mean they should run the business. Failing to accept that your children aren’t the right future leaders of the company is important if preserving the business for years to come is a legacy you wish to leave behind. Especially, if they are part of the Millennial workforce that is getting fired for lacking work ethic.
  5. Diluted ownership via too many equity partners. If you've been appeasing managers and other key team members with equity, you now have their interests to consider when it's time to sell. Too many cooks in the kitchen can make your ability to exit on your own terms next-to-impossible. You need to build consensus before it's time to sell.
  6. Lack of younger managers. If your entire management team is within five years of your own age, you've got a big potential brain drain that could occur in a short time frame. Not having key members who plan to stay on long-term makes the business less likely to sustain when all the key players retire.
  7. Misguided employee ownership plan. Assuming your top employees will want to take over the business can lead to a rude awakening when you realize they’re A) not really capable of leading and making the tough decisions, or B) never really saw themselves taking over for you.
  8. Unrealistic business valuation. Just because you heard your competitor sold his business for $X million, doesn't mean your business is worth the same. Market conditions, business positioning, debt, etc. are all factors you’ll need to consider. You could find out your company is worth a lot less than you expected.

Being Objective Is Key to a Sustainable Business Legacy

Getting objective about your current situation can minimize the chance any of the eight mistakes above can occur. Bringing in an outside expert with a set of 'fresh eyes' can help you see what you might be blind to in your business. Especially, if you don’t have a strong recruiting strategy to help with the succession planning.

Your Business Legacy Is Your Lasting Imprint on the World

If you are one of the four million Baby Boomer business owners who have shaped business today, don't let poor planning of your exit be what people remember most about your business legacy. Your departure is one of the most significant aspects of how you'll be remembered by employees, peers, and your industry. It's time to make sure your reputation stays in tact.

Published on: Sep 10, 2015
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.