Baby Boomers Planning Exit Strategies from Their Businesses

Baby boomers pass on businesses Cynthia Pharr Lee is not ready to retire anytime soon.

But when the time is right, Pharr Lee has an exit plan in place to ensure her public relations business will be in the right hands. Pharr Lee identified a ?young superstar? employee and put her on a partner track to take over Dallas-based C. Pharr & Co.

?This plan gives more flexibility and freedom,? said Pharr Lee, 64. ?It lets me have the kind of business that we prefer to have.?

Exit planning has always been a vital part of running a small business. Careful planning can ensure business continuity as well as a level of financial security for exiting owners.

Succession plans take many forms. Deals can be everything from selling to a third party to transferring ownership to a relative to establishing an employee stock ownership plan, or ESOP.

Dallas real estate queen Ebby Halliday set up an employee stock ownership plan to allow employees to invest in her namesake firm in 1992.

Amid the economic recovery and retirement looming for some, baby-boomer entrepreneurs are expected to drive a wave of ownership transfers and sales over the next few years.

The recession forced some baby boomers to delay their exit plans and hold on to their businesses longer than they had planned, according to consultants and brokers.

Now, transactions are picking up.

?Owners have attempted to get their businesses in order over the past few years with an eye toward exit when valuations rose again and we are seeing those come to market now,? said Greg Stevens, a senior director at Dallas-based Riveron, a financial consulting firm that works with buyers and sellers.

One of his clients is a 75-year-old business owner who wants to get his finances in order before pursuing a sale, Stevens said.

Sale prices and volume have been recovering in recent years. Small-business transactions jumped 61.8 percent in the second quarter from a year ago, according to, an online business-for-sale marketplace.

And retirement was cited as the No. 1 reason driving business sales in the first quarter for the second consecutive period, according to Market Pulse Survey Report. The study is conducted by the International Business Brokers Association, M&A Source and Pepperdine University?s Graziadio School of Business and Management.

Joan Ridley, president of Dallas-based Business Wealth Solutions, works almost exclusively with baby boomers to help them prepare and exit their businesses.

And lately, Ridley has been busy with clients whose businesses have recovered from the recession and can show steady revenue in the last few years.

?Everyone knows there was a recession, but the markets are pretty unforgiving,? said Ridley, who sits on the board of governors of the Exit Planning Institute. ?It?s a buyer?s market. It?ll be a real beauty contest. The boomers who are selling are getting gussied up.?

Katherine Berg, founder and chief executive of Interprise, a commercial real estate design firm in Addison, considered a sale and other options.

Ultimately, an employee stock ownership plan made the most sense, she said.

With employees as owners of the 39-person company, the plan ensures that ?we?ll grow for the next 30 years,? said Berg, who founded Interprise in 1981.

?We?re putting people in positions to take it that far,? the 62-year-old entrepreneur said.

Kaye McCallum, a 27-year Interprise employee who became president under the ESOP, called the plan a ?win-win decision? for Berg and the firm.

There is a three-year vesting period for Interprise employees, many of whom have long tenures. The ESOP recognizes and rewards these loyal employees, McCallum said.

?Everyone has the pride of ownership so you?re not just working as an employee,? McCallum said. ?You have a part of this firm and have a vested interest in seeing this succeed.?

The leadership transition at Interprise will take another five to seven years. In the meantime, the careful exit strategy sends signals to clients and employees that the business will continue as usual.

?We set up a platform to keep the company going far into the future,? said McCallum, who will succeed Berg as CEO.

For more than 25 years, V.K. Gupta, 67, built his real estate tax consulting business into a 20-person firm with offices in Dallas, Houston and Austin.

Gupta will eventually turn over Real Estate Tax Consultants to his son, Amish Gupta, who joined the family firm in 2010 as its chief operating officer.

Eventually, the elder Gupta will transition into a nonexecutive chairman role, with Amish becoming CEO. A timeline has not been set.

?I wanted him to come back because I wanted to feel that I have a legacy,? the elder Gupta said. ?It?s a double-edged thing. I thought it would be good for me and good for him.?

He added, ?Frankly speaking, I couldn?t find anyone to handle this better than my own son. I felt that he would think of it as his own ship and sail it accordingly.?

Still, it wasn?t always obvious or expected that Amish would take over the family firm even though he had always been interested in real estate.

?Some people do come back straight to the family business after college or business school,? Amish said. ?I never wanted to do that. Even if I knew from day one that I eventually wanted to come back, I wanted to make sure that I had experience and knowledge.?

After college, Amish spent several years in the marketing and brand management team at Procter & Gamble.

Amish also earned an MBA and went to work for large private equity and investment firm The Carlyle Group in Washington. There, he worked in the real estate practice for three years.

Before coming back, Amish, 33, made sure he would have authority to make major decisions and that he?d be in charge of day-to-day operations. The father and son also discussed appropriate compensation and company equity for Amish.

The elder Gupta admits giving up control wasn?t easy but he?s been happy with how the succession plan is working out.

Leah Ekmark Williams was 23 when she joined C. Pharr & Co. Three years into their working relationship, Pharr Lee started thinking about a succession plan. Knowing that Williams was a ?strong talent? who could easily be poached down the line, she threw out an idea: ?What if we decided to become partners and build the firm together??

For Williams, the idea was also intriguing. In her job interview with Pharr Lee, Williams made it clear that she wanted to eventually start her own agency. Williams said the ownership prospect came earlier than she had envisioned, but Pharr Lee ?sees the potential in you and you seize the opportunity.?

Now 31, Williams has been vesting in stock rights, building equity in the seven-person company for the last five years.

?This seems to be the best fit and is the perfect partnership and best of both worlds,? she said.

Sources: MCT Information Services