It occurred to me that many of the PR pros I’ve worked with over the years are now approaching retirement age. This could be one reason why there’s been a recent uptick in merger and acquisition activity.
Unfortunately, many PR agency owners are so wrapped up in the day-to-day affairs of operating their companies, they give little thought to their own financial needs. Many of these executives anticipate maintaining at least the same lifestyle during retirement that they enjoy today, perhaps even a better one.
As time goes by, you’re faced with the question: “Will I really have enough to live on?” And where will the money come from? Is selling your agency the answer to this question?
There’s a real need to control the future and not simply look forward to it! Even if you’re 31 as opposed to 51 or 61!
Pieces of the nest egg
Most business people have four basic types of assets that can be used to create a retirement fund: Social Security; savings or a retirement plan through business; investments; and proceeds from the sale of a business interest. Together, these sources should make up a hefty nest egg. But it takes a closer look to understand what they really provide.
Social Security depends largely on the size of your pre-retirement income. Even at higher salary levels Social Security falls short, providing a fraction of the total amount needed.
A pension or profit-sharing plan may provide a third or half of the income you’ll need, and you have to depend on it being there. In addition, you may be able to take advantage of other tax-favored vehicles, such as a 401(k) plan or an IRA to supplement your business’ retirement plan. As for personal investments: have you allowed enough time for your investment to achieve the desired result need to retire? The longer you delay your long-term investment planning, the larger your regular contributions to your investments will have to be.
When is the time to sell?
If you’re nearing retirement age, you may want to generate income for your interest in your agency. Although selling may seem the simplest solution, the cash you receive represents only part of the value of your business.
Let’s assume you want the business to continue. Maybe you want to keep the business in the family. There are two basic issues that need to be considered. First, a family member will need to be a PR professional with the requisite experience and desire to buy your business. Second, where will the money come from to buy your agency? In my view, this probably isn’t the best solution.
A better solution would be to “shop” your agency. There are many professionals who can guide you through this process. If you decide to go this route, there are many questions to consider:
1. Will a buyer be available when you are ready to retire?
2. Will the buyer have the necessary funds or the ability to finance the transaction?
3. Will you be able to agree on a selling price?
4. Will the price generate the income you will need in retirement?
At this point, it would be a good idea to pursue various planning options with your financial advisors: your CPA, attorney, financial planner and insurance agent.
When you do this, there are a few fundamental guidelines to keep on mind:
1. Use realistic planning assumptions. Don’t ignore the eroding effect of inflation or the growth potential of interest.
2. Reduce or consider taxes on money going into and coming out of your retirement plan.
3. Plan for unexpected evens according to their consequences, not just their likelihood.
4. Use your business wherever possible to fund benefits with business dollars.
You should also be sure that adequate provisions are made for possible ill health or accident that include disability insurance and long-term care insurance in your planning.
Additional thoughts on selling (mergers)
According to the late Al Croft, “mergers have become a normal part of the life-cycle of PR firms. In addition to bolstering management, they may provide greater opportunity greater opportunity for both parties with minimum risk. Nowadays, involvement in merger discussions usually is a sign of agency strength, not weakness. Almost all professionally managed mergers are at least reasonably successful.”
When to think about merger
Well, it’s never too early to think about merger. At the very least, you should discuss any promising opportunities that come your way. These talks can be very educational even if they’re ultimately not successful. Properly and professionally run, it requires only a small investment of time, money and emotion. They never should distract or disrupt agency management, and they shouldn’t be allowed to drag on inconclusively.
If you’ve reached the age of 55 and your business has leveled off, you should begin to consider merger. Most potential partners want to join forces with a dynamic firm, and—fair or unfair— age is a factor in this perception. Each year that passes usually reduces your firms’ attractiveness to a merger partner.
Don’t even consider selling and walking away. At the very least, you’ll have to stay several years —at least three—to fulfill the terms of the merger. According to Al Croft, numerous PR firm executives have found that once they’ve unloaded part of the burden of top management, they can become an elder statesperson and do the kind of PR work they truly enjoy.
Richard Goldstein is a partner at Buchbinder Tunick & Company LLP, New York, Certified Public Accountants.