Over the next 15 years, the U.S. economy will experience an unprecedented increase in the number of businesses for sale as baby boomer entrepreneurs begin to retire. The result will be a significant increase in the number of available businesses. Experts believe this will create downward price pressure for many privately owned companies.

The baby boomer generation has been one of the most entrepreneurial generations in the history of our country. During the last 30 years over 5 million businesses with annual revenues ranging from $1 million to $75 million were founded. The owners of most of these businesses are now 50 years old or older and beginning to think about retirement. Recent studies by PriceWaterhouseCoopers, MassMutual and Marquette University showed that one out of two businesses will change hands between 2006 and 2016.

Ken Dychtwald, a nationally respected demographic expert and author of AgePower has written extensively on the topic of the aging of the baby boomer generation and advised multinational corporations and governments on how to prepare for the impact that the aging of our society will have on our economy, healthcare systems, infrastructure, etc. Dychtwald calls the aging of our population the "Age Wave". He makes the persuasive case that demographic trends like this are predictable, unavoidable, and need to be understood and planned for so that they dont overwhelm us. Dychtwald believes that, if properly understood, such trends can be tremendous opportunities.

Just as the Age Wave threatens the solvency of the Social Security system, the wave of private business owners seeking to retire will seriously strain, and possibly overwhelm, the available supply of buyers and the available capital for business transactions as these owners approach retirement. Given the significant increase in business owners wanting to retire over the next ten years, experts expect that the increased number of businesses for sale may create a case where supply exceeds demand. If we all think back to Economics 101, we know that when supply exceeds demand, prices tend to drop.

The American Family Business Survey sponsored by MassMutual showed that approximately 30% of these owners plan to sell their business to a third-party buyer. Another 30% plans to sell to a family member, while another 18% plan to sell in some manner to current employees. The remainder plan to close and liquidate the business.

For those business owners who intend to sell to a third-party, it will become increasingly important that they position their business to sell successfully in an increasingly competitive market. With one out of every two business owners looking to sell over the next 10 years, there will be a glut of businesses on the market. Now, more than ever, it will be important that a business owner focus should be on doing everything he or she can to increase the attractiveness, value, and salability of the businesses.

Tragically, the PriceWaterhouseCoopers study showed that approximately 75% of private business owners have no strategic exit plans in place. An additional 25% have done little or no estate planning. This is a recipe for disaster.

An exit plan is a comprehensive, integrated plan that asks and answers all of the personal, business, legal, financial, tax and estate issues that are involved in exiting from a privately owned business. This plan shows business owners how to begin positioning themselves and their businesses so that the owners accomplish all of their personal, financial and business goals when they exit.

Given the number of companies coming to market, business owners will need to focus on improving profitability, building a management team, and growing revenue in order to make their companies more attractive and maximize the proceeds they receive at the time of exit.

Exit planning delivers tangible results for savvy business owners. It is not uncommon for companies that have invested the time and effort to prepare themselves for sale to sell for a significant premium over companies that come to market unprepared. In addition, with good planning business owners are often able to reduce or in some cases eliminate the capital gains taxes due at the time of sale. This dramatically increases the after-tax net proceeds that owners keep. But the most often overlooked component of exit planning, and perhaps the most important, is the peace of mind that comes when a business owner knows that he or she is being proactive and taking charge of the future, rather than waiting passively to let the future take care of itself -- after all, deciding how and when to exit a privately owned business is perhaps the single most important financial and personal decision in a business owners lifetime.

SIX REASONS WHY IT'S IMPORTANT TO DEVELOP A STRATEGIC EXIT PLAN

1. Baby boomers were born between 1945 and 1961. The oldest is now 60 years old, the youngest is now 44.

2. As baby boomers start to retire the number of business owners wanting to sell their businesses each year will increased fivefold over 2005. This trend will continue for the next 10 years.

3. Selling your business during the first half of the age wave (2005-2010) will provide the best chance of maximizing its value because younger baby boomers retiring from corporate jobs will be active buyers. In the later half of the age wave these new entrepreneurs will also be looking to exit.

4. The economy is currently expanding and we are entering a strong economic cycle which creates a good environment in which to sell.

5. Private equity groups and strategic buyers are actively looking to make middle market acquisitions.

6. Capital gains rates are at a 60 year low.

To get started on the exit planning process as well as the selling process, get informed. Seek information from the best independent and objective sources possible. One good place to start is to talk with trusted advisors like your attorney, accountant, financial advisor, or an investment banker who focuses on privately held businesses.