Surprise: Small Business Owners Often Don’t Want to Retire
Retirement often is not necessarily a desired career outcome for entrepreneurs who launch MSPs, VARs and other types of businsses. In fact, a Wells Fargo/Gallup Small Business Index revealed many small business owners prefer working over retirement.
Fifty-three percent of small business owners indicated they would continue working in a full- or part-time capacity if money were no object, according to the index. Meanwhile, only about one in four small business owners said they would retire completely.
A Closer Look at the Index Results
The Wells Fargo/Gallup Small Business Index provided insights into how small business owners view retirement. Key findings from the index included:
- 76 percent of small business owners said they are optimistic about living comfortably in retirement.
- When asked about retirement fund sources, 40 percent of survey respondents said retirement savings accounts such as 401(k)s and IRAs represent a major source of money.
- Small business owners said they are most worried about paying medical costs in retirement (21 percent).
Overall, small business owners tend to have a more positive outlook about retirement than U.S. adults, Gallup noted in a prepared statement.
“Many [small business] owners don’t want to retire at all, but keep working in their business in some capacity as long as they are able. These attitudes reinforce a generally upbeat small business environment today,” Gallup stated.
Are Entrepreneurs Saving Enough for Retirement?
Still, a company valuation and retirement savings gap plagues many entrepreneurs who own MSPs and VARs, which is reflected in recent data.
A BMO Wealth Management survey indicated 75 percent of small business owners have saved less than $100,000 for retirement. The survey also showed 68 percent of entrepreneurs between the ages of 45 and 64 have less than $100,000 saved for retirement, while only 8 percent have saved more than $500,000.
Retirement planning can be problematic, particularly for business owners who discover their companies are worth far less than they originally anticipated.
Some evidence indicates successful MSPs have valuations of roughly 5X to 7x annual EBITDA (earnings before interest, taxes, depreciation and amortization). The problem: The typical MSP owner hopes to sell his or her business for $3 million to $10 million — but the companies are only worth $1 million to $5 million, according to HTG and data from Service Leadership Inc.
In addition, many small MSPs ($5 million or less annual revenues) likely would have to work overtime for the next few years to close key valuation gaps, HTG CEO Arlin Sorensen said during his organization’s IT Channel Summit in September. Sorensen and Service Leadership CEO Paul Dippell have spent considerable time educating MSPs about the valuation gap issue.
Training MSP Owners
They’re not alone. Influencers like TruMethods CEO Gary Pica and CTO Bob Penland are training MSPs to lift their recurring revenues and profit margins to boost valuations. And upstarts like Xcellerate — led by newly appointed CEO Tommy Wald — are striving to accelerate the business performance of small MSPs.
Will success inspire more MSP owners to retire? We’re not sure. But all the market indicators suggest M&A activity will continue to heat as companies — and their business owners — further mature.