'The Economy Stole My Retirement'

The current financial crisis has harmed the retirements for many individuals in their 60s and 70s. Retirement has become out of reach for many especially for small businesses owners who can't seem to sell their business and are losing their money set aside for their own retirement.

By SARAH E. NEEDLEMAN And EMILY MALTBY
Updated August 29, 2012, 7:12 p.m. ET
Wall Street Journal

Danny Sullivan dreams of gardening and spending time with his grandchildren, but that's just a fantasy. Retirement is out of his reach, at least for the foreseeable future.

The 62-year-old founder of a small catering company spends his days helping stock bars with beer and ice, wooing potential new clients and juggling the 20 to 30 different events his firm handles daily.

"I am so tired," he says. "I don't know that I'll ever be able to retire."

The weak economy has been tough for small-business owners across the board, with their total revenue inching up by just 3% since 2007 and declining in fields such as construction (-12%), real-estate services (-3%) and retailing (-2%), according to financial-software maker Intuit Inc. But for entrepreneurs in their 60s and 70s, the consequences have been particularly vexing.

Many of them are stuck in "business purgatory," unable to retire and forced to hang on for a recovery that economists say could still be a long way off.

Mr. Sullivan has struggled to sell Arguello Catering Inc., the Redwood City, Calif., business he started 21 years ago, at a price anywhere near the $850,000 or so he figures he needs to stop working. He reckons that about 70% of his nest egg is tied up in the 25-employee company.

Its annual revenue has fallen to roughly $2 million from $3 million before the recession, Mr. Sullivan says. He has tried, without success, to boost the business's value by branching into new markets, expanding hours of operation and adding healthier menu options. He says he got three offers for Arguello this year, but they were far too low.

Nearly half of the 799 small-business owners surveyed in August by The Wall Street Journal and Vistage International, an executive-mentoring organization, expect to retire after age 65, with 38% saying that their planned retirement date is later than they had predicted five years ago. In addition, 56% said most of their retirement nest egg is tied to their business.

Baby boomers, in many cases, were blindsided by the recession and its effect on their retirement plans, says George Vozikis, director of the Institute for Family Business at California State University in Fresno.

"Boomer entrepreneurs grew up believing in the American dream that you could start a business and eventually sell it for a good return or pass it onto your kids," adds Aaron Chatterji, associate professor at Duke University's Fuqua School of Business in Durham, N.C. "Because of the financial crisis and subsequent recession, that is more difficult today."

Judy Lawton, 69, says she would like to sell the small staffing company she started 27 years ago. She figures she needs to sell it for close to $2 million to live comfortably. But her company was hit hard by the job-market slump, and its revenue is down by about 60% from before the recession.

Ms. Lawton says she continues to work 12-hour days, meeting with prospective clients sometimes until late at night. She says she can't afford to expand her business, which is down to 13 employees from 35 a few years ago. She recently sold her office building for $3.1 million to help pay off a $900,000 Small Business Administration-backed loan that she secured to survive the recession.

Ms. Lawton listed her business for sale last year through a broker, but all of the offers she received were "insulting," she says: as little as $250,000, plus installments that would vary depending on performance. So far, she has turned them down.

"You don't work for almost 28 years at [building] a company and give it away," says Ms. Lawton, adding she won't settle for what she considers a low offer, given the strong reputation and client base she has cultivated.

She hasn't taken a vacation in years because she can't afford to travel. "The economy has stolen my retirement," she says.

When the economy is tight, putting money away for retirement is much harder, says Gibb Dyer, professor of entrepreneurship at Brigham Young University's Marriott School of Management in Provo, Utah. At the same time, "it's more difficult to sell your business because it's valued less," he adds.

"The average business coming to market has lower earnings [than] it did in 2007-2008, therefore the prices are lower," says Barry Evans, partner at Acquisition Services Group, a business brokerage in San Diego. "If a business has lost 20% of its earning power in the past few years, it will sell for at least 30% less today."

The median selling price for U.S. small businesses during the first half of this year was $150,000, down 25% from $200,000 in the first half 2008, according to BizBuySell.com, an online small-business marketplace. The firm's findings, reported by business brokers, are based on listings and recent sales in 70 major U.S. markets.

In the first half of the year, 3,332 small businesses exchanged hands down 40% from the first half of 2008, it found.

Andy Birol, a small-business consultant in Pittsburgh, says many of his older clients are at a crossroads: "They either have to sell for far less than they need or deserve to get out, or they have to muster up the energy to recommit themselves to the business," he says. "They're conflicted."

Fourteen years ago, when Dan Cawley, 60, started real-estate brokerage Cawley Chicago Commercial Real Estate Co. in Downers Grove, Ill., he planned to gradually sell shares to his employees so he could retire by 70. But the recession hit just at the wrong time.

"The employees, they were concerned about the financial viability of the company," he says. "I wasn't even sure if we'd survive. This grandiose plan was blowing up."

Last year, the company started offering property-management and consulting services and business has improved.

Today, Mr. Cawley spends his 10-hour workdays training his sales team, meeting with landlords and property owners and running staff meetings. He also travels the country to build relationships in other states.

He has delayed his retirement plan for five years. He hopes to sell his first installment of shares next year.

"Every dime is in the company," he says. "I have no alternative savings, except Social Security. And I certainly can't live on that."

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