At 75, Jim Murphy would gladly retire — if he could only find a buyer for the business he has poured everything into for the last three decades.
When he bought Rostraver Ice Garden, a 5,000-seat arena in the suburbs of Pittsburgh, in 1993, it was supposed to be a fix-and-flip project with a five-year turnaround. If he could do it over again, he would not have doubled down so many times over the years in order to keep the doors open when the initial plan went off track.
"I put a lot of money into this place," Mr. Murphy said. "There were times when my family would say, 'Just drop the keys on the table and give it back to the bank.' But I didn't."
Despite his health challenges, he's still working seven days a week, starting as early as 3 a.m. on the weekends to open the doors and take care of the list of housekeeping items that must be done at the hockey rink each day before the puck hits the ice.
Many small-business owners find themselves in a difficult spot when the time comes to retire — especially when all, or most, of their financial assets are tied up in their companies.
The COVID-19 pandemic was a shock for many business owners who were on the verge of retirement and could not sell their company, either because there were no buyers or the perceived value of the business had dropped lower than they were willing to sell for.
"They essentially had almost all of their net worth in a single stock position: the business that they are running," said Matt Helfrich, president of Waldron Private Wealth in Bridgeville, Pennsylvania. "We spend our entire lives as financial professionals advising people to never put all your eggs in one basket."
Mr. Helfrich said he saw this predicament quite often during the pandemic, not necessarily with Waldron clients but with potential clients who came to the firm seeking help with their retirement planning.
"They didn't have a whole lot of personal liquidity outside their business, and they were in a position where they couldn't sell their business in a timely manner," he said. "So, they were kind of stuck. They were forced to ride out the pandemic and push back any type of retirement."
Those he saw hit hardest included owners of businesses tied to the hospitality industry and real estate. They were heavily invested in hotels and ownership in real estate that was tied to restaurants.
The big difference between these business owners' situations and an actual single stock position is that the owners could have sold a publicly traded stock and had their money the next business day.
"Even if you have a high-quality business that can be sold, the liquidity is not immediate," Mr. Helfrich said. "You are not getting that money tomorrow, though you may need it tomorrow. The process of selling a business from start to finish is still going to take you at least three months."
Preparing for a crisis
Owners who end up holding most of their wealth in their business are most frequently small business owners and owners of family businesses, said Jeffrey Ford, an accountant at Gossman Nanak & Ford, a Pittsburgh CPA firm that serves businesses.
"We see that more often than you might imagine," Mr. Ford said. "If the business value is a few million to maybe $20 million to $30 million, that's very common.
Despite his health challenges, Jim Murphy's still working seven days a week, starting as early as 3 a.m. on the weekends.
"But once you get larger than that and the ownership starts getting dispersed a little bit, it becomes less typical for an individual to have most of their wealth tied up in the business," Mr. Ford added.
For businesses valued at a few million dollars or more, the market for buying and selling was unexpectedly brisk through the peak pandemic period, he said.
"Valuations remain high and demand for businesses remain unusually high," Mr. Ford said. "Where you're going to see difficulty is for those business owners who aren't prepared. Certain business owners are always ready at any moment for a sale.
"So, whether they have a crisis of age or illness or fatigue or whatever it is, they're pretty ready to sell in a relatively short cycle of six to 12 months," he continued.
But Mr. Ford said a large percentage of business owners aren't thinking of selling and aren't prepared to do so. Some business owners could be more accurately described as owning a job rather than owning a business, he noted. Those owners have the most difficulty selling, especially if they are experiencing any form of crisis.
"If you get in trouble with your own health or a family member's health or there a sudden downturn in the business, you don't have the capacity to focus on it that you might have had in the preceding five to 10 years had you been disciplined enough to actually do it."
What he means by getting a business prepared to sell is doing the necessary work to alleviate any worries a buyer would have before making the purchase.
That means having all paperwork in order and creating a game plan for the transition. The seller might agree to stay on for two years to introduce the new owner to customers and business contacts.
"Now you as a buyer are a lot less worried," Mr. Ford said. "You won't be sitting here after paying for the business and have no customers and no workers."
Business owners wind up in financial trouble at the end of their working careers most often when the market is changing or other factors have turned against them, but they keep pushing forward when they shouldn't, said bankruptcy attorney Matthew Herron.
"Most business owners think about how to keep the business going this year, and they believe it will do better next year," said Mr. Herron, founding member of Herron Business Law in Pittsburgh. "They don't always think about starting an IRA or 401(k), and those things take time to bear fruit.
"When market conditions are changing, business owners will go get loans to continue the business another five or 10 years, and it's all built on debt. When they get to the end, sometimes all the assets are collateralized."
An over-collateralized business is more likely to go bankrupt before it gets sold.
'I'd like to get out'
A "for sale" sign is posted at the entrance of Rostraver Ice Garden in Westmoreland County. Mr. Murphy said some potential buyers have expressed interest in the 14-acre property with 65,000-square-foot building, which he estimates is worth $3 million. But no serious offers have come through.
He bought the property in 1993 when his three sons were in school, entrenched in the hockey community here and didn't want to move to New York, where Mr. Murphy had a job opportunity. The property was in a state of decline with no running water or a sanitary sewer. His plan was to fix it up and sell it.
But right after he bought it and started sinking money into fixing it, he got caught in an ice rink-building boom. So many new ice rinks sprung up in the late 1990s, people in Pittsburgh no longer needed to travel to Westmoreland County to skate.
Then he got hit with one disaster after another. The roof collapsed in 2010; instead of taking the insurance money and calling it quits, he used it to rebuild. But by the time construction was completed, his competitors had taken most of his customers, requiring hockey leagues to sign three-year contracts.
Then, the pandemic hit in 2020, which shut him down.
"Last year, I paid myself $14,400 working 7 days a week, 365 days," Mr. Murphy said. "That's nothing. I'm working 70 hours a week."
He said he has informed people in the hockey community that if nobody is interested in buying the property as a hockey rink, he will soon list it for sale as a general purpose building.
"I'd rather not do that, but that might be the reality," Mr. Murphy said. "This may end up as a warehouse, a concert center or an academic institution.
"I'd like to get out, and my family wants me out."
