Retirement-age business owners drain savings to stay in business
At age 73, Jim Murphy would prefer to spend more time resting, traveling or going fishing with his grandkids. Yet his obligations still require him to work seven days a week at the ice hockey rink he thought would be a short-term investment when he bought it 26 years ago.
Some bad breaks over the years have forced him to keep running the business way longer than he had planned. The COVID19 shutdown has been another setback, perhaps the worst one yet. It completely wiped out Mr. Murphy’s revenue and brought him to a point where he’s now living on borrowed money.
Meanwhile, he is growing older.
“Every penny I have is in this business,” said Mr. Murphy, owner of Rostraver Ice Garden in Rostraver. “My house is on the line, too. The bank has a mortgage on my house because of the business.”
The rink had been booked with enough summer events to tide him over until hockey season starts in the fall. He expected to bring in about $100,000 renting the 60,000-square-foot facility for events such as comedy shows, wrestling, weddings and oldies dances. Now everything has either been canceled or postponed while the pandemic runs its course.
Instead, he had to borrow $100,000 from the COVID-19 Working Capital Access program offered by the state. If it weren’t for the loan, Mr. Murphy said he would have no way of paying the bills that keep coming. He might have lost the business, although now he’s even deeper in debt.
“I put all this money into it to get it in a position to sell. Then COVID-19 comes and takes all my revenue and cancels all my bookings,” Mr. Murphy said.
“This building owns me,” he said. “I may die here.”
‘Heavily invested’
For many small business owners, the majority — if not all — of their retirement nest egg is tied up in their businesses.
The mandatory order to close nonessential businesses has pushed owners into survival mode while trying to salvage their biggest asset. Some may have no choice but to pay their expenses with borrowed money or to drain whatever retirement savings they have set aside.
“For many of them, their businesses are an extension of themselves,” said Chris Chaney, a vice president at Fort Pitt Capital Group in Green Tree. “They are heavily invested. This is their identity.
“It’s like an iceberg,” he said.
“People see the success. But they don’t see all the sacrifice below the surface that goes into the success.”
A 2019 trends report by Bellevue, Wash.-based Guidant Financial found 57% of small business owners surveyed in 2018 were over age 50. The largest group — 35% — were between 50 and 59. About 18% of small business owners were between ages 60 and 69, and 4% were 70 and older.
The current crisis may represent a crossroads for business owners on the verge of retirement, said Fred Rock, an investment banker who works out of Shadyside for Washington, D.C.-based Focus Investment Banking,
“If the business owner can hold on until this crisis is over, they will have recreated the value of the business,” Mr. Rock said. “If at that time you want to sell, you have a good chance to get a decent price for the sale of the business because it would have turned around.
“But if you don’t think the business will improve, then I wouldn’t continue to use my own limited resources to keep the operation floating,” he said.
Mr. Rock, who specializes in helping investors buy and sell business — usually manufacturing companies — with $10 million to $30 million in annual revenues, said he is relatively optimistic the economy will turn around in the third and fourth quarter.
Yet the owners are assuming all the risk.
“If you own a restaurant, you have to consider: Can you make enough money to make a profit if you have to remove half the seating to meet new social distancing rules?” he said. “Or do you believe things will go back to normal?”
$7,000 a month
It’s costing Mario Moussa, 62, about $7,000 a month from his retirement savings to pay rent and utilities at his Downtown restaurant — Madonna’s Mediterranean Cuisine — on Smithfield Street each month the shutdown remains in effect.
“We can’t do anything right now,” Mr. Moussa said. “We are paying rent and utilities, and there’s no help from anywhere. I even called the landlord and asked for a little discount, and he said he can’t do anything.”
Mr. Moussa built the business over 22 years, working 12- to 14-hour days. He’s not willing to go down without a fight.
Although it saddened him to lay off all five of his employees, he’s happy they all receive unemployment benefits for the time being — even if he has no choice but to spend his savings to keep his head above water.
Some restaurants have kept their revenue stream alive by staying open for takeout business. The lunchtime foot traffic Downtown that Mr. Moussa relies on all but disappeared during the COVID-19 shutdown. Even as Allegheny County slowly reopens, he worries that customers may be slow to return.
He says he has enough money to live on until the smoke clears and he can see the way forward.
“I used to save a little bit,” said the Syria native. “I always think of the future and if something happened to me and I couldn’t work. I’m good even if I’m forced to shut down. It hurts. But it’s OK.”
Tapping those 401(k)s
Business owners who happen to have money in retirement savings plans they control are among those most able to tap into funds with the greatest of ease.
Just because they can doesn’t mean they should, said Lynnette Khalfani Cox, founder of AskTheMoneyCoach.com, based in Mountainside, N.J.
While employees are restricted by rules related to taking loans and withdrawals from company-sponsored 401(k) and 403(b) plans, owners of solo 401(k)s and Simplified Employer Plans, or SEPs, have checkbook control over the assets in the accounts. The business owner is her own employer, and it is perfectly legal to make withdrawals, even in circumstances when tax penalties occur.
“If someone has a high degree of confidence that they only need two or three months’ worth of funding that would keep the business going and maintain its strength, I think, yes, it’s worth it,” Ms. Cox said. “Really, what you’re doing is floating the company the cash it needs to stay alive.
“If you have a viable business that can turn around and cash flow and you have two or three years to retire and need to get through this cash crunch, then do it,” she said.
“But if you were really struggling before COVID19 with declining sales or a reduced customer base, then frankly I wouldn’t tap my retirement.”
Some bad breaks
There weren’t a lot of ice hockey rinks in the Pittsburgh region when Mr. Murphy bought Rostraver Ice Garden in 1994 for $650,000.
He had moved here from Philadelphia to work as a bank officer in the 1980s. When that job ended, his school-age children were entrenched, and he was looking for a new opportunity. He found an ad offering the ice rink for sale.
It was in terrible condition. His initial plan was to fix up the building, update the water and sewer systems, sell the property and retire.
He was 46 years old back then. Little did he know the project he thought would take five years would still consume his life 26 years later and end up putting him about $2 million in debt.
The first stumbling block occurred shortly after the purchase. Other investors started building new rinks in the region. There had been only four at the time. Today the region has more than 20 ice rinks.
The rinks pulled customers away because they were brand new and offered two ice pads. He only had one.
By the year 2000, the region was saturated with ice rinks. It made for a tough climate to sell in, especially for Mr. Murphy, whose rink was in the economically depressed Mon Valley.
Things got worse in 2010 when the roof collapsed. The insurance only paid 50 cents on the dollar for the repairs. Meanwhile, his customers went to his competitors and signed threeyear contracts.
“My ice was empty for three years,” Mr. Murphy said. “I could have walked away with the insurance money. But I felt I owed it to the skating community to rebuild. It’s been a catchup game since 2010.”
He had finally gotten the property in a position to sell when COVID-19 came along.
Now he worries about how social distancing rules and attitudes will affect his restaurant and bar revenues. He wonders if people who have lost jobs will have money for their children to participate in hockey leagues.
“I would like to sell it and retire, but I don’t know what’s going on with the economy and whether I’ll even be able to sell it,” Mr. Murphy said. “It does me no good to get angry. I can’t control what happened here. I didn’t ask the Lord for an easy life. I just ask for the strength to do it.”