More than 60% of U.S. business owners are over 50 years of age (Baby Boomers), and many of them are looking forward to retirement and the process of attracting and vetting potential buyers to take over the reins of their business. The problem for those that have built these companies is that the businesses may not be attractive to a new generation of business buyers. There are three major trends that impact the salability of a business. Understanding these trends can help owners transition successfully in a challenging market, and help identify the buyer who will lead their company into the future.

Baby Boomers are 2.5 times more likely to own a business than the generations before or after them. Between 1975 (when the first Boomers turned 30) and 1986, the formation of new businesses in America jumped from 300,000 to 700,000 annually. Faced with fierce employment competition, many Boomers chose to go into business for themselves. New business start-ups have never again reached that level. The result is that nearly two-thirds of all businesses with few than 500 employees are in the hands of people who are preparing to retire.

There are three major trends that challenge a small business owner preparing to exit. These three trends; demographic, psychographic and sociographic, are combining to create a Tsunami that will change the landscape of independent business ownership, just as Baby Boomers have changed so many other landscapes.

• Demographically, the generation following the Boomers (Gen X) is much smaller. From a supply and demand perspective, there simply aren’t as many available buyers as the number of potential retirees seeking them.
• The psychographic profile of the buyer generation is unfavorable. Business owners complain about the work ethic of the younger generation. Raised in a forty year period of economic growth, Generation Xers and their successors (The Millennials) are more likely to choose family first, and perceive jobs and employers as merely a means to a personal end. The parents of the Boomers’ understood the difference between work and personal life. Baby Boomers mixed the two and created “work/life balance” needs. Younger generations are actually returning to the older set of values.
• Sociographic trends favor alternative careers over business ownership. Corporate America is well aware of the issues and attitudes of the younger generations. They have made many adjustments. Telecommuting, sabbaticals, family leave, and flex time are benefits designed to attract younger workers who have a different set of priorities. Few small businesses have the depth or breadth to allow skilled employees to come and go according to their individual priorities.

Young entrepreneurs have little interest in the service-oriented brick-and-mortar companies that dominate small business. They seek a level of freedom that doesn’t require being on call, schedules driven by customer convenience, or a 55 hour work week.

Yet, many small business owners are depending on the sale of their company to fund their retirement. Their plan goes something like: “I will work really hard until I am tired, and then I will find some energetic younger person just like me who is willing to commit everything for this great opportunity.”

Fortunately, if you are a successful business owner, you’ve already proved your competitive instincts and abilities. With some planning and foresight, you can still beat the Boomer Bust and achieve your retirement objectives. There are two pathways to succeeding in a crowded sales marketplace.

Build to Sell – Your first option is to build a business that is attractive to younger buyers. It must allow for personal flexibility. It can’t require a huge down payment, since these generations were raised in a “buy-now-pay-later” world, where they are carrying substantial debt from the day they graduate college, and have little opportunity to amass liquidity.

Your technology doesn’t have to be cutting edge, but it needs to be current. Nothing turns off the tech-savvy young buyer faster than a company this is limping along on outdated software – or heaven forbid – paper. Given are the other attributes of an attractive acquisition- growing margins, distributed customer base and predictable revenues.

Hire Your Buyer – The second option is to hire your buyer. Lacking capital, many of the younger go-getters would like to own a business but have difficulty seeing how they can make it possible. Identifying such a buyer in your own organization, or even reaching outside and recruiting one, is a viable option if your target date for existing is a few years away.

Creating your own successor requires a commitment to planning and development, but the financial aspects are fairly simple. A few years of selling equity in small amounts can let your successor build a minority stake. Then he or she can obtain third-party financing for the balance of the purchase so you can maintain control through the process, and take the proceeds with you when you leave.

Remember; “the more you work in your business, the less it is worth.” Everything you do to reduce your business’ dependence on your personal talents, to reduce the time commitment of running it, and to make it easier for any successor (internal or external) to take over the reins increases its value to any buyer.

You can’t change the factors that create the most competitive selling environment in history. Understanding what the future looks like, and realizing that your buyer is unlikely to be someone “just like you” is a critical first step in the process.

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Are you building your business to sell? Are you looking for your business to fund your retirement?   Are you ready to work on your exit plan? Call for an appointment and we’ll talk. 931-456-4910.